Northwind Energy: How Many Distribution Centres?
Operations
medium50 min0 submissionsMcKinsey
Scenario
Northwind Energy is a renewables business in Europe shipping about 5m orders a year on €958 M of revenue.
It runs 2 distribution centres today. The supply chain team has proposed moving to 5.
Current economics per order:
- Line-haul: €48
- Last-mile: €78
- Average delivery time: 5 days
Under the proposed network:
- Each additional DC costs €11 M a year to run
- Last-mile falls to about €51 per order, because stock sits closer to customers
- Average delivery time falls to 4 days
- Marketing estimates faster delivery is worth roughly 3.3% of revenue in additional sales
The CFO is resisting on the grounds that fixed costs go up.
Supporting data
volume
- revenue
- 958
- orders m per year
- 5
derived hints
- added fixed cost
- 33
- revenue lift value
- 31.6
- last mile annual saving
- 135
current network
- avg delivery days
- 5
- last mile per order
- 78
- line haul per order
- 48
- distribution centres
- 2
proposed network
- avg delivery days
- 4
- dc fixed cost each
- 11
- last mile per order
- 51
- distribution centres
- 5
- estimated revenue lift pct
- 3.3
Your task
Advise on the network. Your answer should provide:
- Analysis — total cost-to-serve under both networks, computed.
- Risks — what the case depends on and what you would monitor.
- Recommendation — a specific number of DCs and why.
State any assumptions you make.
Ready to move forward? Up next: Basil & Co: Build the Line or Keep Buying?Next question
How you'll be graded
100 points, 60% to pass.
- recommendation20
- service tradeoff25
- problem structuring25
- quantitative analysis30
Hint
Reveal suggested structure
Cost-to-serve build-up; fixed vs variable trade; service level as revenue; marginal DC analysis