You manage the shipping of item #A452 from your supplier. Theshipments for this item are delivered to the nearest port, and youhave to transport them to the distribution center. You have twooptions, truck load (TL) and less than truck load (LTL).
Your company needs 5000 units of #A452 per year and it ispurchased at a price of $36 per unit. Each order costs $92. Yourcompany uses a holding charge of 0.13, a cycle service level of 90%and 365 days per year for planning purposes.
The truck load (TL) option costs $1300 per load. It takes 4 daysto deliver and each truck can carry up to 1200 items.
The less than truck (LTL) load option costs $2.4 per item. Ittakes 6 days to deliver.
You have three options,
OPTION A: to use the TL option and deliver full truck loads,
OPTION B: to use the TL option and deliver the economic orderquantity
OPTION C: to use LTL option and deliver the economic orderquantity.
For all following parts, consider transportation costs as anitem cost unless otherwise specified. i.e., the total variable costof #A452 in the Full truckload is $1300/1200items + $36/item =$37.083333333333336/item.
(Option A) Full truckload
What is the sum of average pipeline and cycle inventory,ordering, and purchase costs for option A?
(Option B) Truckload with EOQ
What is the economic order quantity? Use the item cost withoutthe transportation for this calculation.
If you order the EOQ calculated earlier (rounded to a wholenumber), what is the sum of average pipeline, cycle inventory,ordering, and purchase costs for option B? Consider transportationcosts a part of the item cost.
(Option C) Less than truckload
What is the sum of average pipeline and cycle inventory,ordering, and purchase costs for option C? Consider transportationcosts as an item cost, and use the EOQ in whole numbers forcalculation.
Please answer all 4 questions above.
