2.8 A company is considering whether to build a warehouse next to one of its exi

Question

2.8 A company is considering whether to build a warehouse next to one of its existing manufacturing plants. The warehouse would store products from five different manufacturing facilities that are scattered across the country. Several factors make this the ideal site compared to several locations that were considered in other states. First, the company has plenty of vacant land, so it would not have to purchase a site for the building. Second, the warehouse operation could be managed effectively by people who currently work at the existing site; no one would have to be relocated if the warehouse is built at this location. Third, the company has recently experienced adropinorders, which may necessitate layoffs for several dozen employees; if the warehouse were built, many of these people could still be employed. Fourth, the other sites might allowa reduction intruck miles traveled to and from the warehouse, but the company has its own trucks and currently has a surplus of truck drivers, so no additional trucks or drivers would be needed. How should these four factors be considered in deciding whether to bcate the warehouse at this site?

Explanation / Answer

These four factors are important to consider in deciding whether to locate the warehouse at this site. For all these four reasons the company could achieve reduction in cost resulting in further reduction in per unit price of the product. Opening a warehouse closer to the manufacturing plant increases the effectiveness of your manufacturing by ensuring a steady supply of raw materials to the plant. Moreover this site would not result in additional cost to the company in terms land, manpower and transportation cost. Since the site is closer to one of the manufacturing plants which is facing drop in orders, the company is able to retain existing employees by shifting them to warehouse who could be further given more opportunities once the company expand its operations .if the warehouse would be far away from this site then company might lose its valuable employees. Thus by selecting this site for building new warehouse the company is able to relocate its surplus resources (truck drivers, laid off employees).

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