Case Study: Gladstone Forwarders & Carrier Services, Inc
Pat should not start looking for a new job before giving Gladstone Forwarders & Carrier Services, Inc. The business is situated in an ideal industrial area that has a close proximity to the international airport and a major US seaport thus ensuring business will continue coming in. Secondly, Pat’s new idea of changing the racks direction to a north south direction that may lead to a reduction of the travel by about 125 feet into the warehouse which translated to about 50% reduction in the current configuration which may lead to faster movement of exports and also Gladstone will avoid missing of ships at the port. This improvement may quickly close the gap that the retail section was experiencing in the Supply Chain for Gladstone and also reduce or completely eradicate the a billion dollars in annual sales lost.
Pat’s idea for racking would not work because it had not been used for the past ten years and the spur was not in a condition to receive railcars and the revamping of the racking would exceed $800,000 in costs. In addition, some of the racking were observed to be four levels high and in poor condition and some racks were not in any way secured to the warehouse floor and had some serious structural damage. In addition,the east to west orientation of the racking which was in good condition but would however cause cargo flow difficulties. A solution to this problem was the addition of two forklifts which required the addition of two operators and driver and an estimated annual operation cost of 15% of the original purchase price. This indicates an additional cost to expend which the company did not have. In addition, the forklifts were estimated to have a useful life of five years after which the salvage value would only amount to 15% of the purchase cost of the forklifts.
Pat does not need to buy new forklifts and hire new staff because the forklifts required the addition of two operators and driver and an estimated annual operation cost of 15% of the original purchase price. This indicates an additional cost to expend which the company did not have. In addition, the forklifts were purported to last for long but they were estimated to have a useful life of five years after which the salvage value would only amount to 15% of the purchase cost of the forklifts. The working conditions in the warehouse were also poor as the temperature would sometimes rise above 120 and 90 degrees Fahrenheit in the container and warehouse respectively. This lead to tensions among employees leading to labor issues thus hiring new employees without solving the current issue would be retrogressive.
The two options are expounded below relative to an initial investment of $800,000. The options that Pat has in revamping the facilities of Gladstone Forwarders & Carrier Services, Inc. are the use of two more sets of crews and racking.
Option 1: Addition of two more crews
Purchase cost of forklifts $40,000
Operators wages……………..$ 44
Operating costs (15%) $6,000
Total cost $46,056
Option 2: Racking
Installation costs …………….$5,625
Savings……………………….$794,375The use of two more crews has a net saving of about $753,944 whereas the option of racking has a net saving of $794,375. This implies that the use of racking is a better option as the net savings are higher in this case, all other factors held constant. However, the cost of renewing the racking system should be put into consideration and a replacement analysis carried out on the new forklifts so as to clearly indicate which is the b