Warehouse Restructuring

Executive Summary

Lexington Logistics Co., have been working for 30 years and the company has been providing service to different companies. The present operations of the company and the organizational structure are very traditional. The company operates two warehouses one in Versailles, KY and the other warehouse is located in Nicholasville, KY. The company also plans to open a warehouse in Louisville. The management of Lexington Logistics has developed the objective to increase the revenue of the business to the level of $1.5/ square foot. The company also aims to reduce the cost of operations by 15-20% in the period of 12 months. At functional level our aim is to increase the efficiency of operations and space utilization so that the company can increase the revenue per square feet. The cross docking operations being carried out at Nicholasville will be transformed to increase efficiency in speed and sorting the goods so that the company can reduce losses.

The restructured setup of Versailles will incur a cost of $578,300/-. The increased cost will be compensated with the increased space utilization due to rack installation. The racks will accommodate 8 pallets vertically which will nearly increase the capacity by 2 folds. The increase capacity will require additional labor which the proposed operational strategy has incorporated. The company is supposed to hire more load expeditors and planners to handle the additional load. The additional requirement of management will be compensated by purchasing and implementing warehouse management system. The Nicholasville's structure will incur cost of $ 506,200/-. The company will acquire the Oracle Warehouse Management System which will integrate all the functions of the warehouse and will be linked with the inbound cargo as well as outbound cargo. The system will help the management in managing the flow of goods and will ensure that the adequate space is available for the incoming goods. The picking process linked with the WMS will have scanner which will ensure that the right product is picked and is being dispatched. It will update the inventory position in the system and will also update the status of the goods to the suppliers and buyers.

Following are estimated cost of establishing a warehouse in the Louisville:

Cost Estimate (Non-Union)

% of Total

Cost Per SF

150000 Square Foot

Total

 

$68

$10,270,500

Contractor Fees (GC,Overhead,Profit)

25%

$17

$2,568,000

Architectural Fees

6%

$4

$616,500

User Fees

0%

$10

$1,500,000

Total Building Cost

$100

$14,955,000

Additionally the company will have to purchase the Warehouse Management System from Oracle which will additionally require more capital. The company will have to spend on constructing internal architecture, on employee training etc to enable a responsive work force. The final cost will be as follows:

Cost Estimate (Union Labor)

% of Total

Cost Per SF

150000 Square Foot

Total

 

$68

$10,270,500

Contractor Fees (GC,Overhead,Profit)

25%

$17

$2,568,000

Architectural Fees

6%

$4

$616,500

User Fees

0%

$10

$1,500,000

Total Building Cost

$100

$14,955,000

Cost of WMS

 

 

$1,000,000

Cost Training Employees

 

$68

$25,000

Cost of Internal Architecture

 

$68

$1,000,000

Miscellaneous cost

 

$68

$1,000,000

Total

$68

$17,980,000

Executive Summary2

Current Situation5

Problems8

Management Objectives9

Solution for Versailles10

Analysis10

Restructuring10

Proposal11

Solution for Nicholasville14

Analysis14

Restructuring15

Proposal15

Solution for Louisville17

Current Situation

Lexington Logistics Co., have been working for 30 years and the company has been providing ...