Question

FE.N. Jim’s Jellybeans

Candy producer Jim’s Jellybeans have customers all over the world. To be able to meet demand, the company has been forced to operate 15 separate warehouses across the globe. Lately, however, development in IT and warehouse automation has created new possibilities for Jim’s Jellybeans. The cost of the current operation is (for the whole company):

• Transportation: $1 000 000

• Stock keeping: $15 000 000

• Cost for tied-up capital: $2 000 000

The company is faced with three alternatives:

Alternative 1: Automate picking. This means that each warehouse will be 30% more expensive (stock keeping cost) due to new equipment etc. But it also means that the order to delivery lead-time for each warehouse will decrease by as much as 60%. The reduced lead time lets the company reduce the number of warehouses to 10. As a result of this, transportation cost will double.

Alternative 2: Automate everything. Here, the number of warehouses are reduced to 5. The remaining warehouses are heavily automated and stock keeping cost is increased by 70% for these. Transportation cost increases by 500%.

Alternative 3: Do nothing. Keep the current system intact.

Na. What is the cost for tied-up capital for alternative 1?(Round off to closest integer.) ........................ $ unanswered

Nb. What is the cost for tied-up capital for alternative 2? ........................ $ unanswered

Nc. What is the total cost foralternative 1? ........................ $ unanswered

Nd. What is the total cost foralternative 2? ........................ $ unanswered

Ne. What is the total cost foralternative 3? ........................ $ unanswered

DO NOT ANSWER WRONG BECAUSE I WILL FEEDBACK WITH A NEGATIVE REVIEW

Answer 1

The answer of the following question is given below as follows:

Extract the data as shown below as follows :

Transportation cost = $1,000,000

Stock keeping cost = $15,000,000

Cost of tied-up capital = $ 2,000,000

No.of warehouses, N_{​​​​​}   is 15

Alternative 1: Automate picking up

Increase in stock keeping cost = 30%

Delivery lead time decreases = 60%

Reduced number of warehouses, N_{​​​​​​A1} = 10

Now the Transportation cost will be double.

Alternative 2: Automate everything

Reduced warehouses N_{​​​​​​A2} = 5

Increase in stock keeping cost = 70%

Increase in transportation cost = 500%

Alternative 3: Do nothing

Na.

Now we'll Calculate the cost for tied-up capital for alternative 1, given below as follows :

Cost = Cost for tied-up capital √N_A1/N

$2000000√10/15

By solving the above equation we get

= $1632993.

Nb.

Now let's Calculate the cost for tied-up capital for alternative 2, is given below as follows :

Cost = Cost for tied-up capital √N_A2/N

= $2000000√5/15

By solving the above equation we get

= $1154701

Now let's take Nc.

Calculate the transportation cost for Alternate 1, as shown below:

T_{​​​​​​C}= 2x1000000

= $2000000

Now let's Calculate the stock keeping cost for alternate 1, as shown below as follows :

T_{​​​​​​S} = $15000000x1.30 * 10/15

= $13000000

So the Cost of tied-up capital for Alternative 1 = $1632993

Now let's Calculate Calculate the total cost as shown below as follows :

TC =T_{​​​​​​c} +T_{​​​​​​s} +Cost for tied-up capital = = S2000000+$13000000+$1632993

= $16632993.

Now taking the case Nd.

Let's Calculate the transportation cost for Alternate 2, as shown below:

T_{​​​​​​C} = 5 * 1000000

= $5,000,000

Now Calculate the stock keeping cost for alternate 2, as shown below:

T_{​​​​​​S}= 15000000 *1.70* 5/15

= $8500000

So the Cost of tied-up capital for Alternative 2 =1154701

Now we'll Calculate the total cost as shown below:

TC = T_{​​​​​​c} +T_{​​​​​​s}+Cost for tied-up capital

= 5000000+8500000+ 1154701

= $14654701

Now let's take Case Ne.

Transportation cost, T_{​​​​​​c} =$ 1000000

Stock keeping cost, T_{​​​​​​s} = $15000000

Cost for tied-up capital = $2000000

Now we'll Calculate the total cost of Alternate 3, as shown below as follows :

TC = T_{​​​​​​c}+T_{​​​​​​s}+Cost for tied-up capital

= $1,000,000+ $15,000,000+ $2,000,000

= $18,000,000