Carole Wilson, Transportation Manager of Applied Technologies, has a shipment of 150 computer monitors originating at the company's plant in Santa Fe Springs, California. The shipment, valued at $29,250, is destined for a DC in St. Louis, Missouri. John Miller, receiving manager at the St. Louis DC, has established a standardized transit time for the shipment to be 2.5 days. Mr. Miller assesses an opportunity cost of $6.00 per monitor for each day beyond the standard. Ms. Wilson has three transportation options available.
a. Cross Country Haulers, a long-haul trucking company, can ship the monitors at a contracted rate of $1.65/mile. The distance from Santa Fe Springs to St. Louis is 1,940 miles. Cross Country estimates that it can deliver the shipment in 3 days. A truck can carry 192 monitors.
b. The Sea-to-Shining Sea (STSS) Railway can pick up the shipment at the plant's dock and deliver the monitors directly to the St. Louis DC. STSS can ship the railcar of monitors for a flat rate charge of $1,500. Ms. Wilson has recently experienced delays with the switching of its railcars and expects delivery to take 5 days.
c. Ms. Wilson has also negotiated an agreement with Lighting Quick Intermodal, Inc. (LQI), a third-party carrier that utilizes both motor and rail transportation. LQI can pick up the shipment by truck at the plant and deliver it to an intermodal rail-yard in Bakersfield, California, where the trailer is placed onto a flat railcar. The servicing railway, the Rocky Mountain Railway (RMR), then delivers the trailer to another intermodal yard near St. Louis, where the trailer is unloaded and transported by truck to the DC. Lightning Quick offers the origin-to-destination transportation for $2,500. Transit time is anticipated at 2.5 days. From past experience, Mr. Miller has discovered that the additional handling inherent with Lightning Quick's service results in 3 percent product loss and damage. Recovery of these losses is difficult and typically results in only 33.3 percent immediate reimbursement of the losses.
Evaluate the cost of each transportation alternative.