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Pratt & Whitney, a major aircraft engine manufacturer, wants to re - evaluate the transportation mode it uses to send unfinished parts to its joint
Pratt & Whitney, a major aircraft engine manufacturer, wants to reevaluate the transportation mode it uses to send unfinished parts to its jointventure facility in Chengdu, China. Annual demand is units. At present the company uses air freight. It takes approximately six days from Los Angeles to Chengdu including pickup and delivery and customs delays There are parts in a lot, each weighing kilograms. The air freight cost per part is $ The pickup and delivery charges at origin and destination add up to $ per part. The alternative is to use an ocean liner to ship the parts to Shanghai and from there to either use a truck or a train a km distance The ocean freight for this lot size will cost $ per part and will take days. The truck from Shanghai to Chengdu will cost $ per part and will take six days including pickup and delivery and customs delays Transportation by rail will cost $ per part and will take days including pickup and delivery, customs, and transfer delays In addition, for rail there is a $ per part charge for pickup and delivery. The companys inventory holding cost rate is percent per year, and the value of each part is $ Assume days per year.
Due to variability of lead times, at the destination, safety stocks of and units will be kept if air, ship and truck, and ship and train are used, respectively. Determine the cheapest total freight, delivery, and intransit and safety holding cost mode of transportation for these parts. Hint: The value of a part in Chengdu for calculating the safetystock holding cost should include the freight cost.
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