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CASES CASE 9.1 Shipping Wood to Market In the past the company has shipped the wood by train. Alabama Atlantic is a lumber company that has threewever, because shipping costs have been increasing, the al sources of wood and five markets to be supplied. The an- emative of using ships to make some of the deliveries is be- nual availability of wood at sources 1, 2, and 3 is 15, 20. ing investigated. This alternative would require the company and 15 million board feet, respectively. The amount that can o invest in some ships. Except for these investment costs, the be sold annually at markets, 2, 3, 4, and 5 is 11, 12. 9, sipping costs in thousands of dollars per million board feet 10, and 8 million board feet, respectively. by rail and by water (when feasible) would be the following for each route:. Unit Cost by Rail (S1,000's) Market Unit Cost by Ship ($1,000's) Market Source 2 72 60 78 45 55 6 31 38 2435 56 36 4328 24 31 6 32 26 59 66 63 6 47 61 The capital investment (in thousands of dollars) in ships r quired for each million board feet to be transported annually by ship along each route is given as follows: Investment for Ships (S1,000's) Market 275 293 303 318 283 238 270 250 26B 285 265 240 Considering the expected useful life of the ships and the Option 3: Ship by either rail or water, depending on which is time value of money, the equivalent uniform annual cost of these investments is one-tenth the amount given in the table. The objective is to determine the overall shipping plan that minimizes the total equivalent uniform annual cost (includ ing shipping costs). less expensive for the particular route. sent your results for each option. Compare. current shipping and investment costs, so the decision on Finally, consider the fact that these results are based on You are the head of the OR team that has been assigned the task of determining this shipping plan for each of the following three options. the option to adopt now should take into account manage ment's projection of how these costs are likely to change in the future. For each option, describe a scenario of future cost changes that would justify adopting that option now. Option I: Continue shipping exclusively by rail Option 2: Switch to shipping exclusively by water (except where (Note: Data files for this case are provided on the book's only rail is feasible) website for your convenience.)