BM's demand for dry ink is 60 tons per year. Currently, BM buys the dry ink from an import merchant that buys the ink from a East Coast U.S. manufacturer. The shipments arrive in lot size of 30 tons by rail. The current cost of dry ink is $C612.22 per ton, including rail transportation cost to BM's location. BM currently keeps 6 tons of dry ink as safety stock. BM's buyer has asked the import merchant to quote a price for truck deliveries in smaller lot sizes. The merchant has quoted C$567.78 per ton for a lot size of 20 tons.

In the meantime, BM's buyer has contacted the manufacturer directly and asked if BM could purchase dry ink directly from the manufacturer. The answer was affirmative and the cost would be US$386.89 per ton (assume US$1 = C$1.05). A common carrier has quoted a price of C$2,600 to haul a full truckload of dry ink (20 tons) from the manufacturer to BM's location in Alberta. The trip will take 7 days.

The holding cost rate for BM is 20 percent of unit cost per year. For truck deliveries, BM will hold only 2 tons of safety stocks. Assume 365 days per year. Which alternative has the lowest total annual purchase, transport, in-transit, safety stock, and average cycle stock holding cost?

2) J &J, a major aircraft engine manufacturer, wants to re-evaluate the transportation mode it uses to send unfinished parts to its joint-venture facility in Chengdu, China. Annual demand is 2,900 units. At present the company uses air freight. It takes approximately six days from Los Angeles to Chengdu (including pickup and delivery and customs delays). There are 20 parts in a lot, each weighing 30 kilograms. The air freight cost per part is $90. The pickup 

and delivery charges at origin and destination add up to $15 per part. The alternative is to use an ocean liner to ship the parts to Shanghai and from there to either use a truck or a train (a 2,000 km distance). The ocean freight for 

this lot size will cost $30 per part and will take 15 days. The truck from Shanghai to Chengdu will cost $20 per part and will take six days (including pickup and delivery and customs delays). Transportation by rail will cost $15 per 

part and will take 14 days (including pickup and delivery, customs, and transfer delays). In addition, for rail there is a $10 per part charge for pickup and delivery. The company's inventory holding cost rate is 12 percent per year, 

and the value of each part is $1,000. Assume 365 days per year. Due to variability of lead times, at the destination, safety stocks of 60, 210, and 290 units will be kept if air, ship and truck, and ship and train are used, respectively. 

Determine the cheapest (total freight, delivery, and in-transit and safety holding cost) mode of transportation for these parts.

 

3) An appliance manufacturer has a plant near Toronto that receives small electric motors from a manufacturer located in Winnipeg. The demand for motors is 120,000 units per year. The cost of each motor is $120. The motors 

are purchased in lots of 3,000 units. The ownership of motors transfers to the appliance manufacturer in Winnipeg. The question is which mode of transportation, truck or train, the appliance manufacturer should use to bring the motors from Winnipeg to Toronto. The railroad company charges $2 per motor, and it takes approximately seven days by train. The trucking company charges $4 per motor, but it takes only three days. The appliance 

manufacturer will keep 1,000 units as safety stock if a truck is used and 3,000 units as safety stock if a train is used for transportation. Assume 365 days per year. If the holding cost rate is 25 percent of unit cost per year, which 

mode of transportation will minimize total transportation and in-transit and safety holding cost?