Question 1

DEMAND (CBM)	DISTANCES
WAREHOUSE	AVERAGE	MILES FROM KANSAS CITY	MILES FROM LOS ANGELES	MILES FROM SEATTLE
Kansas City	20,960	0	1,540	1,890
Cleveland	17,180	800	2,260	2,530
Newark	24,790	1,200	2,670	2,820
Jacksonville	15,180	1,140	2,530	2,920
Chicago	22,760	450	1,930	1,920
Greenville	15,180	850	2,430	2,920
Memphis	17,180	440	1,840	2,270
Dallas	22,760	430	1,490	2,170
Los Angeles	34,160	1,540	0	1,070
Total	190,150

Although a high percentage of demand was from warehouses either south or east of Kansas City, the question has surfaced concerning the 34,160 CBM (approximately 18 percent of the total volume) that will be shipped to Kansas City and then shipped back to the Los Angeles warehouse. This double-transportation could potentially be eliminated if a new distribution center were built in Los Angeles. The idea might be to ship material arriving at the Seattle port by rail to a new Los Angeles distribution center, which would be located at the current location of the Los Angeles warehouse.

It is estimated that the Los Angeles facility could be upgraded at a one-time cost of $1,500,000 and then operated for $350,000 per year. In the new Los Angeles distribution center, containers would be unloaded and processed through a quality assurance check, just as is now done in Kansas City. The variable cost for doing this would be $8.00 per CBM processed, which includes the cost to move the containers from the Los Angeles port to the distribution center.

After the material is processed in Los Angeles, the amount needed to replenish the Los Angeles warehouse (34,160 CBM per year on average) would be kept and the rest sent by rail to Kansas City. It would then be directly stocked in the Kansas City distribution center and used to replenish the warehouses. They expect that very little would need to be shipped back to the Los Angeles warehouse after the new system was operating for about six months.

Grainger management feels that it may be possible to make this change, but they are not sure if it would actually save any money and whether it would be a good strategic change.

*The data in this case have been developed for teaching purposes and do not represent the actual situation at Grainger. The data, though, are representative of an actual problem that Grainger and similar companies must address to efficiently run the supply chain.

Relative to the U.S. distribution network, calculate the cost associated with running the existing system. Assume that 40 percent of the volume arrives in Seattle and 60 percent in Los Angeles and the port processing fee for federal processing at both locations is $8.00 per CBM. Assume that everything is transferred to the Kansas City distribution center by rail, where it is unloaded and quality checked. Assume that all volume is then transferred by truck to the nine existing warehouses in the United States

Question 2

Problem 15-7 (Algo)

Bindley Corporation has a one-year contract to supply motors for all washing machines produced by Rinso Ltd. Rinso manufactures the washers at four locations around the country: New York City, Fort Worth, San Diego, and Minneapolis. Plans call for the following numbers of washing machines to be produced at each location:

New York City	20,000
Fort Worth	100,000
San Diego	80,000
Minneapolis	95,000

Bindley has three plants that can produce the motors. The plants and production capacities are

Boulder	100,000
Macon	150,000
Gary	80,000

Due to varying production and transportation costs, the profit Bindley earns on each 1,000 units depends on where they were produced and where they were shipped. The following table gives the accounting department estimates of the dollar profit per unit. (Shipment will be made in lots of 1,000.)

	SHIPPED TO
PRODUCED AT	NEW YORK CITY	FORT WORTH	SAN DIEGO	MINNEAPOLIS
Boulder	15	21	21	25
Macon	29	26	16	7
Gary	8	22	23	21

Given profit maximization as a criterion, Bindley would like to determine how many motors should be produced at each plant and how many motors should be shipped from each plant to each destination.

a.Develop a transportation grid for this problem.

Question 3

Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,400 units. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process forwhich you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data have been collected:

Requirements (annual forecast)		16,600	units
Weight per engine		30	pounds
Order processing cost	$	180	per order
Inventory carry cost		20	percent of the average value of inventory per year

Note:Assume that half of lot size is in inventory on average (1,400/2 = 700 units).

Two qualified suppliers have submitted the following quotations:

ORDER QUANTITY	SUPPLIER 1 UNIT PRICE	SUPPLIER 2 UNIT PRICE
1 to 1,499 units/order	$	478		$	480
1,500 to 2,999 units/order		480			485
3,000 + units/order		480			475
Tooling costs	$	30,000		$	26,500
Distance		120 miles		100 miles

Your assistant has obtained the following freight rates from your carrier:

Truckload (53,500 lbs. each load):	$0.80 per ton-mile
Less-than-truckload:	$1.20 per ton-mile

Note:Per ton-mile = 2,000 lbs. per mile.

a-1.Calculate the total cost for each supplier.

b-.If you could move the lot size up to ship in truckload quantities, calculate the total cost for each supplier.(Do not round intermediate calculations.Round"Required lot size for truckload" andfinalanswers to the nearest whole number.)

HINT: Use (full) truckload cost rates and the lowest (feasible) unit cost for all calculations. For example, if there are 8.3 orders per year, don't split the 8.3 orders into 8 full truckloads and 0.3 less-than-truckloads - use the full truckload rate for all 8.3 orders. For annual purchase cost, don't use two different unit costs for the 8 complete orders and the 0.3 partial orders - use the lowest (feasible) unit cost for all 8.3 purchase orders based on the lot size needed for a full truckload.