You oversee the transport of wine from Valparaiso, Chile to Chicago, USA for you

Question

You oversee the transport of wine from Valparaiso, Chile to Chicago, USA for your company. The wine is produced and in bulk in Maipo. The bulk wine is transported in TEU containers that carry up to 21000 liters of wine each. Currently you order one full container for each order to “weigh out” the container.

The annual demand for wine is 120000 liters with standard deviation 12000. The wine costs $13 per liter. The sales price is $26 per liter. It costs $2400 per order, and the holding charge rate is 0.12. Assume that there are 348 days per year. The cycle service level is 90%.

Moving from Maipo to Valparaiso costs $68 and takes 2 days. It takes 10 days before it is shipped out of Valparaiso to USA. It costs $860 and takes 8 days to ship from Valparaiso to Newark and costs $670 and takes 8 days to ship from Valparaiso to Houston. The cargo takes 1 day to leave the Newark port and 3 days to leave the Houston port.

There are both truckload (TL) and Intermodel (IM) options for inland transportation. Going from Newark to Chicago by truckload costs $1600 and takes 3 days, or by intermodal costs $1380 and takes 1 day; Houston to Chicago by truckload costs $1530 and takes 7 days, or by intermodel costs $1400 and takes 4 days. All prices are for moving one container.

There are four path options:

A. Maipo - Valparaiso – Newark (TL) – Chicago

B. Maipo - Valparaiso – Newark (IM) – Chicago

C. Maipo - Valparaiso – Houston (TL) – Chicago

D. Maipo - Valparaiso – Houston (IM) – Chicago

Please leave your answers in this problem to 2 decimal places unless otherwise stated. Also please minimize rounding in your intermediate steps to keep you answer as accurate as possible.

In the following questions, please consider transportation costs as additional fixed cost per order that has to be added to the order cost stated earlier, and that total logistics cost includes ordering, cycle stock, pipeline stock, and safety stock costs. Do not include purchase cost.

Explanation / Answer

Hi,
Out of the four path option given in the problem above, the shortest time (in days) to ship wine from Maipo to Chicago is through the path B. Maipo- Valparaiso- Newark (IM)- Chicago. The working of the same is as below-
Processing time in Valparaiso 10 days
Maipo To Val 4 days $45
Val- Newark 13 days $820
Val- Houston 10 days $550
stopage time in Newark port 1 day
stopage time in Houston port 3 days
Prices are for moving 1 container
TL cost TL Days IM cost IM days
Newark to Chicago $1,340 3 days $1,110 1 day
Houston to Chicago $1,500 5 days $1,520 8 days
So in order to figure out the shortest time (in days) to ship the wine we need to add up the time required for the shipping from Maipo to Chicago. So from Maipo to Valparaiso it takes 4 days, then there is a 10 days processing time at Valparaiso, then it starts from Valparaiso to Newark/ Houston and from there to Chicago either in TL or IM mode. You need to add up the days as shown below (refer to the above tables to get the number of days from one place to another) to get the total transit time from Maipo to Chicago around different given path and compare the time taken, you will see the path B) Maipo- Valparaiso- Newark (IM)- Chicago is the shortest route reacing in 29 days.
Route Shipment days
Maipo- Val- Newark (TL)- Chicago 4+10+13+1+3=31
Maipo- Val- Newark (IM)- Chicago 4+10+13+1+1=29
Maipo- Val- Houston (TL)- Chicago 4+10+10+3+5=32
Maipo- Val- Houston (IM)- Chicago 4+10+10+3+8=35
Similarly for the second part of the question to figure out the lowest possible transportation cost per 1000 lt we need to add up the costs given in the table i have provided at the top of this answer. Please note that the costs provided are for a container ie for 22000 liters. So we will first derive the $ cost per 22k lt and then convert them to $ cost per 1000 Lt.
Also note that one order of 22k lt cost $1000 and additional holding charge of 0.13 ie ($1000*0.13=$130), also there is transport cost of $45 from Maipo to Valparaiso. These three cost are fixed cost for all the route, so you will see them common in the working below. Apart from these three cost please add up the transportation cost provided in the table at the Top of the answer page.
Now once you have arrived at the $ cost per 22k lt as shown below in the 2nd column, you need to convert the cost to per Liter cost by dividing the total amount with 22000 (eg. 3335/22000=0.151590909), repeat the same for all the four paths and then multiply the per Liter cost with 1000 to arrive at $ cost per 1000 Lt (eg. 0.151590909*1000=151.59). As per the working below the lowest possible transportation cost per 1000 lt is for the Path B) Maipo- Valparaiso- Newark (IM)- Chicago ie $141.14.

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