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) $10 per unit per year. of s = 4. Compute the total logistics costs per week for sending full truckloads q = 700 units. Include the following costs: • Truckload transportation cost per week • Facility inventory cost (storage and carrying cost) per week • Pipeline inventory cost per week (from part 1) 5. Now suppose that you want to consider sending smaller shipments by truckload trans- portation. You would like to select an economic order quantity q* ≤ Q = 700 that minimizes total logistics chain costs, as defined above. (a) Determine the value of q* that minimizes the expression for total weekly (or total yearly) cost. For this part, assume that q* is unrestricted. (b) Is q* less than 700? If it is (or if it were) greater than 700, what value would use for q*? you (c) Compute your total truckload cost per week and your total facility cost per week for q* and show that they are equal.

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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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)
$10 per unit per year.
of s
=
Transcribed Image Text: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) $10 per unit per year. of s =
4. Compute the total logistics costs per week for sending full truckloads q = 700 units.
Include the following costs:
• Truckload transportation cost per week
• Facility inventory cost (storage and carrying cost) per week
• Pipeline inventory cost per week (from part 1)
5. Now suppose that you want to consider sending smaller shipments by truckload trans-
portation. You would like to select an economic order quantity q* ≤ Q = 700 that
minimizes total logistics chain costs, as defined above.
(a) Determine the value of q* that minimizes the expression for total weekly (or total
yearly) cost. For this part, assume that q* is unrestricted.
(b) Is q* less than 700? If it is (or if it were) greater than 700, what value would
use for q*?
you
(c) Compute your total truckload cost per week and your total facility cost per week
for q* and show that they are equal.
Transcribed Image Text:4. Compute the total logistics costs per week for sending full truckloads q = 700 units. Include the following costs: • Truckload transportation cost per week • Facility inventory cost (storage and carrying cost) per week • Pipeline inventory cost per week (from part 1) 5. Now suppose that you want to consider sending smaller shipments by truckload trans- portation. You would like to select an economic order quantity q* ≤ Q = 700 that minimizes total logistics chain costs, as defined above. (a) Determine the value of q* that minimizes the expression for total weekly (or total yearly) cost. For this part, assume that q* is unrestricted. (b) Is q* less than 700? If it is (or if it were) greater than 700, what value would use for q*? you (c) Compute your total truckload cost per week and your total facility cost per week for q* and show that they are equal.
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