Problem: CDG, Inc. a major manufacturer of fertilizer has 5 production plants. CDG buys Spice which is an essential chemical used in all of its production facilities, from a centrally located distribution center (DC).
The consumption rates of Spice at the plants are as follows:
Plant No. Usage (lbs per day)
1 220
2 100
3 300
4 200
5 180
Spice costs: $2.00 per lb
CDG holding costs rate of $.30 per dollar per year for all purchased materials
Chemical can be shipped via truck from the DC to each plant individually, for which a fixed cost of $2,000 and a “drop off” cost of $100 would be incurred. Alternately, a single truck (load capacity of 60,000 lbs) can be routed to deliver Spice to all 5 plants in a single trip, at a fixed cost of $3,500, in addition to a drop off charge of $100 for each delivery location.
The following delivery policy proposals for this chemical are being contemplated:
1) Transport the EOQ quantity to each plant individually, as needed
2) Send one full truckload of Spice to supply all the plants simultaneously in a single trip, on a periodic basis
3) Send 4 full truckloads simultaneously to all the plants, each truck visiting all the locations sequentially, to deliver at each plant, periodically.