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Part II, Problem 4 | Final Exam | CTL.SC1x Courseware | edX
Part II, Problem 4
As the transportation manager of your company, you are responsible for selecting carriers for each traffic lane. You have one traffic lane that brings raw materials into your manufacturing plant. You take ownership of the product when your truck picks it up from your supplier’s location. You move one truck a day during each business day (that is, 250 days per year). Your current carrier (Carrier #1) charges you 1058.0 $/load and takes 4.0 days. The value of a truckload of product is $ 53400.0 and your firm uses an annual holding charge of 0.17 $/$/year, recall this is the same thing as saying percent per year. For the purpose of this analysis, please use 365 days in the year for any inventory holding cost purposes.
A new carrier (Carrier #2) who is willing to charge 1225.0 $/load for hauling the same lane in 2.0 days has approached you. You have to bring in a load every day, so you cannot change the number of loads you haul per year (it stays at 250 loads - that is, one per each working day) nor the order size (since each truck is shipped full anyway). Also, you know that you can ignore any safety stock considerations since the demand is essentially deterministic. When considering the cost of pipeline inventory, your company does NOT include the cost of transportation, just the value of the product in the truck.4.1
How much money will this new option save (or cost) you on an annual basis? Calculate Savings as cost of existing carrier (Carrier #1) minus cost of new carrier (Carrier #2). Round to the nearest dollar. For instance, if the cost of the existing carrier is $3,800 and the cost of the new carrier is $4,200, the solution is $3,800-$4,200=-$400 and you answer -400. (Note that if the answer is negative you enter it with a minus sign)
You realize that the holding charge is subject to management discretion and want to know how sensitive your solution from 4.1 is.
At what annual holding charge (expressed in $/$/year) are the annual costs of the two carriers identical? Answer with two decimals.
While demand has been stable for the last year, the company is currently pursuing a raw material waste reduction program, which would effectively reduce the demand for raw materials. Therefore, before you make a decision about which carrier to choose, you want to know how sensitive your solution is to changes in demand.
If demand would decrease so that the value of a truckload is instead 40050.0, how much money would the new carrier option save (or cost) you on an annual basis? Calculate Savings as cost of existing carrier (Carrier #1) minus cost of new carrier (Carrier #2). Use the original annual holding charge of 0.17 $/$/year. Round to the nearest dollar. For instance, if the cost of the existing carrier is $3,800 and the cost of the new carrier is $4,200, the solution is $3,800-$4,200=-$400 and you answer -400. (Note that if the answer is negative you enter it with a minus sign)
If demand decreased, another option is to reduce the frequency of shipments rather than the value per shipment.
Suppose that, if demand decreased, you would reduce the frequency of shipments so that there is a shipment every second day, and the value per truckload is 53400.0. If you compare the existing carrier (Carrier #1) with the new carrier option (Carrier #2) under this scenario, which of the following statements is true?The difference between the alternatives is larger than what was calculated in 4.1 The difference between the alternatives is smaller than what was calculated in 4.1 The savings are the same as calculated in 4.1 - This answer is unanswered.
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