Flanger is an industrial distributer that sources from hundreds of suppliers. The two modes of transportation available for inbound shipping are LTL (less than truckload) and TL (truckload). LTL shipping costs $1 per unit, whereas TL shipping costs $400 per truck. Each truck can carry up to 1,000 units. Flanger wants a rule assigning products to shipping mode (TL or LTL) based on annual demand. Each unit costs the manufacturer $50 and the annual holding costs are 20% of the product cost. Every time Flanger makes an order it incurs in a fee of $100. Each unit costs the manufacturer $50 and the annual holding costs are 20% of the product cost. Every time Flanger makes an order it incurs in a fee of $100.

a) Determine the threshold for annual demand where TL would be preferred or where LTL would be preferred. Hint: Try different demand values in Excel, and compute optimal Q for each mode of transportation. Compare costs.

b) If the annual demand were 15,000 what is the optimal Q based on the economic order quantity (EOQ) model for each mode of transportation? Plot the total costs with respect to Q for both options using this annual demand and determine the optimal Q for each mode. How does this one compare with the optimal EOQ model?

c) Discuss the robustness of the EOQ model in the context of this problem.