A Tennessee automobile manufacturer has 20 containers (40 steel boxes with a max gross weight of about 40,000 pounds) on a container ship that can carry 5,000 40 containers of parts from suppliers approaching Canadas western coast, inbound from China. Canadian National Railway workers are threatening a strike. If the workers strike while the load is inbound from Vancouver, the car parts shipments could be delayed, potentially shutting down the manufacturing line. What do you recommend to management?

Additional information: It takes 20 of these containers per day to maintain operations. Container ships are leaving Shenzhens port daily, carrying 20 containers of parts along with their full load of containers for other customers. Assume that operations only can store 20 containers of parts at a time, so inventory stock up is not feasible.

Alternative 1: Continue to Prince Rupert, BC, hoping that the strike will be settled before you shut the plant down. The cost of a shutdown is $12,000,000 per day (variable cost).

Alternative 2: Divert to Vancouver, BC, for an additional cost of $100,000 (fixed cost). If there is a strike, truck the parts to Seattle and on to Nashville via BNSF, with an additional cost of $300 per 40 container (variable cost). There is still a possibility of getting caught by the strike and shutting the plant down, but it is no more than 25% of the probability of the shutdown described in alternative 1. (If you are shut down, the cost is the same, but the probability is less because you arent traveling on CNRR as far.) The cost of a shutdown is $12,000,000 per day (variable cost).

Alternative 3: Divert to Long Beach, CA, for an additional $500,000 (fixed cost) and on to Nashville via Union Pacific (UP), with an additional cost of $500 per 40 container (variable cost). You could still get shut down for a couple of days if the strike occurs right away because this route is longer and will take more time. (Product already on CNRR could be held up, causing a brief shutdown before containers arrive via UP.) Assume that this probability is no more than 15% of the probability described in alternative 1. The cost of a shutdown is $12,000,000 per day (variable cost).

* For true emergencies, Boeing 777s could be chartered from Shenzhen, China to Nashville, TN, each carrying about 5 containers worth of parts. Charter costs are $20,000 per hour per plane (including refueling time) plus about $500,000 in emergency loading and freight internal to the port of Shenzhen. It takes 21 hours, more or less, for the trip from Shenzhen to Nashville, including refueling time. The result is that we will NOT be shut down for more than one day. However, this is an expensive alternative.

	Prince Rupert	VanCouver	Long Beach
Fixed Cost	$ (B16)	$ (C16)	$ (D16)
Variable Cost per Container	$ (B17)	$ (C17)	$ (D17)
Variable Cost per Strike Day to Avoid Shut Down	$ (B18)	$ (C18)	$ (D18)

1. Enter the fixed cost for each Alternative in cells B16 through D16.
2. Enter the variable cost per container for each Alternative in cells B17 through D17. (Remember variable costs vary by the number of containers shipped. Therefore, the variable costs must be multiplied by the number of containers that are input to cell B9).
3. Enter the variable cost per strike day to avoid a shutdown using the Boeing 777 charter option in cells B18 through D18. (Remember the costs detailed above for the Boeing 777 option are for 5 containers only. You will need 4 chartered shipments to deliver 20 containers.)