Chapter 13

# Chapter 13 - Chapter 13 Transportation in a Supply Chain...

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Chapter 13: Transportation in a Supply Chain Exercise Solutions 1. Coal: We evaluate the total cost per day for each of the options and select the one with the lowest cost. For the carload option the calculations are shown below: Safety inventory held = 2(lead time)(daily consumption rate) = 2(15)(100000) = 3,000,000 lbs Safety inventory cost per day = (3000000)(0.25)(0.01)/365 = \$20.55 Cycle inventory = Q/2 = 100000/2 = 50000 units Cycle inventory cost per day = (50000)(0.25)(0.01)/365 = \$0.34 Transportation cost per day = 400(100000/10000) = \$4000 Total cost per day = \$420.89 Other options can be evaluated in a similar manner Worksheet 13-1 provides the results for all the options. Based on these results, using a full train results in the lowest cost per day of \$258.81 MRO: Similar analysis can be undertaken for the MRO option and using a truck at the smallest shipment size of 1250 results in the lowest cost of \$139 per day. Worksheet 13-1 depicts these results 2. The idea of this exercise is to evaluate the change in facility, inventory and transportation costs on centralization. We evaluate the costs for the following three options: One warehouse is built in either the eastern or western zone (by symmetry, the costs will be the same) One warehouse is built in the central zone A warehouse is built in each zone One warehouse is built in the Eastern Zone This implies that an average of 50,000 books are shipped from the Eastern to each of the three zone weekly. Weekly transportation cost = 50000*4/4 (to Western) + 50000*3/4 (to Central) + 50000*2/4 (to Eastern) = \$112,500 1

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Average batch size = weekly demand = 3*50000 = 150,000 Safety inventory = normsinv(.997)* 3 1 1 + *25000 = 168,267 Annual fixed cost of warehouse = 200,000 + 1.5*(150000 + 168267) = \$677,400
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Chapter 13 - Chapter 13 Transportation in a Supply Chain...

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