Description
the factors affecting transportation decisions, factors affecting carrier decisions and factors affecting shippers decisions.
Transportation – Basics and Trade-offs
1
GLOBAL
FACTORS AFFECTING TRANSPORTATION DECISIONS
• There are two key players in any transportation ? Shipper ? Carrier • Shipper is the party that requires the movement of the product between two points in the
supply chain
• Carrier is the party that moves or transports the product. • When making transportation-related decisions, factors to be considered very depending on whether one takes the perspective of a carrier or shipper. • A carrier makes investment decisions regarding the transportation infrastructure (trucks, rails, airplanes etc) and then try to maximize the returns on these assets. • A shipper, in contrast, uses transportation to minimize the total cost (transportation,
inventory etc) while providing higher service levels to the customer
2 2
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Vehicle-related cost • Fixed Operating Cost • Trip-related Cost
• Quantity-related Cost
• Overhead cost.
3 3
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Vehicle-related cost ? This is the cost a carrier incurs for the purchase or lease of the vehicle used totransport goods
? Vehicle-related costs is incurred whether the vehicle is operating or not and is the
part of the fixed costs for short-term operational decisions. ? When making long-term strategic decisions or medium-term planning decisions, these costs can be variable. (Firm can either purchase or lease the vehicles) ? Vehicle-related cost is proportional to the number of vehicles leased or purchased.
4 4
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Fixed-Operating Cost: ? All costs that are incurred whether vehicles are in operation or not. ? Examples of Fixed operating costs are – Fixed cost of a trucking terminal facility or airport hub that is incurred independent of the number of trucks visiting the terminal
or flights landing at the hub. If drivers are paid independent of their travel schedule,
their salary would also be included in this category. ? For operational decisions, these coast are fixed. For planning and strategic decisions, these costs are variable. ?Fixed operating cost is generally proportional to the size of the operating facilities.
5 5
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Trip-related Cost: ? It includes those costs like the price of labor and fuel incurred for each trip independent of the quantity transported. ?Trip related costs depends on the length and the duration of the trip but is
independent of the quantity shipped.
? This cost is considered variable when making operational decisions that impact the length and duration of a trip. ? This cost is also considered variable when making strategic or planning decisions.
6 6
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Quantity-related Cost: ? It includes loading/unloading costs and a portion of the fuel costs that very with
the quantity being transported.
? These costs are generally variable in all transportation decisions unless labor used for loading and unloading is fixed. • Overhead Cost: ? It includes the cost of planning and scheduling a transportation network and investments in information technology.
? For example; when a company invests in routing software that allows a manager to
devise good delivery routes, the investment is considered as overhead. ? Managerial costs, office space etc are generally considered as overhead.
7 7
GLOBAL
DECIDING FACTOR IN CARRIER DECISIONS:
• A Carrier’s decision depends upon the responsiveness it want to provide its target segments and the prices that the market will bear. For example; ? FedEx designed a hub-and-spoke airline network for transporting packages to provide fast and reliable deliveries. It charges premium rates.
?UPS, in contrast, uses a combination of aircraft and trucks to provide cheaper
transportation with longer delivery times. It charges moderate rates.
8 8
GLOBAL
FACTORS AFFECTING SHIPPERS DECISIONS
• Transportation Cost • Inventory Cost • Facility Cost
• Processing Cost
• Service Level Cost
9 9
GLOBAL
FACTORS AFFECTING SHIPPERS DECISIONS
• Transportation Cost
?This is the total amount paid to various carriers for transporting products to customers.
?It depends on the prices offered by different carriers and the extent to which the shipper uses inexpensive and slow, or expensive and fast, means of transportation. ?Transportation costs are considered variable for all shipper decisions as long as the shipper does not own the carrier. • Inventory Cost ? This is the cost of holding inventory incurred by the shipper’s supply chain network.
? Inventory costs are considered fixed for short-term transportation decisions.
? Inventory costs are considered variable while making strategy or planning decisions.
10 10
GLOBAL
FACTORS AFFECTING SHIPPERS DECISIONS
• Facility Cost ?This is the cost of various facilities in the shipper’s supply chain network. ?Facility costs are considered variable when supply chain make strategic design decisions but are considered fixed for all other transportation decisions. • Processing Cost ? This is the cost of loading / unloading orders as well as other processing costs associated with transportation. ? These are considered variable for all transportation decisions. • Service Level Cost ? This is the cost of not being able to meet delivery commitments. ? In some cases it may clearly be specified as part of contract while in other cases it may be reflected in customer satisfaction ? This cost should be considered in strategic, planning and operational decisions.
11 11
GLOBAL
DECIDING FACTOR IN SHIPPER DECISIONS:
• A shipper must make a trade-off between all these costs when making transportation decisions. • A shipper’s decisions are also impacted by the responsiveness it seeks to provide its customers and the margins generated from different products and customers. ? For example, a firm promising delivery within a time window specified by the customer will require more trucks than a firm whose customers are willing to accept delivery at any time.
12 12
GLOBAL
MODES OF TRANSPORTATION AND THEIR PERFORMANCE CHARACTERISTICS:
• Air • Truck
• Rail
• Water • Pipeline • Inter-modal
13 13
GLOBAL
AIR TRANSPORTATION
• Air carriers offer a very fast and fairly expensive mode of transportation. • Typically, small high-value items or time-sensitive emergency shipments that have to
travel a long distances are best suited for air transport.
• Generally air carriers move shipments under 500 pounds. ? For example: Dell uses air freight to ship many of its components from Asia. • Given the growth in high technology, the weight of freight carried by air has diminished over the last two decades even as the value of the freight has increased a little. • Key issues air carriers face include identifying the location and number of hubs,
assigning planes to routes, setting up maintenance schedules for planes, scheduling
crews and managing prices and availability at different prices.
14 14
GLOBAL
TRUCKS
• Truck is the dominant mode of freight transportation across the world.
• Trucking industry consists of two major segments – TL (Truck Load) and LTL (Less Than
Truckload) • TL operations charge for the full truck. Rates very with the distance traveled. • LTL operations charge based on the quantity loaded and the distance traveled. • Trucking is more expensive than rail but offers the advantage of door-to-door shipment and a shorter delivery time. • TL shipping is suited for transportation between manufacturing facilities and warehouses
or between suppliers and manufacturers where there are regular load available in
sufficient volumes. • LTL operations enable shippers to transport shipments in small lots. • LTL Shipments take longer than TL shipments because of other loads that need to be picked up and dropped off.
15 15
GLOBAL
TRUCKS
• LTL shipping is suited for shipments that are too large and costly to be mailed (Air carrier
or package carriers) but constitute less than half a TL.
• Key to reduce the LTL costs is the degree of consolidation that carriers can achieve for the loads carried. • LTL carriers use consolidation centers where trucks bring in many small loads originating from a geographical area and leave with many small loads destined for the same geographical area. This allows LTL carriers to improve their truck utilization although it increases the delivery time.
• Key issues for the LTL industry include location of consolidation centers, assigning of
loads to trucks and scheduling and routing of pickup and delivery. • The goal is to minimize costs through consolidation without hurting delivery time and reliability
16 16
GLOBAL
RAIL
• Rail is priced to encourage large shipments over a long distance.
• Prices display economies of scale in the quantity shipped as well as the distance traveled.
• The price structure and the heavy load capability makes rail an ideal mode for carrying large, heavy or high-density products over long distances. • Rail is ideal for very heavy, low –value shipments like Coal, Cement, etc.
WATER
• Water transport is ideally suited for carrying very large loads at low cost. • It is however the slowest of all the models and significant delay occur at ports and terminals. • Water transport is used effectively in parts of Europe for short-haul trips. • In global trade, water transport is the dominant mode for shipping all kinds of products for imports and exports.
17 17
GLOBAL
PIPELINE
• Pipeline is used primarily for the transport of crude petroleum, refined petroleum
products and natural gas.
• A significant initial fixed cost is incurred in setting up the pipeline. • Given the nature of the costs, pipelines are best suited when relatively stable and large flows are required. It is an effective way of getting crude oil to a port or a refinery.
INTERMODAL
• Inter-modal transportation is the use of more than one mode of transport to move a shipment to its destination. • A variety of inter-modal combinations are possible. • Containers are easy to transfer from one mode to another and their use facilitates intermodal transportation.
• Containerized freight often used truck/water/rail combinations, particularly for global
freight.
18 18
GLOBAL
INTERMODAL
• For global trade, inter-modal is often the only option because factories and markets may not be next to ports. • Key issues in the inter-modal industry involve the exchange of information to facilitate shipment transfers between different modes because these transfers could cause considerable delays and hurt delivery time performance.
19 19
GLOBAL
TRANSPORTATION AND INVENTORY COST TRADEOFF Choice of Transportation Mode • Generally, faster modes of transportation are preferred for products with a high value to weight ratio where reducing inventories is important, where as slower modes are preferred for products with a small value to weight ratio where reducing transportation is important. Impact of different Transportation Modes on Supply chain performance 1- Lowest
Parameters Lot Size Safety Inventory In-transit inventory Transportation Cost
20
5- Highest
Rail 4 4 4 2 TL 3 3 3 3 LTL 2 2 2 4 Water 5 5 5 1 Air 1 1 1 5
GLOBAL
TRADE-OFFIS IN TRANSPORTATION DESIGN
Transportation cost and customer responsiveness trade-off
Trade-offs in Transportation
Choice of Transportation Mode Transportation and Inventory cost trade off Inventory aggregation
21
GLOBAL
Problem - 1
• HighMed. Inc is a manufacturer of medical equipment used in heart procedures and located in Wisconsin and cardiologist all over North America uses its equipments. HighMed has currently divided the United States into 24 territories, each with its own sales force. HighMed maintains sufficient safety inventories in each territory to provide a CSL (Cycle Service Level) of 0.997 for each product. It’s products fall into two categories – Highval and Lowval. Highval products weigh 0.1 lbs and cost $200 each. Lowval products weigh 0.04 lbs and cost $ 30 each. Weekly demand for Highval products in each territory is normally distributed with a mean of µH = 2 and a standard deviation of H = 5. Weekly demand for Lowval products in each territory is normally distributed with a mean of µL = 20 and a standard deviation of L =5. Holding cost of inventory is 25%. Currently, the company follows replenishment model where it replenishes all the 24 stocking points once a week as per the weekly demand. It’s replenishment lead time is 1 week and the reorder interval is 1 week. The transportation cost to serve ship each of it’s location is $0.66 + 0.26 x, (where x is the quantity shipped in pounds). The company is looking at the option of aggregating the inventory at a single location. It want to eliminate inventories at all the 24 stocking points and would like to serve the customer directly from a single location. It’s average customer order is for 1 unit of HighVal and 10 units of Lowval. It’s transportation cost, if the customer orders are shipped from a single location would be $5.53 + 0.53x, (where x is the quantity shipped in pounds). Calculate the inventory carrying cost and transportation cost in both the scenarios. Which scenario result in the least total inventory cost. (Normsinv(0.997) = 2.75). Ignore the last mile customer delivery transportation cost in the first case as it is very low.
22
GLOBAL
Problem - 2 • Eastern Electric (EE) is an appliance manufacturing company in Calcutta. It purchases all the motors for its appliances from Northern motors located in New Delhi. EE purchases 120,000 motors each year from Northern motors at an average price of Rs. 120 per motor. Demand has been relatively constant for several years and is expected to stay that way. Each motor averages 10 kgs in weight. Northern motors ships each EE order within a day of receiving it. At its assembly plant, EE carries a safety inventory equal to 50% of the average demand for motors during the delivery lead time. EE traditionally purchased motors from Golden carrier in the lot of 500 units at the transportation rate of Rs. 0.08 per kg. Golden carrier’s transit time is 3 days. You are the supply chain manager and has got a new offer from Indian Railways which offers you a transportation rate of Rs. 0.065 per kg, transit time of 5 days but the minimum lot size should be 2,000 units. Perform the transportation and Inventory cost trade-off in both the cases and determine the total inventory cost. Assume ordering cost as nil and EE purchases all its consignment on FOB, Factory basis on cash payment.
23
GLOBAL
Problem - 3 • Consider XYZ steel, a steel service center in Jamshedpur. XYZ steel ships all orders to customers at Kolkata using ABC carrier that charges Rs. 100 + 0.01x, where x is the number of kgs of steel shipped on the truck. Currently, XYZ ships orders on the day they are received. Allowing for two days in transit, this policy allows XYZ steel to achieve a response time of 2 days. The general manager of XYZ steel feels that customers do not really value the 2-day response time. He is considering another options : ? shipping once on alternate days, where the response time becomes 3 days. For the fortnight demand given below, find the total transportation cost in 2 options for the following demand. Daily Demand over two-week period in kgs Week 1 Week 2 19,970 39,171 17,470 2,158 11,316 20,633 26,192 23,370 20,263 24,100 8,381 19,603 25,377 18,442
24
doc_803262710.pptx
the factors affecting transportation decisions, factors affecting carrier decisions and factors affecting shippers decisions.
Transportation – Basics and Trade-offs
1
GLOBAL
FACTORS AFFECTING TRANSPORTATION DECISIONS
• There are two key players in any transportation ? Shipper ? Carrier • Shipper is the party that requires the movement of the product between two points in the
supply chain
• Carrier is the party that moves or transports the product. • When making transportation-related decisions, factors to be considered very depending on whether one takes the perspective of a carrier or shipper. • A carrier makes investment decisions regarding the transportation infrastructure (trucks, rails, airplanes etc) and then try to maximize the returns on these assets. • A shipper, in contrast, uses transportation to minimize the total cost (transportation,
inventory etc) while providing higher service levels to the customer
2 2
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Vehicle-related cost • Fixed Operating Cost • Trip-related Cost
• Quantity-related Cost
• Overhead cost.
3 3
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Vehicle-related cost ? This is the cost a carrier incurs for the purchase or lease of the vehicle used totransport goods
? Vehicle-related costs is incurred whether the vehicle is operating or not and is the
part of the fixed costs for short-term operational decisions. ? When making long-term strategic decisions or medium-term planning decisions, these costs can be variable. (Firm can either purchase or lease the vehicles) ? Vehicle-related cost is proportional to the number of vehicles leased or purchased.
4 4
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Fixed-Operating Cost: ? All costs that are incurred whether vehicles are in operation or not. ? Examples of Fixed operating costs are – Fixed cost of a trucking terminal facility or airport hub that is incurred independent of the number of trucks visiting the terminal
or flights landing at the hub. If drivers are paid independent of their travel schedule,
their salary would also be included in this category. ? For operational decisions, these coast are fixed. For planning and strategic decisions, these costs are variable. ?Fixed operating cost is generally proportional to the size of the operating facilities.
5 5
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Trip-related Cost: ? It includes those costs like the price of labor and fuel incurred for each trip independent of the quantity transported. ?Trip related costs depends on the length and the duration of the trip but is
independent of the quantity shipped.
? This cost is considered variable when making operational decisions that impact the length and duration of a trip. ? This cost is also considered variable when making strategic or planning decisions.
6 6
GLOBAL
FACTORS AFFECTING CARRIER DECISIONS
• Quantity-related Cost: ? It includes loading/unloading costs and a portion of the fuel costs that very with
the quantity being transported.
? These costs are generally variable in all transportation decisions unless labor used for loading and unloading is fixed. • Overhead Cost: ? It includes the cost of planning and scheduling a transportation network and investments in information technology.
? For example; when a company invests in routing software that allows a manager to
devise good delivery routes, the investment is considered as overhead. ? Managerial costs, office space etc are generally considered as overhead.
7 7
GLOBAL
DECIDING FACTOR IN CARRIER DECISIONS:
• A Carrier’s decision depends upon the responsiveness it want to provide its target segments and the prices that the market will bear. For example; ? FedEx designed a hub-and-spoke airline network for transporting packages to provide fast and reliable deliveries. It charges premium rates.
?UPS, in contrast, uses a combination of aircraft and trucks to provide cheaper
transportation with longer delivery times. It charges moderate rates.
8 8
GLOBAL
FACTORS AFFECTING SHIPPERS DECISIONS
• Transportation Cost • Inventory Cost • Facility Cost
• Processing Cost
• Service Level Cost
9 9
GLOBAL
FACTORS AFFECTING SHIPPERS DECISIONS
• Transportation Cost
?This is the total amount paid to various carriers for transporting products to customers.
?It depends on the prices offered by different carriers and the extent to which the shipper uses inexpensive and slow, or expensive and fast, means of transportation. ?Transportation costs are considered variable for all shipper decisions as long as the shipper does not own the carrier. • Inventory Cost ? This is the cost of holding inventory incurred by the shipper’s supply chain network.
? Inventory costs are considered fixed for short-term transportation decisions.
? Inventory costs are considered variable while making strategy or planning decisions.
10 10
GLOBAL
FACTORS AFFECTING SHIPPERS DECISIONS
• Facility Cost ?This is the cost of various facilities in the shipper’s supply chain network. ?Facility costs are considered variable when supply chain make strategic design decisions but are considered fixed for all other transportation decisions. • Processing Cost ? This is the cost of loading / unloading orders as well as other processing costs associated with transportation. ? These are considered variable for all transportation decisions. • Service Level Cost ? This is the cost of not being able to meet delivery commitments. ? In some cases it may clearly be specified as part of contract while in other cases it may be reflected in customer satisfaction ? This cost should be considered in strategic, planning and operational decisions.
11 11
GLOBAL
DECIDING FACTOR IN SHIPPER DECISIONS:
• A shipper must make a trade-off between all these costs when making transportation decisions. • A shipper’s decisions are also impacted by the responsiveness it seeks to provide its customers and the margins generated from different products and customers. ? For example, a firm promising delivery within a time window specified by the customer will require more trucks than a firm whose customers are willing to accept delivery at any time.
12 12
GLOBAL
MODES OF TRANSPORTATION AND THEIR PERFORMANCE CHARACTERISTICS:
• Air • Truck
• Rail
• Water • Pipeline • Inter-modal
13 13
GLOBAL
AIR TRANSPORTATION
• Air carriers offer a very fast and fairly expensive mode of transportation. • Typically, small high-value items or time-sensitive emergency shipments that have to
travel a long distances are best suited for air transport.
• Generally air carriers move shipments under 500 pounds. ? For example: Dell uses air freight to ship many of its components from Asia. • Given the growth in high technology, the weight of freight carried by air has diminished over the last two decades even as the value of the freight has increased a little. • Key issues air carriers face include identifying the location and number of hubs,
assigning planes to routes, setting up maintenance schedules for planes, scheduling
crews and managing prices and availability at different prices.
14 14
GLOBAL
TRUCKS
• Truck is the dominant mode of freight transportation across the world.
• Trucking industry consists of two major segments – TL (Truck Load) and LTL (Less Than
Truckload) • TL operations charge for the full truck. Rates very with the distance traveled. • LTL operations charge based on the quantity loaded and the distance traveled. • Trucking is more expensive than rail but offers the advantage of door-to-door shipment and a shorter delivery time. • TL shipping is suited for transportation between manufacturing facilities and warehouses
or between suppliers and manufacturers where there are regular load available in
sufficient volumes. • LTL operations enable shippers to transport shipments in small lots. • LTL Shipments take longer than TL shipments because of other loads that need to be picked up and dropped off.
15 15
GLOBAL
TRUCKS
• LTL shipping is suited for shipments that are too large and costly to be mailed (Air carrier
or package carriers) but constitute less than half a TL.
• Key to reduce the LTL costs is the degree of consolidation that carriers can achieve for the loads carried. • LTL carriers use consolidation centers where trucks bring in many small loads originating from a geographical area and leave with many small loads destined for the same geographical area. This allows LTL carriers to improve their truck utilization although it increases the delivery time.
• Key issues for the LTL industry include location of consolidation centers, assigning of
loads to trucks and scheduling and routing of pickup and delivery. • The goal is to minimize costs through consolidation without hurting delivery time and reliability
16 16
GLOBAL
RAIL
• Rail is priced to encourage large shipments over a long distance.
• Prices display economies of scale in the quantity shipped as well as the distance traveled.
• The price structure and the heavy load capability makes rail an ideal mode for carrying large, heavy or high-density products over long distances. • Rail is ideal for very heavy, low –value shipments like Coal, Cement, etc.
WATER
• Water transport is ideally suited for carrying very large loads at low cost. • It is however the slowest of all the models and significant delay occur at ports and terminals. • Water transport is used effectively in parts of Europe for short-haul trips. • In global trade, water transport is the dominant mode for shipping all kinds of products for imports and exports.
17 17
GLOBAL
PIPELINE
• Pipeline is used primarily for the transport of crude petroleum, refined petroleum
products and natural gas.
• A significant initial fixed cost is incurred in setting up the pipeline. • Given the nature of the costs, pipelines are best suited when relatively stable and large flows are required. It is an effective way of getting crude oil to a port or a refinery.
INTERMODAL
• Inter-modal transportation is the use of more than one mode of transport to move a shipment to its destination. • A variety of inter-modal combinations are possible. • Containers are easy to transfer from one mode to another and their use facilitates intermodal transportation.
• Containerized freight often used truck/water/rail combinations, particularly for global
freight.
18 18
GLOBAL
INTERMODAL
• For global trade, inter-modal is often the only option because factories and markets may not be next to ports. • Key issues in the inter-modal industry involve the exchange of information to facilitate shipment transfers between different modes because these transfers could cause considerable delays and hurt delivery time performance.
19 19
GLOBAL
TRANSPORTATION AND INVENTORY COST TRADEOFF Choice of Transportation Mode • Generally, faster modes of transportation are preferred for products with a high value to weight ratio where reducing inventories is important, where as slower modes are preferred for products with a small value to weight ratio where reducing transportation is important. Impact of different Transportation Modes on Supply chain performance 1- Lowest
Parameters Lot Size Safety Inventory In-transit inventory Transportation Cost
20
5- Highest
Rail 4 4 4 2 TL 3 3 3 3 LTL 2 2 2 4 Water 5 5 5 1 Air 1 1 1 5
GLOBAL
TRADE-OFFIS IN TRANSPORTATION DESIGN
Transportation cost and customer responsiveness trade-off
Trade-offs in Transportation
Choice of Transportation Mode Transportation and Inventory cost trade off Inventory aggregation
21
GLOBAL
Problem - 1
• HighMed. Inc is a manufacturer of medical equipment used in heart procedures and located in Wisconsin and cardiologist all over North America uses its equipments. HighMed has currently divided the United States into 24 territories, each with its own sales force. HighMed maintains sufficient safety inventories in each territory to provide a CSL (Cycle Service Level) of 0.997 for each product. It’s products fall into two categories – Highval and Lowval. Highval products weigh 0.1 lbs and cost $200 each. Lowval products weigh 0.04 lbs and cost $ 30 each. Weekly demand for Highval products in each territory is normally distributed with a mean of µH = 2 and a standard deviation of H = 5. Weekly demand for Lowval products in each territory is normally distributed with a mean of µL = 20 and a standard deviation of L =5. Holding cost of inventory is 25%. Currently, the company follows replenishment model where it replenishes all the 24 stocking points once a week as per the weekly demand. It’s replenishment lead time is 1 week and the reorder interval is 1 week. The transportation cost to serve ship each of it’s location is $0.66 + 0.26 x, (where x is the quantity shipped in pounds). The company is looking at the option of aggregating the inventory at a single location. It want to eliminate inventories at all the 24 stocking points and would like to serve the customer directly from a single location. It’s average customer order is for 1 unit of HighVal and 10 units of Lowval. It’s transportation cost, if the customer orders are shipped from a single location would be $5.53 + 0.53x, (where x is the quantity shipped in pounds). Calculate the inventory carrying cost and transportation cost in both the scenarios. Which scenario result in the least total inventory cost. (Normsinv(0.997) = 2.75). Ignore the last mile customer delivery transportation cost in the first case as it is very low.
22
GLOBAL
Problem - 2 • Eastern Electric (EE) is an appliance manufacturing company in Calcutta. It purchases all the motors for its appliances from Northern motors located in New Delhi. EE purchases 120,000 motors each year from Northern motors at an average price of Rs. 120 per motor. Demand has been relatively constant for several years and is expected to stay that way. Each motor averages 10 kgs in weight. Northern motors ships each EE order within a day of receiving it. At its assembly plant, EE carries a safety inventory equal to 50% of the average demand for motors during the delivery lead time. EE traditionally purchased motors from Golden carrier in the lot of 500 units at the transportation rate of Rs. 0.08 per kg. Golden carrier’s transit time is 3 days. You are the supply chain manager and has got a new offer from Indian Railways which offers you a transportation rate of Rs. 0.065 per kg, transit time of 5 days but the minimum lot size should be 2,000 units. Perform the transportation and Inventory cost trade-off in both the cases and determine the total inventory cost. Assume ordering cost as nil and EE purchases all its consignment on FOB, Factory basis on cash payment.
23
GLOBAL
Problem - 3 • Consider XYZ steel, a steel service center in Jamshedpur. XYZ steel ships all orders to customers at Kolkata using ABC carrier that charges Rs. 100 + 0.01x, where x is the number of kgs of steel shipped on the truck. Currently, XYZ ships orders on the day they are received. Allowing for two days in transit, this policy allows XYZ steel to achieve a response time of 2 days. The general manager of XYZ steel feels that customers do not really value the 2-day response time. He is considering another options : ? shipping once on alternate days, where the response time becomes 3 days. For the fortnight demand given below, find the total transportation cost in 2 options for the following demand. Daily Demand over two-week period in kgs Week 1 Week 2 19,970 39,171 17,470 2,158 11,316 20,633 26,192 23,370 20,263 24,100 8,381 19,603 25,377 18,442
24
doc_803262710.pptx