Question

A garment retailer ships cartons of athletic shirts, each worth $700 (for a full carton of shirts), from their production facility in Bangladesh to the North American market, via ocean-going container ship. In this example the company is responsible for holding inventory cost at both ends of the supply chain. Demand in the destination market is 912 cartons per year, and you can assume that the product is sold all 52 weeks of the year. The cost of holding inventory is 2.3% per week, and the shipment of a container takes 5 weeks including all transit time in ports, costs $5,200, and each container has a maximum capacity of 150 cartons.

A) If the retailer chooses the shipment size that minimizes logistics cost (TLC) according to the Economic Order Quantity model, what is the total logistics cost per week? Directions: round the number of cartons per shipment to the nearest integer and then solve for TLC (even though a non-integer number would achieve a slightly lower TLC).

B) Now suppose a new option emerges to use air freight instead of container ship. The capacity of each air freight container is 18 cartons, and the retailer is required to ship a full container each time. Each air freight container costs $2,200 to ship and takes 8 days including origin and destination transit time. Calculate total logistics cost via air to determine whether or not the company should switch to air freight.

Answer 1

A)	EOQ FORMULA
	q = 2ds/h square root
	d	912	Total qty
	s	5200	shipping cost
	h	12075	holding cost
	28.0266067	EOQ
	Logistic cost per week/carton	6
	Total cartons in one shipment	182
	Total Logistical cost per week	1022
	TLC (TOTAL LANDED COST)/SHIPMENT	132512
	TLC FOR ONE CARTON	728.0882036
B)	EOQ FORMULA
	q = 2ds/h square root
	d	912	Total qty
	s	2200	shipping cost
	h	331.2	holding cost
	110.0724399	EOQ
	Logistic cost per week/carton	22
	Total cartons in one shipment	58
	Total Logistical cost per week	1272
	TLC (TOTAL LANDED COST)/SHIPMENT	46958
	TLC FOR ONE CARTON	812.9810272

As per the both comparison the company have to continue with
sea shipment. Air shipping is not recommended