St. Simon Industries, a mining company based in Potosi, Bolivia, exports tin to China. Traditionally, the company has exported its product through the port of Arica located in northern Chile. Due to constant strikes at the port of Arica, St. Simon Industries is looking for alternative routes to export its goods.

The Bolivian government has recently signed a contract with authorities from the Peruvian city of Ilo to use the citys port for Bolivian exports. In this sense, St. Simon Industries wants to explore the cost implications of using the port of Ilo.

The annual demand of tin in China is normally distributed with an average of 180 containers and standard deviation of 30 containers. One container of tin is worth $340000. The companys holding charge is 20% per year and the company includes the transportation cost when calculating inventory costs. It costs $1500 to process the required paperwork to export the goods, independently of the volume shipped. The companys cycle service level target is 95%.

It takes on average 1.5 months to transport the tin from Potosi to the manufacturer in China through the port of Arica. The total transportation cost of this route is $5000 per container.

Similarly, it takes 2.0 months to ship the tin through the port of Ilo. The transportation cost of this route is $3500 per container.

In both scenarios the company would ship an economic order quantity of 3 containers. St. Simon Industries owns the tin until it is delivered at the manufacturing premises. Consider 1 year has 12 months.

1)

What is the annual cycle stock cost for exporting the tin through Chile?

What is the annual cycle stock cost for exporting the tin through Peru?

2)

What is the annual safety stock cost for exporting the tin through Chile?

What is the annual safety stock cost for exporting the tin through Peru?

3)

What is the annual pipeline inventory cost for exporting the tin through Chile?

What is the annual pipeline inventory cost for exporting the tin through Peru?

4)

What should be the total average transit time (in months) of the route through Peru to be more economically attractive?