Ford Motors has an assembly plant located in Chicago area. Ford purchases all ti
ID: 377737 • Letter: F
Question
Ford Motors has an assembly plant located in Chicago area. Ford purchases all tires for the cars assembled in the Chicago plant from Lassa, located in Pittsburgh, PA. Ford purchases 200,000 tires each year from Lassa at a price of $20 per tire. Ford carry a safety stock against uncertainty following a simple rule of setting the safety stock at the 50 percent of the average demand during replenishment lead time.
Ford has two options for transportation of tires: Union Railroads or Steelers Trucking. Details on these options are given in the table below
Ford owns the tires while in transit to its plant and annual holding cost during transit or at the Chicago plant is 25 percent of the unit tire cost. Given the information above which transportation mode Ford should choose?
Union Railroads Minimum Shipment Size10,000 Freight cost per tire ($) $0.5 Transit lead time (days)10 days Fixed ordering cost ($) $1000 Steelers Trucking 2,000 $0.75 4 days $500Explanation / Answer
Ford should choose union railroads as there transportation option as Union railroad would provide more value to the money in terms of transportation and comparatively it would take slightly larger time but reduce the overall cost by a large margin.