*****INTRODUCTION TO LOGISTICS MANAGEMENT QUESTION**** Carole Wilson, Transporta
ID: 461204 • Letter: #
Question
*****INTRODUCTION TO LOGISTICS MANAGEMENT QUESTION****
Carole Wilson, Transportation Manager of Applied Technologies, has a shipment of 150 computer monitors originating at the company's plant in Santa Fe Springs, California. the shipment, valued at $29,250, is destined for a DC in St, Louis, Missouri, John Miller, receiving manager at the St. Louis DC, has established a standardized transit time for the shipment to be 2.5 days. Mr. Miller assesses an opportunity cost of $6.00 per monitor for each day beyond the standard. Ms. Wilson has three transportation options available.
a. Cross Country Haulers, a long-haul trucking company, canship the monitors at a contracted rate of $1.65/mile. The distance from Santa Fe Springs to St. Louis is 1,940 miles. Cross Country estimates that it can deliver the shipment is 3 days. A truck can carry 192 monitors.
b. The Sea-to-Shining Sea (STSS) Railway can pick up the shipment at the plant's dock and deliver the monitorss directly to the St. Louis DC. STSS can ship the railcar of monitors for a flat charge of $1,500. Ms Wilson has recently experienced delays with the switching of its railcars and expects delivery to take 5 days.
c. Ms. Wilson has also negotiated an agreement with Lightning Quick Intermodal Inc. (LQI), a third party carrier that utilizes both motor and rail transportation. LQI can pick up the shipment by truck at the plant and deliver it to an intermodal railyard in Bakersfield, California, where the trailer is placed onto a flat railcar. The servicing railway, the Rocky Mountain Railway (RMR, then delivers the trailer to another intermodal yard near St. Louis, where the trailer is unloaded and transported by truck to the DC. Lightning Quick offers the origin-to-destination transportation for $2500. transit time is anticpated at 2.5 days. From past experience. Mr. Miller has discovered that the additional handling inherent with Lightning Quick's service results in 3 percent product loss and damage. Recovery of these losses is difficult and typically results in only 33.3 percent immediate reimbursement of the losses.
Evaluate the cost of each transprotation alternative. Please show calculations.
Explanation / Answer
Number of computer monitors in the shipment = 150.
Value of shipment = $ 29,250.
Standardized transit time for the shipment = 2.5 days.
Opportunity Cost = $ 6 per monitor (for each day beyond 2.5 days).
a. Shipment cost = $ 1.65 per mile.
Distance of travel = 1,940 miles.
Transit time = 3 days.
Truck capacity = 192 monitors.
Number of trucks required = 1.
Shipment cost for transporting by 1 truck = 1.65 x 1,940 = $ 3,201.
Opportunity Cost = $ 3 (half of $ 6 for half-day delay beyond 2.5 days) x 150 = $ 450.
Total Transportation Cost = Shipment cost for transporting by 1 truck + Opportunity Cost
= 3,201 + 450 = $ 3,651.
b. Shipment cost = $ 1,500 (flat charge).
Delivery time = 5 days.
Opportunity Cost = $ 6 x 2.5 x 150 = $ 2,250.
Total Transportation Cost = Shipment cost + Opportunity Cost = 1,500 + 2,250 = $ 3,750.
c. Shipment cost = $ 2,500.
Transit time = 2.5 days.
Amount of product loss and damage due to handling = 3% of 150 = 4.5 = 5 (approx.).
Value of 5 computer monitors = (29,250 / 150) x 5 = $ 975.
Recovery of value = 33.3% of 975 = 0.333 x 975 = $ 324.675.
So actual loss of value = 975 – 324.675 = $ 650.325.
Opportunity Cost = 0 (since there is no delay beyond 2.5 days).
Total Transportation Cost = Shipment cost + Opportunity Cost + Actual loss of value
= 2,500 + 0 + 650.325 = $ 3,150.325.
Therefore, we can see that Transportation Alternative c. has lowest Transportation Cost and should be the preferred choice of Transportation.
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