In this exercise, you will evaluate logistics costs (transportation and inventory costs) for two cornethanol plants located in Iowa, with different production capacities.

Ethanol Plants:

Plant SMALL is 50M gal/year Plant LARGE is 100M gal/year

Additional Information and Assumptions:

Ethanol price = $1.35 per gallon

Ethanol weighs 6.6 lbs per gallon

Inventory carrying costs expressed as a percent of product value - 15%

1 rail car holds 30,000 gallons, and the average inventory held in storage for single rail cars is 30,000 gallons

1 unit train = 100 single rail cars, and inventory is completely depleted after loading a unit train

1 truck holds 8,000 gallons, and the average inventory held in storage for truck is 20,000 gallons

Market and Transport Information

Southern California (CA) 50% of production

1800 miles

Truckload rate fuel surcharge- $2.75/mile

Truckload transit time 4 days

Single car rate per ton-mile - $0.035

Single car transit time 15 days

Unit train rate per ton-mile - $0.020

Unit train transit time 8 days

New Jersey (NJ) 50% of production

1150 miles Truckload rate with fuel surcharge- $3.25/mi

Truckload transit time 2 days

Single car rate per ton-mile - $0.060

Single car transit time 25 days

Unit train rate per ton-mile - $0.030 Unit train transit time 12 days

Answer the following questions or perform the following activities. Use additional sheets as necessary. Show your calculations or sample calculations.

1. For each plant, calculate the inventory carrying costs (ethanol only) for each of the three different types of transportation (truck, single car, unit train). (Do not consider in-transit inventory.) What are the implications for relatively small plants? Ag & Biosystems Engineering Iowa State University TSM/ABE 325 Team-09 Fall 2017 tjb/bjm

2. For each plant, calculate the transportation costs (ethanol only) for each of the three different types of transportation (truck, single car, unit train), based on the destinations given.

3. For each plant size, calculate the total logistics costs (outbound ethanol only transportation costs plus inventory carrying costs) for each of the three different types of transportation (truck, single car, unit train). (Do not consider in-transit inventory.) Which mode of transportation had the lowest total logistics cost? Did plant size matter in determining the mode for the lowest cost?

4. What is the cost of in-transit inventory for each type of transportation?

5. A few years ago, the average price of ethanol was $2.10/gal. Consider the large ethanol plant shipping ethanol via unit trains. What was the difference in inventory carrying costs, transportation cost (assuming no change in transportation rates or time-to-ship), and cost of in-transit inventory between last year and this year? How does ethanol price affect overall logistics and inventory costs?

6. What other logistics issues should be considered when determining transportation mode (or scale)?