You have three potential solutions:
1. An abandoned and rundown warehouse, located 3 blocks away, offers 1000mĀ² of space at a rate of R15 per mĀ² per month for a year. The estimated cost of renovating this warehouse is R239,000.00.
2. A fully equipped bonded storage facility of 1200mĀ² is available at R25 per mĀ², also for a year. Transport costs will be R530 per load of 10 pallets.
3. Another warehouse, situated 2 blocks away, has an immediately available space of 400mĀ². Setting it up as a bonded store will cost R127,000.00 and take three days. Currently, 350mĀ² of space is occupied by freight in bond at your existing premises. Moving this stock will take one day and cost R27,750.00.
Both Options 1 and 2 require four weeks (28 days) before any stock can be stored, with a demurrage charge of R19.24 per pallet per day.
Task 1: Working in groups of six (6), your task is to carefully evaluate these options and justify your decision in a report to management.
Answer (1)
To evaluate the three potential storage solutions, we consider several factors, such as cost, time availability, and logistics. Let's examine each option step-by-step:
Option 1: Abandoned Warehouse
Space and Cost: 1000mĀ² at R15/mĀ² per month.
Annual Cost of Space: 1000mĀ² * R15/mĀ² * 12 months = R180,000
Renovation Cost: R239,000
Total Initial Yearly Cost: R180,000 + R239,000 = R419,000
Time to Availability: 28 days before storage is available.
Option 2: Fully Equipped Bonded Storage Facility
Space and Cost: 1200mĀ² at R25/mĀ² per month.
Annual Cost of Space: 1200mĀ² * R25/mĀ² * 12 months = R360,000
Transport Costs: R530 per load of 10 pallets (quantify how many loads are needed for accurate calculation).
Option 3: Another Warehouse 2 Blocks Away
Space and Cost: Immediate 400mĀ².
Setup Cost: R127,000 and 3 days to set up.
Move Cost: Moving 350mĀ² of freight costs R27,750 and takes 1 day.
Total Initial Cost: R127,000 (setup) + R27,750 (move) = R154,750
Demurrage Charges for Options 1 and 2
Demurrage Charge: R19.24 per pallet/day.
Total Demurrage Cost for 28 Days: Determine based on the number of pallets.
Recommendations:
Time Sensitivity: Options 1 and 2 require 28 days before use. Option 3 can be ready in 4 days.
Cost Considerations: Option 3 is cheaper to setup initially (R154,750) but offers limited space (400mĀ²).
Space Needs: If needing a larger space and better facilities, Option 2 at R360,000/year might be preferable.
Conclusion: Define priorities such as cost vs. space and immediacy of availability to make a final decision. For immediate needs and budget sensitivity, Option 3 is attractive. For larger scale and facilities, consider Option 2 despite initial waiting time.
This analysis helps guide the decision-making process based on the specific needs and priorities of the business.
