Company B is running at nearly 95% capacity utilization of its current supply chain from end-to-end. The supply chain director wants to make significant changes to how the company inputs raw materials as part its supply chain and in its distribution avenues, as part of getting the company’s finished products to its suppliers and customers. Total cost for this improvement project will be $24.78M.
Annual cost saving is estimated to be as follows:
Raw material supplies saving amounting to 7% of it current cost of $111M annually.
Inventory reduction costs savings of $7.1M the first year, $4.3M in the years to follow.
Distributions cost savings in three regions:
Region A, 10% of its total distribution costs amounting to $51M.
Region B, 7% of its total distribution costs amounting to $47M.
Region C, a straight line savings of $9.11M.
Is there a business case for implementing this project? Explain and show how you arrived at your findings/conclusions.