Problem : Mode and Service Selection:
Product is shipped from plant inventory to warehouse inventory 3000 miles away. The product is worth $263 per unit at the plant and monthly volume is expected to be 10,000 units per month. Inventory carrying costs are 20% of the product’s value per year.
A) If the product is team trucked from the plant to the warehouse, the average transit time is 3 days. The truckload can hold 800 units at a time and the transportation cost from the plant to the warehouse is $2200. What is the total annual cost for plant inventory + transportation + in-transit inventory + warehouse inventory of this product?
B) If the product is railed from the plant to the warehouse, the average transit time is 6 days. The rail box can hold 800 units at a time and the transportation cost from the plant to the warehouse is $1500. What is the total annual cost for plant inventory + transportation + in-transit inventory + warehouse inventory of this product?