Gupta Tea Co.Amanda MillerKent McKimmyCole HunstadKevin AngellChad Wellsted

Background Tea company based in

Dallas Texas First started growing

selling tea Moved into food retail with

increased competition Purchase grow and

produce most of products

Background Four plants located

throughout U.S.A Five Consolidated

Metropolitan Statistical Area (CMSA)

New York, St. Louis, Chicago, Miami, Los Angeles

Shipping warehouses in each CSMA for distribution

Background Four small plants with

fixed design layout Each plant has

capacity of 6000 units This years sales

demand of 20000 Four plants currently

only producing 5000 units

Background on Case Increase in health tea food competition Despite marketing efforts sales still

declining Underutilized/inefficient plants cause

increased tea prices Used Delphi method to consider next

move

Detail on case Market analyst showed decrease in

forecasted sales Projected sales in 2 years of 15000 Shut down one plant = 20000-5000=15000

keep prices competitive Takes 2 years to officially close plant CSMA’s have relative same decrease in

sales Which Plant to Close???

Sales Forecast Data

Shipping Cost Data

Total Shipping Costs & Averages

Plant

Average Shipping Costs($)

Plant 1 32.4

Plant 2 36

Plant 3 35.2

Plant 4 28.6

Average Shipping costs= Total shipping costs(NY)+(STL)+(LA)+(CH)+(Miami)/5

Total Shipping Costs for all demand = (45*3350)+(30*2650)+…. For each plant and CMSA

Plants New York St. Louis Los Angeles Chicago MiamiTotal Cost

Plant 1 150750 79500 19000 11725015750

0 524000

Plant 2 117250 74200 96900 8375015375

0 525850

Plant 3 123950 53000 106400 9380013125

0 508400

Plant 4 107200 31800 72200 11055010500

0 426750

Recommendation Using Average

Due to high ASC, shut down Plant 2 What if we didn’t use average?

PlantTotal Forecasted Trans. Costs($) Average forecasted Trans. Costs($)

Plant 1 524000 32.4

Plant 2 525850 36

Plant 3 508400 35.2

Plant 4 426750 28.6

Plant Average Shipping Costs($)

Plant 1 32.4

Plant 2 36

Plant 3 35.2

Plant 4 28.6

Recommendations for Plants

Deeper analysis of shutting down plant two

Shipping costs at capacity of 5000

Plant Producing Shipping to Total Trans. Costs

Plant 1 5000LA1900 Chicago 3100 127500

Plant 3 5000St Louis 2650 Chicago 250 NY 2100 137700

Plant 4 5000Miami 3750 NY 1250 145000

Total shipping cost 410200

Shut Down Plant 1?

Shutting down plant one yields highest shipping costs

Plant Producing Shipping to Total Trans. Costs

Plant 2 5000Chicago 3350 NY 1650 141500

Plant 3 5000St. Louis 2650 NY 1700 LA 650 152300

Plant 4 5000Miami 3750 LA 1250 152500

Total shipping costs 446300

Shut Down Plant 3?

Shutting down plant three yields $393400 of shipping costs

Lower than shutting down plant one

Plant Producing Shipping to Total Trans. Costs

Plant 1 5000LA 1900 Miami 1900 NY 1700 154300

Plant 2 5000Chicago 3350 1650 NY 141500

Plant 4 5000St. Louis 2650 Miami 2350 97600

Total shipping costs 393400

Shut Down Plant 4?

Higher than shutting down plant three Lower than shutting down plant one Shut down plant three not plant two

Plant Producing Shipping to Total Trans. Costs

Plant 1 5000LA 1900 Miami 1400 NY 1700 154300

Plant 2 5000Chicago 3350 NY 1650 141500

Plant 3 5000St. Louis 2650 Miami 2350 135250

Total shipping costs 431050

What else should be considered? Relationship between

management and employees Business climate Labor and production quality Location of suppliers

New Consolidated Metropolitan Statistical Area

Shipping costs to new area

Total Population Cost of living index Average wage/income

tax Warehouse prices Climate Demographics

Impact of New CMSA If new Demand over

18000 open new plant

Reallocate supply from plants

Recalculate deeper analysis of shipping costs

Questions? Quiz! What plant should be shut down? Which plant had the lowest average

transportation costs? What was a piece of data we could have

used?