Question

Company XYZ a baby ware makes company servers three regions near Iowa and maintains consignment inventory (owned by ZZY) at each location. Currently. ZZy uses refrigerated TL transportation to deliver separately to each customer. Each truck costs $700 plus $150 per stop. KAR Food is considering aggregating deliveries to Iowa on a single truck. A careful study of the sales regions revealed three large customers, three medium-sized customers, and ten small customers. Demand at the large customer is 60 tons a year, demand at the medium customer is 24 tons per year, and demand at the small customer is 8 tons per year. Product cost for ZZZY Company is $10,000 per ton, and it uses an annual holding cost of 25 percent. Truck capacity is 12 tons.

a. What is the annual transportation and holding cost if ZZY ships a full truckload to each customer when they are running out of stock?

b. What is the optimal delivery policy to each customer if ZZY Company ships separately to each of them? What is the annual transportation and holding cost?

c. What is the optimal delivery policy to each customer if ZZY Company aggregates shipments to each of the three customers on every truck that goes to Iowa? What is the annual transportation and holding cost?

d. Can you come up with a tailored policy that has lower costs than the policies in (b) or (c)? What are the costs and inventories for your suggested policy?

Answer 1

What is the annual transportation and holding cost if ZZY ships a full truckload to each customer when they are running out of stock?

	large	Medium	Small
No of customers	3	3	10
Annual demand	60	24	8
If all 16 customers are fed , by separate vehicle
it will cost
	700 x 16	11200
Holding Cost = $ 10000 * 25%		2500
Total		13700
Assume : We assume that we have been asked to provide the cost of transportation
and carrying cost , if each customer has been taken a unit

What is the optimal delivery policy to each customer if ZZY Company ships separately to each of them? What is the annual transportation and holding cost?

Answer B ) Optimal delivery policy shall be to feed all customers, with maximizing the deliveries , at a time

Working attached herein below

	large	Medium	Small	Total
No of customers	3	3	10
Annual demand	60	24	8
	5	2	0.666667
Per truck $ 700
	3500	1400	700	5600
Holding Cost = $ 10000 * 25%				2500
Total				8100

What is the optimal delivery policy to each customer if ZZY Company aggregates shipments to each of the three customers on every truck that goes to Iowa? What is the annual transportation and holding cost?

Answer C )

	Large			Medium			Small			Total	Truck cost	Shipping	Total
	Customers	Req	Total	Customers	Req	Total	Customers	Req	Total
	1	20	1	1	8	8	1	0.8	0.8
	2	20	2	2	8	8	2	0.8	0.8
	3	20	3	3	8	8	3	0.8	0.8
							4	0.8	0.8
							5	0.8	0.8
							6	0.8	0.8
							7	0.8	0.8
							8	0.8	0.8
							9	0.8	0.8
							10	0.8	0.8
	Total	60			24			8		60
										Capacity
Truck 1		12								12	700		700
Truck 2					8			4		12	700	150	850
Truck 3		8			4					12	700	150	850
Truck 4		8			4					12	700	150	850
Truck 5		8			4					12	700	150	850
Truck 6		8			4					12	700	150	850
Truck 7		8						4		12	700	150	850
Truck 8		8						0		8	700	0	700
Total		60			24			8		92	5600	900	6500
Annual Carrying Cost is 25% of $ 10000													2500
Annual Transportation and holding cost if Zzy ships a full truckload to each customer												Total	9000

Answer d ) We can minimize the cost by following method

We can reduce the number of deliveries and reduce the cost

as mentioned below

	Total	60			24			8		60
										Capacity
Truck 1		12								12	700		700
Truck 2		12								12	700		700
Truck 3		12								12	700		700
Truck 4		12								12	700		700
Truck 5		12								12	700		700
Truck 6					8			4		12	700	150	850
Truck 7					8			4		12	700	150	850
Truck 8					8			0		8	700	0	700
Total		60			24			8		92	5600	300	5900
Annual Carrying Cost is 25% of $ 10000													2500
Annual Transportation and holding cost if Zzy ships a full truckload to each customer												Total	8400