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Dollar Tree Logistics

In: Business and Management

Submitted By wyx85
Words 504
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In 2004, Dollar Tree Stores Inc. decided to address distribution center over-utilization and overcome its operational challenges. Coming off a great year for the company, Dollar Tree’s 19% compound annual growth rate proved that the company’s strategy was working. In order to deal with the company’s over-utilization of its Briar Creek, PA distribution center, Dollar Tree should build a new 600K-square foot distribution center in Hartford, CT.
This new distribution center should be built, instead of building a 400K-square foot expansion at the existing Briar Creek, PA facility, because the new facility is a more efficient use of capital investment in the long term. An analysis of specific costs the distribution center incurs support the decision to build the new plant. These costs include:
• Lower outbound transportation costs as the Hartford, CT center would be closer to a portion of the stores currently located in Briar Creek’s distribution territory, thus lowering the average distance from DC to store
• There is small advantage with regard to inbound costs as Hartford, CT is ~17 miles closer from the Port Authority of New York/New Jersey than Briar Creek, PA is, and thus there is a trucking cost advantage
The fixed cost of building the new Hartford, CT facility is $3,751,782 versus $1,425,805 for the Briar Creek, PA expansion, as shown in Exhibit 1. While the fixed cost for the Briar Creek facility expansion is almost half the cost of that incurred by the Hartford facility’s construction, this cost savings is minute when compared to the outbound costs that Dollar Tree would incur if the company did not expand its distribution center’s geographic reach. Additionally, these outbound transportation cost savings recur annually throughout the facility’s lifetime versus the one-time cost fixed cost saving. As shown in Exhibit 2, over the three-year projection the…...

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