Suppose a company with a plant located in Toronto is serving a market in the northeastern United States with many customers located in Boston. If the company ships direct to customers from the Toronto plant, most shipments will be less than truckload. However, if it locates a distribution center in Boston, it can ship truckload (TL) to Boston and distribute by local cartage (LTL) to customers in that area. Whether this is economical or not depends on the total cost of shipping direct compared with shipping via the distribution center. Assume the following figures represent the average shipments to the Boston area: Option 1: Plant to customer LTL: $100/cwt. [uses direct dispatch from company to customers] Option 2: Through DC Plant to distribution center TL: $50/cwt. Inventory-carrying cost (distribution center): $10/cwt. Distribution center to customer LTL: $20/cwt. Question Is it more economical to establish the distribution center in Boston? If the annual shipped volume is 10,000 cwt., what will be the annual saving?
Suppose a company with a plant located in Toronto is serving a market in the northeastern United States with many customers located in Boston. If the company ships direct to customers from the Toronto plant, most shipments will be less than truckload. However, if it locates a distribution center in Boston, it can ship truckload (TL) to Boston and distribute by
local cartage (LTL) to customers in that area. Whether this is economical or not depends on the total cost of shipping direct compared with shipping via the distribution center. Assume the following figures represent the average shipments to the Boston area:
Option 1: Plant to customer LTL: $100/cwt. [uses direct dispatch from company to customers]
Option 2: Through DC
Plant to distribution center TL: $50/cwt.
Inventory-carrying cost (distribution center): $10/cwt.
Distribution center to customer LTL: $20/cwt.
Question
Is it more economical to establish the distribution center in Boston? If the annual shipped volume is 10,000 cwt., what will be the annual saving?
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