In this problem, your company is a distributor of products. You serve as an inventory manager for the regional distribution center (DC) here in the Atlanta area. In this role, you schedule the purchase and shipment of products from various suppliers inbound to the Atlanta DC. Once you receive the products at the DC, they are stored in inventory until they are picked, packed, and shipped outbound to your company's downstream customers in response to orders. For each of your products, you currently use a single, dedicated supplier. Each of your suppliers ships their products to you from their facility using trucking services, and they provide you with choices of different LTL or truckload trucking carriers depending on your shipment size. Consider managing inventory now for product 101 produced by Supplier A. Currently, you face demand for product 101 of about 200 units per week. Each unit of product 101 has a purchase cost p of $500 and you decide to value your inventory at the slightly higher rate of $550 (v). As is typical, you are required to pay for products when you order. For inventory carrying cost (either in-transit or at your facility), you assume an annual carrying cost rate r = 18% per year; this rate includes your capital cost but also components that model product quality loss over time, risk of theft, and risk of obsolescence. You estimate that storing one item of product 101 in your DC requires an equivalent rent (storage cost) of s = $10 per unit per year.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question 1
You first conduct analysis for ordering product 101 and shipping by truckload transportation.
Your preferred truckload carrier will ship a truckload Supplier A’s facility to your Atlanta
DC for $800 total given that they are separated by about 250 miles. Each truckload has
a capacity for 700 units of product 101. When using truckload transportation, the transit
time is 2 days. However, since your supplier has limited capacity to process orders, they
only guarantee to ship your order within 10 days of receiving the order.
1. Recall that pipeline inventory cost does not depend on the quantity shipped but only
the transportation mode. In this problem, the lead time TL between when you pay for
an order and when you receive it is 10 days of order processing plus 2 days of transit

time: TL = 12 days. Thus, pipeline inventory cost per item should be computed as
r ∗ v ∗ TL in compatible time units. What is the pipeline inventory cost per week you
will incur using truckload trucking?