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Dollar Tree, Inc., formerly Dollar Tree Stores, Inc., has been in a business for more than
50 years. This company is an operator of discount variety stores offering products such as house
wares, seasonal decor, candy and food, toys, health and beauty care, and many other consumer
Growth and expansion is one of the most important aspects of a firm to remain and make its
mark in this competitive world. These are the key decisions for a firm to make because they can
help company in reducing their cost and simultaneously provide better services to its clientele.
Dollar Tree has shown a tremendous growth in past 50 years. To sustain this growth Dollar Tree
has not only had to expand their store fronts but also improve their internal operations such as
the distribution centers. Sometimes it’s a very tough decision for a company to decide whether to
expand its current unit or build an entire new unit. Dollar Tree, Inc., faced a similar problem in
2004. In order to better serve their customers, Dollar Tree must expand its current unit or build
an entire new distribution center. In order to solve this problem they had two options:
1. Expand the current Briar Creek distribution center by another 400,000-square foot.
2. Built a new distribution center with 600,000 square foot in Hartford, Connecticut.
Both of these options will serve the same purpose; i.e. they will serve the same territory
which is currently assigned to Briar Creek, currently Briar Creek DC has size of 603,000 square
feet. But the real problem for the company is to determine which option will be beneficial in a
short and long run. The objective of this case is to find out if the appropriate decision would be
o DC Operations Costs
Given this information, we had to perform a cost analysis do help determine which project would
be the least expensive option. In order to perform this calculation, we needed to find:
First, we looked at the outbound trucking cost for the 2005 Briar Creek Expansion
project. The trip to the first store from the distribution center was, on average, 189 miles. Once
you arrived at the first store, the distance between each store was on average 18 miles. You
serviced around 3.6 stores per trip. Since you go directly to the first store from the distribution
center, the total distance before you drive back to the DC is 46.8 miles (18*2.6). Once you finish
the deliveries, it is 189 miles back to the distribution center leaving you with 424.8 miles round
trip (189 + 46.8 + 189). Since each store is delivered to 65 times per year, so you multiply the
424.8 miles by 65, leaving you with 27,612 miles per store. However, since you service 3.6
stores per trip, instead of multiplying the miles per store times the amount of stores, you times
the miles per store by the amount of stores (536) divided by the amount of stores serviced per
trip (3.6). This leaves you with a final calculation of 4,111,120 miles per year (27,612 *536/3.6);
the only step left is to multiply the total miles driven per year by the cost per mile ($1.66) to
The costs for the 2006 and 2007 Briar Creek Expansion were calculated using the same
equation. The costs for the 2005, 2006, and 2007 new Hartford Distribution Center were also
calculated using the same equation, the only difference residing in fact that two outbound
transportation costs were calculated each year versus one (one for the old DC and one for the
new DC).
Table 1 below breaks down the outbound transportation cost of each project per year and
Old DC New DC
Sub-
Total $23,879,810.61 $10,211,714.33 $6,376,073.27
DC OPERATIONS
To conclude which option resulted in the lowest DC operating costs over the span of
three years, the fixed and variable costs of the DC must be found. Since both distribution centers
– Briar Creek and Hartford – are in the same geographical region, the variable costs per carton
handled were considered to be the same. The fixed costs for each option were found by using
fixed costs per carton handled from facilities of the same size.
The fixed costs for each option are hard to determine based on the information given. So
we took the fixed cost from facilities of equivalent size and used that facility’s fixed cost amount
to calculate the total fixed costs of the similar facility. To find the Briar Creek Expansion fixed
costs, we looked at the Joliet DC’s fixed cost per carton handled of $0.43. We use Joliet because
it is close in square footage to the expanded Briar Creek option. We are also assuming that each
DC can obtain roughly the same fixed costs if they are the same size. Since the Joliet DC is still
another 197,000 square feet larger than the expanded Briar Creek DC would be, we need to
adjust the total fixed costs from Joliet to fit the total square footage of option 1. After multiplying
the fixed cost per square foot at the Joliet DC with the total number of square feet at the
expanded Briar Creek DC, we find the total fixed costs for the Briar Creek DC per year. Since
we are concerned with costs after 3 years, we multiply this number by 3. We found that
distributions centers of the same size have roughly the same total fixed costs after multiplying
the fixed costs per carton handled by the number of cartons processed. To find the fixed costs for
option 2, we have to add the fixed costs of the old (Briar Creek) distribution center and the new
(Hartford) DC. The fixed costs for each DC will be the same because we are assuming that since
they are both in the same geographical region, both are automated, and both are the same size
that they will have the same fixed costs. We calculate this by multiplying the fixed cost per
carton handled at Briar Creek with the total cartons processed. We multiply this number by 3
years, and repeat the same numbers for the Hartford DC.
The variable costs to be incurred for each option are the same for two reasons. First, the
total cartons processed in each option are the same. Option 1 requires 23,400,462 cartons
processed in just the Briar Creek distribution center, while Option 2 requires the same amount
but it is divided between Briar Creek and Hartford. Second, the variable costs per carton handled
are the same in both distribution centers. As stated earlier, we assume both (because we lack cost
information about Hartford’s DC) operate under the same costs per carton handled because they
are both in the same geographical region. This method results in variable costs over the three
years to equal $15,620,844.77 for each option. In total, Option 1 DC operating costs are
$35,928,625.77, and option 2 DC operating costs are $39,978,021.57. The operations costs are
Based upon the calculations analyzed above, Option 1 of expanding the Briar Creek
distribution center results in the lowest DC operating costs. Other than the $8 million saved over
the three years, the option 1 also has better inventory turns and utilization than option 2. Even
though Mr. White likes to expand when utilization reaches 75%, the cost per unit and inventory
turns will be better than in option 2, which stays well below his 75% max.
TABLE 2: OPERATIONS COSTS
Option 1 - Expand Briar Creek DC: Operation Costs
Fixed costs
Compare to Joilet DC
$0.43 per square foot x 16,083,277 = $6,915,809.11
Find fixed costs per square
foot
$5.7631 per square
$6,915,809.11 / 1,200,000 square ft = foot
Readjust for Expanded Size
$5.7631 per square ft x 1,003,000 square ft = $5,780,463.78
$5,780,463.78 x 3 years = $17,341,391.34
Variable costs
Total Cartons
Variable cost/carton Handled Year
$0.19 x 23,400,462 = $4,446,087.78 2005
$0.19 x 27,612,545 = $5,246,383.55 2006
$0.19 x 31,202,176 = $5,928,413.44 2007
Total Variable costs = $15,620,884.77
$32,962,276.1
Total costs of DC Operation = $15,620,884.77 + $17,341,391.34 = 1
Summary
Option 1 $32,962,276.11
Option 2 $40,038,718.37
LAND AND CONSTRUCTION COST
Land and construction cost was one of the main factors in choosing between the two
options. This costs includes both the costs of buying new land and the construction costs of
building a new distribution. Dollar Tree already owns the distribution center at Briar Creek, PA,
which was purchased sometime back in 2000. Also, the Briar Creek Distribution center was built
to be expanded. This is a significant advantage for the company and should be widely considered
in making their decision.( Annual Report 2000). If they want to build a whole new unit in
Hartford, CT they will need to incur many different costs related to construction and purchasing
a land. Furthermore, for choosing a proper site, they will need to hire a real estate agent,
although this amount would not be that big in comparison to construction and cost of land but it
Also, the commercial real estate land valuations will definitely be higher in a densely
populated major city in comparison to area like Briar Creek. Every state has some different rules
and regulations associated with buying and purchasing land. Expanding their current DC would
not be a time consuming task for Dollar Tree because they already understand the rules and
regulations of Briar Creek. Overall, the difference in building a new unit in Connecticut would
employees at needed for each facility. The second option Dollar Tree has is highly comparable
to other DC’s at Savannah, GA, Briar Creek, PA, and Marietta, OK because it is relatively
similar in size. Therefore, we can compare the work force which the firm will need at the new
Hartford DC. The newest of these is the Marietta center. According to a Business Wire article,
Option 2 to expand its Briar Creek DC by 400,000 square feet will turn its current facility
to an area of one million square feet. The nearest comparison that can be drawn is from the other
Distribution Center which in Joliet, Illinois. The Illinois distribution center is 1.2 million square
feet. According to a news release the Illinois distribution center has created 200 jobs. (IDCEO,
2003).
By comparing these employment statistics, adding 600,000 square feet will require 75
more workers, while each distribution center has 50 jobs that are not bound by capacity or area
constraint, which means the jobs must be G&A. Therefore, if Dollar Tree wants to expand its
current unit it will need to hire only 50 workers whereas if it builds and entire new Distribution
The cost for recruiting and training would also play a key role in determining overall
labor costs. Furthermore, the expanded distribution center will not need as much of General &
Administrative staff as compared to the Hartford DC. Overall, the labor costs would be more
CONCLUSION
Based on all the information provided above, our recommendation is to expand the
current distribution center by 400,000 sq. ft. NOT to build a new distribution center in Hartford.
The only real clear advantage that Hartford had was a large reduction in transportation costs.
However, the advantage within the transportation costs was not enough to offset the other
qualitative and quantitative costs associated with building a new distribution center. Building in a
major city like Hartford is going to be significantly more than building on land in a small rural
city like Briar Creek (which Dollar Tree already owns). Besides just the cost of land, insurance,
property taxes, and city taxes will also be significantly higher in Hartford than Briar Creek. In
conclusion, the savings in transportation costs is not nearly enough to make the additional
Business Wire. (2002). Dollar Tree Stores, Inc. Selects Marietta, OK For Distribution Center.
Illinois Department of Commerce and Economic Opportunity. (2003). Dollar Tree Stores To Open Joliet
Distribution Facility. Retrieved April 16, 2008 from
http://www.illinoisbiz.biz/NR/rdonlyres/BB231CF6-C073-43BD-B01A-
6D77FEDECFAB/0/04032003.pdf.