Problem
Sugarboost is a new startup created by former MIT students, Eric and Phyllis, and it's based in Boston, MA. The company produces organic cupcakes that only contain Fairtrade ingredients, and it is experiencing quick growth across the US. The production of cupcakes for 2023 is estimated to be 1050 pallets for the whole year. All these pallets will be sent a distance of 150 miles to a regional distribution center in Albany, New York. Trucking costs $5.4 per mile, and each truck can carry up to 52 pallets maximum. Loading has a fixed cost of $150, plus $10 per paliet. Unloading has also a fixed cost of $150, but the cost per pallet is $15. Each pallet is worth $4,000, and the annual inventory holding rate is 30%.
I. What is the total Fixed cost per shipment (including loading, unloading and trucking costs)?
II. How many pallets should Sugarboost ship each time (EOQ)?
III. How frequently (N=loads/year) should Sugarboost ship?
IV. Under this shipping policy, what is the Total cost per year including loading, unloading, trucking, and holding costs?
V. If the company decided to follow a Full Truckload (FTL) policy instead: How frequently (N=loads/year) should Sugarboost ship?
VI. Under a FTL policy, what is the Total cost per year including loading, unloading, trucking, and holding costs?
VII. In the last couple of years, gas prices have been ramping up due to global disruptions. Sugarboost is concerned that this might affect its shipping policy, as optimizing transportation will become more important. If gas prices keep going up, what is the trucking cost per mile that would make the FTL policy the best shipping option (EOQ=52 pallets)?