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A bike manufacturer is looking to re-evaluate the transportation mode it uses to send semi-finished assemblies to its assembly lines in Hyderabad, India. Currently, the
A bike manufacturer is looking to re-evaluate the transportation mode it uses to send semi-finished assemblies to its assembly lines in Hyderabad, India. Currently, the organization relies on air freight and it takes them roughly 10 days from Vancouver to Hyderabad. This transit time includes pickup and delivery and customs delays. The freight cost per unit using air freight comes out to be $100 (inclusive of pickup and delivery charges). Using the current mode of transportation, a safety stock of 50 units must be maintained at all times at destination. The alternative is to use an ocean liner to ship the parts from Vancouver to the port of Chennai and from there to a truck (a 2,000 km distance). The ocean freight for this lot size will cost $30 per part and will take 20 days. The truck from Chennai to Hyderabad will cost $25 per part and will take 5 days (including pickup and delivery and customs delays). Due to higher uncertainty of lead times via ocean shipments, a safety stock of 200 units will have to be maintained for a mixed mode (ocean and road). Determine the cheaper (total freight, delivery, and in-transit and safety holding cost) mode
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