Case Study: Trade-off between Transportation and Inventory Holding Costs Jackie
ID: 2572365 • Letter: C
Question
Case Study: Trade-off between Transportation and Inventory Holding Costs Jackie Chen, vice president of China Imports, was looking modes for various products imported from China to the United States. His basic options were to either use freight or ocean shipping in 20- much cheaper. smartphones. to design a framework to select transportation air faster and more reliable, but ocean shipping was product categories, He decided to evaluate the shipping decision for one of the most popular China Imports provided a variety of products to its customers from a warehouse near the port of Long Beach, California. The company incurred a holding cost of 25 percent on all inventory Demand for smartphones has been relatively constant for several years and is expected to start that way Weekly demand for smartphones is 1,000. Each smartphone cost $300 and weighed 0.2 pound Air freight and ocean shipping were the two options available to move product from China to the United States. Air freight charged so.50 per pound and required a minimum shipment of 100 pounds. The delivery lead time on air freight was one week. For the delivery lead time of one week, the warehouse keeps a safety stock of 600. Ocean shipping was much cheaper and cost $1,200 per 20-foot container. Each container could hold up to 10,400 pounds. The delivery lead time using ocean shipping was nine weeks. For the delivery lead time of nine weeks, the warehouse keeps a safety stock of 1,800. I. Suppose that Jackie Chen decides to use air freight of 100 pounds whenever he imports smartphones from China. Compute the following quantities. Number of smartphones ordered every time an order is placed Average inventory level at the warehouse Cost of holding one smartphone in inventory for a year at the warehouse Annual cost of holding inventory at the warehouse Transportation cost each time a delivery is made Number of deliveries a year Annual transportation cost Annual inventory holding and transportation costs Suppose that Jackie Chen decides to use ocean shipping with a full 20-foot container whenever he imports smartphones from China. Compute the following quantities. 2. Number of smartphones ordered every time an order is placed Average inventory level at the warehouse Cost of holding one smartphone in inventory for a year at the warehouse Annual cost of holding inventory at the warehouse Transportation cost each time a delivery is madeExplanation / Answer
1) Number of Smart Phones oredered every time an order is placed 500 smart phones Average inventory level at warehouse 600 smart phones cost of holding one smart phone in inventory for a year at the ware house $75.125 Transporatation cost each time delivery is made $50 No .of deliveries a year 106 Annual Transportation cost $5300 Annual inventory and holding costs $50375 2) Number of Smart Phones oredered every time an order is placed 52000 phones Average inventory level at warehouse 28300 phones cost of holding one smart phone in inventory for a year at the ware house $75.006 Transporatation cost each time delivery is made $1200 No .of deliveries a year 1 Annual Transportation cost $1200 Annual inventory and holding costs $2123870