due in two hours

Help Asap please,

make a case study finding which option is better and why?

Harbor Delivery Service (HDS) is an over the water delivery service operating in several

large port/metropolitan areas. Each branch office has from 5 to 15 boats in its fleet. Currently,

each branch office purchases its boats locally based on the branch managers preferences.

This has resulted in each branch having a mix of brands and models and both diesel- and

gasoline-powered units in some ports. Maintenance for this mixed fleet is a major headache,

and costs seem out of control. To better utilize resources, the company has been repositioning

boats to avoid unnecessary purchases and idle resources. This has been far from a resounding

success, as the receiving locations are not prepared to maintain the boats if they differ from

those it currently has. The branch managers inevitably find major faults with the boats

transferred into their site. Additionally, this causes the sites to need both diesel and gasoline

refueling facilities, with the inevitable confusion and mistakes. The various types and brands

also make it difficult to create a brand image. HDS has decided to centralize procurement

of boats and to standardize on brands and fuel types.

The task of standardizing the fleet has been assigned to a team consisting of the chief

operating officer and three branch managers. The team has identified the size and

configuration of boat that best meets the general needs of HDS but have been unable to agree

on a common power unit. A poll of the branch managers finds that five out of ten branch

managers prefer the gasoline option due to its higher speed, while two out of ten are

indifferent to the choice of power unit.

Marketing has expressed a preference for diesel power units. They claim that the

customers perceive diesel units as less flammable and support this preference with data that

shows that insurance premiums are $500 more per year for gasoline-powered boats.

Marketing cannot show that demand has been impacted by power unit choice.

You have been tasked with recommending the appropriate power unit. To support this

task, you have constructed the following table (Table 11-1) based on the specifications of the

two boats under consideration.

The boat manufacturer (the only difference in the two boats is the engine) has supplied an

estimate of the average speed of each unit and the fuel consumption based on this average

speed. Since the boats are used in harbors and for fairly short runs, the higher speed of the

gasoline engine is valued at only $50 per day. When not in use, the gasoline engines will be

turned off, while the diesel units would idle and burn fuel at the rate of 1 gal per hour. Both

units are seen as adequate to meet the delivery schedules/requirements of HDS.

Your investigations into maintenance costs have determined that the diesel unit requires

$9000 in annual maintenance (mainly for the cooling system), while the gasoline engine unit

has an annual cost of $6000. Oil changes are $25 for the gasoline unit and $57 for the diesel

unit. Oil changes occur every 100 hours of engine use.

Diesel is estimated to run $2.95 per gallon while gasoline runs $3.15 per gallon. The

branch offices are located adjacent to a fueling/service dock ran by another business unit of

HDSs parent company. The boats are docked at the fueling facility overnight and each

evening the tanks are topped off before the boats are turned over to the maintenance crew for

service and cleaning. Thus, nightly refueling stops cost $15, but if refueling must be done

during the day it costs $55.

The units will typically cover 200 nautical miles in the course of the day. Crews are

changed every six hours. The delivery service operates 18 hours per day 7 days a week.

The diesel units, if purchased, will be kept in service for 4 years before being sold for

$48,000 each. The gasoline units will be sold after 3 years of service for $38,000.

HDSs minimum attractive rate of return (MARR) is 18%.

Option

How many nautical miles per day must be traveled to change your recommendation?

CASE 11 Harbor Delivery Service Annual comparison of diesel versus gasoline engines