The flour mill produces 1,200,000 metric kg of flour per year and produces flour at a steady pace. 70% of the flour is shipped to commercial bakeries and food processors. This part of the supply chain is not examined in this exercise. The remaining 30% of the flour is destined for the retail market and is shipped by the mill to the Happy Wheat Cereal packaging plants. Two-thirds of the shipments go to the Calgary plant, and one-third go to Toronto.
The shipment from the mill to the packaging centers is done in bulk, by rail. Each rail car holds 80 kg of flour.
With the current ordering process ordering single carloads and the possible cost savings with volume shipments, Happy Wheat Cereal’s supply and purchasing manager are interested in understanding the total cost of transportation if they decided to order in lot sizes of a) once a year b) twice a year or c) three times a year.
If the mill decides to ship flour in multiple car shipments, and if the shipments have to be unloaded within 12 hours after arrival, it will have to build bulk storage facilities and will have to absorb the carrying costs of that inventory. With these costs factored in, the annual carrying cost of the flour will be 25% of the value of the product.
• The wholesale value of the flour is $350 per kg
• Lead time is 20 days between orders and delivery
• Happy Wheat Cereal is forecasting demand 1,200,000 kg (Note: you need to figure out the distribution for Toronto & Calgary Plants)
• Happy Wheat Cereal’s annual carrying costs is at 25% the value of the product
• Happy Wheat Cereal has also calculated there variable order cost to be $500 per order

General Ref
Unit
Kilograms
Pick up Notification
Ship Time
LTL
1 Case
80
2hrs
5 days
LTL
2 Pallets
2,000
1 day
10 days
LTL
4 Pallets
4,000
1 day
10 days
TL
10 Pallets
10,000
1 day
10 days
Rail
Single Car
80
5 day
5 days
Rail
25 Cars
2,000
10 day
10 days
Rail
50 Cars
4,000
17 days
10 days
Rail
100 Cars
8,000
3 weeks
10 days
Instructions:
1. Calculate the dimensional weight of the items.
2. Calculate the chargeable weight of the items and apply the appropriate rate.
3. List the total charge for each method of shipment.
4. Calculate the savings per metric kg with multi-car shipments
5. How many times per year will Happy Wheat Cereal place an order of size Q"? Calgary? Toronto?
6. Using the data from the EOQ formula, what quantity provides the most efficient delivery? Calgary? Toronto?
7. Taking a look at Holding vs Ordering inventory, what are a few learning points from this activity?
Excel Template: Question 5 Trial-and-Error (Approximate) Method
• Order Quantity (the shipment car sizes):
• Batches per year (D/Q): use demand / Order qty
• Annual Ordering Costs (D/Q*S): use batches per year x ordering cost.
• Annual Holding Costs ((Q/2*H): use order qty/2 x holding cost
• Annual Total Cost (TC): use ordering cost + holding cost
Excel Template: Question 6 EOQ (Exact) Formula
• Once the applicable case data is entered, the EOQ is able to be calculated.
• Excel cell formula for EOQ required for cell B34 is SQRT((2*C27*C29)/C31)