Question

Kim Distribution Services (KDS) distributes food purchased in bulk to small retailers. The firm is divided into two divisions: Purchasing and Distribution. Purchasing is responsible for ordering goods from the manufacturer, receiving them, and then moving them to the appropriate location in the warehouse. Distribution is responsible for taking orders from retailers, picking the products from the warehouse for the orders, and packaging the orders for shipment. KDS has a policy of filling every order on the day of the order. If the firm is out of a particular item, it will ship a partial order and complete the order when the item is back in stock. Occasionally, an order will not have to be packaged if the retailer chooses to take delivery at the KDS loading dock. Distribution has 17 employees who are responsible for the activities, and all 17 are trained to handle any of the three tasks. Each of these employees works 42 hours per week for 48 weeks. There is an allowance of 22 percent of the employees’ time for training and other administrative tasks. The total costs of distribution for the coming year are estimated to be $846,200. When asked, the manager of Distribution estimated the following times for each of the three activities: Taking orders: 12 minutes. Picking orders: 16 minutes. Packaging orders: 24 minutes. Until now, KDS used a commercial vendor to ship orders. The manager of Distribution believes the system described is too simple in two ways. First, if a retailer is ordering from KDS for the first time, Distribution has to take time to verify the Retailer details (shipping address, credit, and so on). The manager estimates this additional time to total 32 minutes. In addition, some orders are quite complex. This happens when a retailer orders many different items in one order. The manager estimates that a complex order takes an additional 22 minutes to pick, on average.

Required: a. What is the total time required for taking an order?

b. What is the total time required for picking an order?

c. Compute the total cost of filling a complex order from a new retailer. Assume that all of the items in the order are in stock and that the retailer will not pick the order up at the KDS loading dock. (Round intermediate calculations and final answer to 2 decimal places.)

Answer 1

a.

Total time required for taking an order=Normal time+Additional time rquired if a new retailer=12+32=44 Minutes

b.

Total time required for picking an order=Normal time+Additional time required if order is complex=16+22=38 Minutes

c.

Total cost of filing a complex order=Minutes per order*cost per minute

Minutes per order=Time required for taking order+Time required for picking order+Packaging time=44+38+24=106 Minutes

Cost per minute= Total cost of distribution/Total minutes available

Total minutes available=No.of employees*Hours worked*Weeks worked*(100-Allowance % for training)%*Minutes per hour=17*42*48*(100-22)%*60=1603930 Minutes

Cost per minute= Total cost of distribution/Total minutes available=846200/1603930=$ 0.5276

Total cost of filing a complex order=106*0.5276=$ 55.93