WL Electronics sells odometers to two major auto manufacturers in Alabama. The company buys subcomponents from China and keeps in its assembly facility in San Diego, Ca. To serve better to its customer, WL also has a warehouse located in Alabama. When there is a demand from AL, the company assembles the odometers in San Diego, CA, and sends the warehouse located in AL using the preferred mode of transportation. The company aims to keep five times the size of shipment quantity sent AL as the average inventory level in San Diego. For example, if the shipment size to AL is 200 odometers then the average inventory level in San Diego is set to 1000 sets (subcomponents).
The total cost of subcomponents (a set) to assemble an odometer is $120, and the cost of assembling is $50. Immediately after assembly operation, odometers are shipped to AL. The yearly demand for odometers is 180000 units. Inventory holding rate is 30% per set (odometer) per year. Given the information below.
rate($/set) transit time(days) shipment size (as percentage of average annual demand)
Rail 0.5 18 5.00%
Truck 3 3 1.00%
Piggyback 2.25 12 1.25%
a) calculate the total cost of Rail, truck, and piggyback
b) Which mode of transportation should be chosen by the WL Electronics?