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A manager must make a decision on shipping. There are two shippers, A and B. Both offer a two-day rate: A for $500 and B for $525. In addition, A offers a three-day rate of $460 and a nine-day rate of $400, and B offers a four-day rate of $450 and a seven-day rate of $410. Annual holding costs are 35 percent of unit price. Three hundred boxes are to be shipped, and each box has a price of $ 140. Which shipping alternative would you recommend? Explain.
To decide: Which shipping alternative is suitable.
Introduction: Supply chain defined as a sequence of associations, their offices, capacities, and actions that are engaged with manufacturing and conveying a product or administration. The chain starts with essential providers of raw materials and stretches out the distance to the last client.
The supply chain fragment required with getting the completed item from the producer to the purchaser is known as distribution channel. A supply chain is a sequence starts with essential providers or raw materials and stretches out the distance to an item or administration. No business association can exist without the two operations and supply chain.
Answer to Problem 3P
Explanation of Solution
Given:
It is given that there are two shippers A and B both offering two-day shipping alternative with A costing $500 and B costing $525. Shipper A offers three-day shipping alternative for $460 and nine-day shipping alternative for $450. Shipper B offers four-day shipping alternative for $450 and seven-date shipping for $410. Annual holding costs are 35% of unit price and each box is priced at $140 per unit. The total units shipped are 300 units.
Calculate the holding cost per year:
It is calculated by multiplying the percentage of annual holding costs with unit price.
Calculate the total cost of shipper A with two-days shipping alternative:
It is calculated by multiplying total units with holding cost per year and days of shipping and the result is divided with 365 days and the whole result is added to the shipping cost.
Calculate the total cost of shipper A with three-days shipping alternative:
It is calculated by multiplying total units with holding cost per year and days of shipping and the result is divided with 365 days and the whole result is added to the shipping cost.
Calculate the total cost of shipper A with nine-days shipping alternative:
It is calculated by multiplying total units with holding cost per year and days of shipping and the result is divided with 365 days and the whole result is added to the shipping cost.
Calculate the total cost of shipper B with two-days shipping alternative:
It is calculated by multiplying total units with holding cost per year and days of shipping and the result is divided with 365 days and the whole result is added to the shipping cost.
Calculate the total cost of shipper B with four-days shipping alternative:
It is calculated by multiplying total units with holding cost per year and days of shipping and the result is divided with 365 days and the whole result is added to the shipping cost.
Calculate the total cost of shipper B with seven-days shipping alternative:
It is calculated by multiplying total units with holding cost per year and days of shipping and the result is divided with 365 days and the whole result is added to the shipping cost.
From the results obtained Shipper A with offering two-day shipping alternative is low compared to other shipping alternatives.
Hence, it is recommended that the shipping A and two-day shipping alternatives should be selected.
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Chapter 15 Solutions
Operations Management
- 6-23 Barbara Bright is the purchasing agent for West Valve Company. West Valve sells industrial valves and fluid control devices. One of the most popular valves is the Western, which has an annual demand of 4,000 units. The cost of each valve is $90, and the inventory carrying cost is estimated to be 10% of the cost of each valve. Barbara has made a study of the costs involved in placing an order for any of the valves that West Valve stocks, and she has concluded that the average ordering cost is $25 per order. Furthermore, it takes about two weeks for an order to arrive from the supplier, and during this time, the demand per week for West valves is approximately 80. a. What is the EOQ? b. What is the ROP? c. Is the ROP greater than the EOQ? If so, how is this situation handled? d. What is the average inventory? What is the annual holding cost? e. How many orders per year would be placed? What is the annual ordering cost?arrow_forwardA shipment of parts valued at $75,000 needs to be shipped from Thunder Bay, ON to Edmonton, AB. They could be shipped by rail, taking 15 days at a cost of $1,575, or by truck, taking 4 days at a cost of $2,640. The annual holding cost rate for this type of item has been estimated at 22%. What option is more economical?arrow_forwardJohnson Tire Plaza (JTP) is a large chain of tire shops, who sells various brand of automobile tires. The yearly demand of a particular brand of time is about 10,821 units per year. JTP purchases these tires from a supplier. The ordering cost is $109 per order and the holding cost is $14.6 per tire per year. The supplier always delivers the shipment within 13 days after receiving a replenishment order from JTP. The company operates 250 days per year. Assume EOQ model is applicable. What is the number of orders per year if JTP uses an order quantity of 1,728 tires? Use at least 4 decimal places.arrow_forward
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