A company operates a factory and 10 retail stores in Hong Kong. Its factory produces 20 types of face masks with different sizes and colors which are sold through its retail stores. Past sales records of EACH store show that the half-day sales from morning to noon are 400 masks (with 20 masks x 20 types) on average. The average half-day sales from noon to evening are also the same. In total, the average daily sales are 800 masks (with 40 masks x 20 types). The daily storage cost in the store is $20 for 400 masks, and $40 for 800 masks. For the factory, a production setup is required to produce a type of masks. To produce 20 types of masks, 20 setups are required. That is, one setup for each type. The factory produces either 400 or 800 masks of each type at a time. Setup cost (a fixed cost) for each production run is $50. The variable production cost for each mask is $0.5. The daily storage cost in the factory for 4,000 masks is $80. Transportation of masks from the factory to each retail store is provided by a trucking company. The Truckload (TL) cost charged for each trip is $120 per store. You, as the companys logistics manager, are asked to evaluate the following three options for improving distribution performance.

Option 1

In the early morning, produce 8,000 masks (i.e., 400 masks of each type) and deliver them from the factory to the stores before they open. Each store receives 800 masks in the early morning and pays $40 daily storage cost. No storage of masks is needed in the factory.

Option 2

In the early morning, produce 4,000 masks (i.e., 200 masks of each type) and deliver them from the factory to the stores before they open, and before noon produce 4,000 masks (i.e., 200 masks of each type) and deliver them from the factory to the stores. Each store receives 400 masks in the early morning and 400 masks by noon and pays $20 daily storage cost. No storage of masks is needed in the factory.

Option 3

In the early morning, produce 8,000 masks (i.e., 400 masks of each type) and store 4,000 masks (i.e., 200 masks of each type) in the factory. Each store receives 400 masks in the early morning and 400 masks before noon. Each store pays $20 daily storage cost, and the factory pays $80 daily storage cost.

1. Compute the daily total cost (sum of fixed and variable production cost, transportation cost and storage cost) of Option 1 for the factory and all stores.

2. Compute the daily total cost (sum of fixed and variable production cost, transportation cost and storage cost) of Option 2 for the factory and all stores.
3. Compute the daily total cost (sum of fixed and variable production cost, transportation cost and storage cost) of Option 3 for the factory and all stores.
4. Explain why the responsiveness performance of Option 1 is higher than that of Options 2 and 3 with TWO reasons.

5. Explain TWO suggestions for this company to achieve higher responsiveness through improved FACILITY decisions on its RETAIL STORES.