Motorola obtains its smartphones and wall chargers from its contract manufacturer located in China to supply the U.S. market, which is served from a warehouse located in Memphis, Tennessee. Demand for both items at the Memphis warehouse is normally distributed. Daily mean and standard deviation of demand for smartphones is 5,000 and 2,000, whereas those for the wall chargers is 12,000 and 1,500, respectively. Each smartphone costs $400 and weighs 250 gr; each wall charger costs $25 and weighs 50 gr. Annual holding cost for the smartphones is calculated at 35%, while it is 20% for the wall chargers. The target CSL at the warehouse is 96 percent.

The company is debating whether to use ocean shipping or air freight from China. Including time to clear customs, ocean shipping results in an average lead time of 64 days with a standard deviation of 12 days, and costs $4,000 per container. Each shipping container has a capacity of 10,000 kgs. Air freight results in an average lead time of 24 days with a standard deviation of 8 days (including time in customs), and costs $1000 per shipment plus $15.00 per 1kg of freight weight.

Assume that Motorola takes ownership of the inventory as soon as it leaves the manufacturer in China. Hint: This means you have to consider the in-transit inventory.

1. Considering inventory holding and transportation costs, what is the annual cost of using air freight to import smartphones? What is the annual cost of using ocean shipping to import smartphones? Which transportation mode should they use for the smartphones?
2. Considering inventory holding and transportation costs, what is the annual cost of using air freight to import wall chargers? What is the annual cost of using ocean shipping to import wall chargers? Which transportation mode should they use for the wall chargers?