(30 marks) A power plant in California uses coal at the rate of 100,000 lbs per day. It also uses MRO material at the rate of 1,000 lbs per day. The coal comes from Wyoming and the MRO material comes from Chicago. Coal costs $0.01 per pound, whereas MRO material costs $10 per pound. Holding costs are 25% per year. There are 365 days in a year. The following transportation choices are available:

Rail

Lead time = 15 days

Carload (100,000 lbs) at $400 per carload

Full train (70 cars) at $15,000 per train

Truck

Lead time = 4 days

Minimum cost = $100

Up to 10,000 lbs at $0.08 per pound

Between 10,000 and 20,000 lbs at $0.07 per pound for entire load

Between 25,000 and 40,000 lbs at 0.06 per pound for entire load

Small Truck Load (40,000 lbs) for $2,000

Large Truck Load (60,000 lbs) for 2,600

The safety inventory of both coal and MRO is kept at twice the consumption during the lead time of supply.

What is the effective CSL of this safety stock policy for rail assuming that the standard deviation of daily demand is 20,000 lbs (lead time = 15 days)? (10)

What mode of transportation and shipping quantity do you recommend for coal? (10)

What mode of transportation and shipping quantity do you recommend for MRO products? (10)