Caso Plaza Resolution

Supply Chain Management

Plaza

December 1, 2011

Presented by:

Ahsan Khawar 12020378

Fahd Iqtidar Mir 12020367

Nabeel Siraj 12020325

Umair Babar Chishti 12020157

Question 1:

Cost Summary | Rotterdam | Zaragoza |

Total Shipping Costs | 530.8 | 0 |

Total Costs of Transport from Port to Warehouse | 613.2 | 1613.3 |

Total Inventory Costs | 4183.0 | 3001.2 |

Total Cost of Delivery from Warehouse to Customer | 1133.3 | 2509.5 |

OVERALL COSTS | 6460.3 | 7124.0 |

All the relevant costs are calculated in the attached excel sheet, given in Appendix 1.

As shown in the cost summary sheet, the overall costs for Zaragoza come out to be slightly higher than those of Rotterdam. The major difference is caused due to the transportation costs from port to PLAZA. For Rotterdam these costs are almost negligible, hence the huge difference. Also the cost of delivery from PLAZA to customers in central Europe comes out to be higher for Zaragoza. Reason being the fact that distance from Zaragoza to central Europe is almost double the distance from Rotterdam to central Europe. Yet, the overall cost difference of 664E seems to be small. Taking into consideration some of the factors discussed in question 2, Zaragoza might just be the better option.

Calculations:

All the calculations for Economic order quantity, Reorder Point and Safety stock are given in appendix 2.

The EOQ is calculated using the standard EOQ formula. For the formula we take the fixed costs to be the cost that is paid at the ports for order processing. This cost is 335 for Rotterdam and 305 for Zaragoza.

For calculating the reorder point we first calculated the average performance time. This includes time spent by the order on port, Time spent on sea and the delivery times from the warehouse to the customers. The total days are then converted into years for purpose of ROP calculations.

For safety stock calculations, we have...