Consider a company that has 32 retail stores and each retail store sells product
ID: 2525430 • Letter: C
Question
Consider a company that has 32 retail stores and each retail store sells product from 8 different suppliers. At each retail store, the demand for each supplier’s product is 50,000 pounds per year. The company is planning to use large trucks with milk runs to handle transportation from suppliers to retail stores. Each truck can carry 40,000 pounds. The cost of a truck is $1000 plus $150 per delivery (i.e., each milk run stop costs $150). The company is planning to have 10 stops on a milk run. Assume that inventory holding cost is $1 per pound per year. Please compute the annual transportation plus inventory holding cost (just based on cycle inventory) this company will incur.
Explanation / Answer
(a) Total Demand = 8*50000 = 400000 pounds
Total trucks required = 400000/40000=10 trucks
Total cost for trucks = 10*1000=$10000
Cost per delivery = 150
Total delivery = 10*10 = 100
cost per delivery = 150
Total Delivery cost = 150*100 = 15000
Total Transportation cost = 15000+10000 = $25000
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