FIXIT has been provided an offer to move product by RAILCAR, a RAIL brokerage that works closely with railroads to schedule shipments. RAILCAR also coordinate schedules with the railroads to improve supply chain costs for shippers. The current offer by RAILCAR is a shipment price for one wagon load of widgets from Portland to Pittsburg of $6000. The capacity of a wagon is 15000 packs. Transit time is expected to be 15 days with a standard deviation, based on current performance of 10 days. Full wagon loads are transported. If FIXIT were to use rail to ship product from Portland to Pittsburgh, what would be total logistics cost? Transportation cost per month, Safety stock holding cost per month, Cycle Stock holding cost per month, Pipeline holding cost per month and Total cost per month

Data given=

Fixit’s demand =30,000 packs per month

truck capacity =5,000 packs

Total shipments per month = Fixit’s demand/truck capacity =30000/5000=6 shipments/month.

cost for a truckload shipment from Portland to Pittsburg, by third-party carrier = $3000

the monthly cost of truck shipments=Total shipments per month * cost for a truckload shipment

the monthly cost of truck shipments=6*$3000

the monthly cost of truck shipments=$18000 per month

Transportation cost per month =$18000 per month

standard deviation =2 days

Z value for service level of 95%. =1.645

Daily Demand =Monthly demand/ number of days = 30000/30 =1000

safety stock = Z*std. deviation* daily demand

Safety stock =1.645*2*1000

Safety stock =3300 packs

holding cost per month = price* percentage of price / number of months=15*0.2/12 = $0.25

holding cost of safety stock=holding cost per month* safety stock = $0.25*3300

holding cost of safety stock=$825

For Cycle Stock holding cost per month:

cycle stock =5000/2 =2500

monthly holding cost of cycle stock= Holding cost* cycle stock

monthly holding cost of cycle stock= (15*0.2/12)*2500

monthly holding cost of cycle stock= $625

For Pipeline holding cost per month:

monthly demand =30,000

Transit time = 5 days

In transit inventory = (monthly demand*transit time)/days in month

In transit inventory =(30000*5)/30

In transit inventory =5000

Holding cost of In-transit inventory =(price* percentage of price/number of months)*In transit inventory=(15*0.2/12)*5000

Holding cost of In-transit inventory =$1250

total logistics cost of the current system in $ per month =Transportation cost per month+ holding cost of safety stock+monthly holding cost of cycle stock+Holding cost of In-transit inventory

total logistics cost of the current system in $ per month = 18000+825+625+1250

total logistics cost of the current system in $ per month =$20700