METAL SPECIALTIES, INC.
Metal Specialties is a wholesaler of specialty metals such as stainless steels and tool steels. The company purchases its stainless steel from a mill located some 200 miles away. At present the company operates its own truck. However, the truck is in need of repair, and this is estimated to be about $20,000. Annual operating costs are $30,000 and the line-haul costs are $2.20 per mile. Janet Jones (JJ), the traffic manager, wants to reduce the cost of bringing in the stainless steel, and because of the impending repairs, she feels now is a good time to look at alternatives. She has solicited a number of proposals and has narrowed her choices down to a motor carrier and a rail carrier.
Heavy Metal Transport (HMT), a contract motor carrier, has an excellent reputation for service and reliability. It has submitted an incremental rate, $4.00/cwt., for shipments weighting less than 150 cwt., $3.80 for shipments between 150 and 200 cwt., $3.60 for shipments between 200 and 250 cwt., and $3.40 for shipments over 250 cwt. up to a maximum of 400 cwt.
Midland Continental Railway has submitted a piggyback rate of $3.25 per cwt. with a minimum load of 200 cwt. The piggyback rate includes pickup by truck at the steel mill, line haul by trailer on flat car, and delivery by truck to Metal Specialities' warehouse. They are considered to be a reliable carrier as well.
The finance department estimates that Metal Specialities' annual inventory carrying cost is 20%, the cost of inventory in transit is 10%, and the cost of capital is 8%. The cost of placing an order for stainless steel is estimated to be $40 per order. Stainless steel presently costs $300 per cwt.
Case Analysis
1. JJ has to make a decision soon. Given the information provided, what would you advise her to do?