The Cleanco Chemical Company sells cleaning\' compounds (dishwashing powders, fl
ID: 2747724 • Letter: T
Question
The Cleanco Chemical Company sells cleaning' compounds (dishwashing powders, floor cleaners, nonpetroleum lubricants) in a keenly competitive environment to restaurants, hospitals, and schools. Delivery time on orders determines whether a sale can be made. The distribution system can be designed to provide different average levels of delivery time through the number and location of warehousing points, stocking levels, and order processing procedures. The physical distribution manager has made the following estimates of how service affects sales and the cost of providing service levels: What level of service should the company offer? What effect would competition likely have on the service level decision?Explanation / Answer
Percentage of order delivered within one day
50
60
70
80
90
95
100
Estimated annual sales (million $)
4
8
10
11
11.5
11.8
12
Cost of distribution (Million $)
5.8
6
6.5
7
8.1
9
14
Profit (Million $)
-1.8
2
3.5
4
3.4
2.8
- 2
Profit at different service levels = estimated annual sales at that service level – Cost of distribution at that service level
Percentage of order delivered within one day
50
60
70
80
90
95
100
Estimated annual sales (million $)
4
8
10
11
11.5
11.8
12
Cost of distribution (Million $)
5.8
6
6.5
7
8.1
9
14
Profit (Million $)
-1.8
2
3.5
4
3.4
2.8
- 2