TMQ company produces luggage goods. The typical distribution plan is to produce a finished goods inventory located at the plant site (A), then to transport these goods to the inventory located at the warehouse site (B). Currently, rail transportation is used to move goods from A to B. The TMQ company is considering an alternative of transportation because of desired cost reduction. Information related to transport modes is given in table 1 below. Three types of information are rate ($/unit), transit time (days), and number of shipments per year. Information related to transport modes is given in table 1 below. Three types of information are rate ($/unit), transit time (days), and number of shipments per year.

Transport modes	Transport modes	Transit time (days)	Shipments per year
Rail	0.1	21	10
Air	1.4	1	100

Information related to TMQs luggage production includes annual demand (D) being 700,000 units, inventory as a safety stock being 100,000 units at each site (A or B), the value of a finished goods being 30$/unit and the carrying inventory costs are 30%/year.

Questions: :

1: Use the information given in table 1 to calculate the improved transport service and reduced safety stock. (Hint: consider rail transport as a baseline. One day reduction in transit time is relevant to 1% improved transport service when switching from one transport mode to another. The number of shipments reduced is equal to the inventory as a safety stock reduced).

2: Display the formulas used to compute transportation cost, In-transit inventory, Plant inventory (site A), Field inventory (site B).

3: Apply results of question 3 & 4 to compute costs associated with transport modes of Rail and Truck. Should TMQ company decide to change its transportation method from rail to truck?