Problem 1. (Chapter 1: Business Logistics/Supply Chain-A Vital Subject) Suppose
ID: 420857 • Letter: P
Question
Problem 1. (Chapter 1: Business Logistics/Supply Chain-A Vital Subject) Suppose that a manufacturer of men’s shirts can produce a dress shirt in its Huston, Texas plant for $8 per shirt (including the cost of raw materials). Chicago is a major market for 100,000 shirts per year. Transportation and storage charges from Huston to Chicago amount to $5 per hundredweight (cwt.) Each packaged shirt weighs 1 pound. As an alternative, the company can have the shirts produced in Taiwan for $4 per shirt (including the cost of raw materials).The raw materials, weighing about 1 pound pershirt, would be shipped from Huston to Taiwan at a cost of $2 per cwt. When the shirts are completed, they are to be shipped directly to Chicago at a transportation and storage cost of $6 per cwt. An import duty of $0.5 per shirt is assessed. a. From a logistics-production cost standpoint, should the shirts be produced in Taiwan? b. Please name at least three additional considerations, other than economic ones, might be considered before making a final decision. Problem 2.(Chapter 2: Logistics/Supply Chain Strategy and Planning)Describe the principle of differentiated distribution. Explain how it is illustrated in the following situations: a. Total distribution costs are minimized if back orders on field warehouse inventories are filled from plant inventories. Premium transportation is used to ship back orders directly from plant to customers. b. The product items stocked in a warehouse are grouped so that different stock availability levels are set for each of the groups. c. All products are grouped according to an ABCclassification scheme, where A items have high sales volume, B items have moderate sales volume, and C items have low sales volume. A items are stocked in field warehouses, B items are stocked in regional warehouses, and C items are stocked only at plantlocations. Problem3.(chapter 9: Inventory Policy Decisions) Suppose that an auto part in a manufacturer’s inventory has the following characteristics: ----------------------------------------------------------- Forecast of demand = 1,250 casesper week Forecast error, std. dev. =475 cases per week Lead time = 2.5 weeks Carrying cost =30 % per year Purchase price, delivered = $56 per case Replenishment order cost =$40 per order Stockout cost =$10 per case Probability of being in stock during the lead time =80% ------------------------------------------------------------ Assume the manufacturer uses ROP method to control the inventory of this item. a. What is the economic orderquantity? b. What is the reorder point? c. What’s the expected number of units out of stock annually? d. What is the annual service level? e. What’s the total annual costs excluding purchasing costs? f. If the lead time is normally distributed with a standard deviation of 0.5 weeks, what’s the ROP?
Explanation / Answer
a.
Plant Location
cwt Material Transport Cost (Houston to Taiwan)
Unit Production Cost
cwt Product Transportation/ storage charges (Houston to Chicago)
cwt Product Transportation /storage charges (Taiwan to Chicago)
Unit Import Duty
Houston plant (USA)
NO
$8
$5
NO
NO
Outsourcing to Taiwan (Asia)
$2
$4
NO
$6
$0.50
Note: hundredweight (cwt) = 100 pounds weight
Each packed shirt weight = 1 pound
Raw material weight per shirt = 1 pound
Unit Material Transport Cost = Raw Material Density/CWT
Unit Product Transport Cost = Product Density/CWT
Example: $2/100 = $0.02
Plant Location
Unit Material Transport Cost (Houston to Taiwan)
Unit Production Cost
Unit Product Transportation/ storage charges (Houston to Chicago)
Unit Product Transportation /storage charges (Taiwan to Chicago)
Unit Import Duty
Houston plant (USA)
NO
$8
$0.05
NO
NO
Outsourcing to Taiwan (Asia)
$0.02
$4
NO
$0.06
$0.50
Following formulas are used.
Plant Location
Product Volume
Total Production Cost
Total Material Transport Cost
Unit Product Transport Cost
Total Import Duty
Total Cost
Shirt price/ unit
Total price
Profit
Houston plant (USA)
100000
$800,000
0
$5,000
0
$805,000
$15
$1,500,000
$695,000
Outsourcing to Taiwan (Asia)
100000
$400,000
$2,000
$6,000
$50,000
$458,000
$15
$1,500,000
$1,042,000
Thus from a logistics-production cost standpoint, the shirts should be produced in Taiwan. There is a cost for raw materials from Houston to Taiwan, but still is cheaper than the Houston plant when other costs are combined.
b. The aadditional considerations might be considered before making a final decision are:
Plant Location
cwt Material Transport Cost (Houston to Taiwan)
Unit Production Cost
cwt Product Transportation/ storage charges (Houston to Chicago)
cwt Product Transportation /storage charges (Taiwan to Chicago)
Unit Import Duty
Houston plant (USA)
NO
$8
$5
NO
NO
Outsourcing to Taiwan (Asia)
$2
$4
NO
$6
$0.50
Note: hundredweight (cwt) = 100 pounds weight
Each packed shirt weight = 1 pound
Raw material weight per shirt = 1 pound
Unit Material Transport Cost = Raw Material Density/CWT
Unit Product Transport Cost = Product Density/CWT
Example: $2/100 = $0.02
Plant Location
Unit Material Transport Cost (Houston to Taiwan)
Unit Production Cost
Unit Product Transportation/ storage charges (Houston to Chicago)
Unit Product Transportation /storage charges (Taiwan to Chicago)
Unit Import Duty
Houston plant (USA)
NO
$8
$0.05
NO
NO
Outsourcing to Taiwan (Asia)
$0.02
$4
NO
$0.06
$0.50
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.