Request: Please help solve the 3 QS below based on the article, explain as detail as possible. Meantime also share your insights Thanks.

Case Study: NAN

Since Auckland, which is in the North Island of New Zealand, is geographically closer to the primary

fresh milk and cream supply of the Waikato (heartland of various free-range dairy farms), NAN decides to set

up its own production plants in Auckland to keep production near the supply of raw materials so that the

manufacturing process could be smoother and more secured. Currently, three plants and five distribution

centers are dispersed over the country. The plants generally manufacture the base products, and the distribution

centers produce hundreds of end products that fit customer specifications.

To further expand its domestic market, NAN considered providing consignment inventory to its North

Island's customers and implementing this strategy throughout the country if it proved effective. NAN would

keep the ice cream products required by each customer in the North Island on consignment at the customers'

sites. Customers would sell the ice cream as demanded, and NAN would replenish regularly to ensure

sufficient product supply. According to previous sales data, the consumption of ice cream by customers tended

to be stable. NAN owned the consignment inventories and got paid when the ice cream was consumed.

NAN assigned all its inland replenishment function to a 3PL company named SuperTruck through open

bidding. SuperTruck is famous for its fast response and prompt delivery through expertise in fleet management.

All of its trucks have refrigerated units built either directly on the frame or transported by trailer and are

powered by diesel-operated generators. SuperTruck has to fulfill every order NAN places within 24 hours or

reimburse NAN for all damages in case of a failure to do so. Each truck has a capacity of 40,000 liters, and

SuperTruck has been contracted to charge a fixed flat rate given the origin and destination regardless of the

quantity loaded. NAN usually sends full truckloads (TL) to each customer to replenish its consignment

inventory.

Katy Leung has recently been employed by NAN as North Island regional supply chain manager to

oversee logistics operations in the region. Katy is responsible for inventory as well as transportation costs and

decides to review the current operations for possible cost savings. In particular, Katy wonders if NAN should

include multiple shipments for different customers on a single truckload. Table 11-4 shows the customer

profile in Wellingtonone of the distribution centers.

SuperTruck charges $400 for each truckload from the Wellington DC to each customer based on NAN's

policy to send a full truckload as needed. In response to Katy's recent enquiry, SuperTruck indicated that it

would charge $350 per truck plus $50 for each drop-off location. That is, if a truck made only one delivery as

existing practice, the total charge would be $350 + $50 = $400. However, if it had to make three extra

deliveries (total of 4 locations), the total charge would then be $350 + $200 = $550.

Each liter of ice cream product in consignment costs NAN $1, while the holding cost is maintained at 25

percent. Consider the different distribution possibilities in the Wellington example and recommend the best

option. This will help shape the future marketing and distribution strategy that NAN plans to roll out

throughout all of New Zealand.

Table 11-4 Customer Profile for NAN in Wellington

Customer Type	Number of Customers	Consumption (Liters/month)
Small	12	1,000
Medium	6	6,000
Large	2	12,000

QUESTIONS

1. Calculate the annual cost of NAN's strategy of sending only full truckloads to each customer in

Wellington to replenish consignment inventory.

2. Evaluate the costs for different delivery options and recommend the best option that NAN should

adopt.

3. How does your recommendation affect NAN's consignment inventory?