Logistics

Chapter 7 Example 1 (Page 88)

The CarryAll Luggage Company produces a line of luggage goods. The typical distribution plan is to produce finished goods inventories to be kept at the plant site. Goods are then shipped to company-owned field warehouses by way of common carriers. Rail is currently used to ship between the East Coast plant and a West Coast warehouse. The average transit time for rail shipments is T = 21 days. At each stocking point, there is an average of 100,000 units of luggage having an average cost of C = $30 per unit. Inventory carrying cost is I = 30 percent per unit cost per year. (or 0.3 x $30 = $9 is the annual inventory cost per unit)

The company wishes to select the mode of transportation that will minimize the total costs. It is estimated that for every day that transit time can be reduced from the current 21 days, average inventory levels can be reduced by 1 percent.

The demand is D = 700,000 units sold per year out of the West Coast warehouse. The company can use the following transportation services:

|Transport service |Rates ($/unit) |Door-to-door Transit Times (days) |No. of shipments per year |

|Rail |0.10 |21 |10 |

|Piggyback |0.15 |14 |20 |

|Truck |0.2 |5 |20 |

|Air |1.40 |2 |40 |

Procurement costs and transit-time variability is assumed to be negligible.

Figure 7-1 Current Distribution for the Carry- All Luggage Company

Proposed Solution to Chapter 7 Example 1: CarryAll Luggage Company

Rail Mode:

1. Transportation Cost

Transportation Cost = R X D = (0.10) (700,000) = $70,000...