Input Data
We present the following analysis:
Number of suppliers = 4 Direct shipping using full trucks: Each truck travels full from
Number of retail stores = 8 supplier to one retail store.
Direct shipping using optimally loaded trucks: Each truck tra
Demand per store from each supplier = 120,000 with the optimal batch size (EOQ) from one supplier to one
Fixed cost per truck = $ 1,000 retail store.
Truck capacity = 40,000 Milk run using full trucks: Each truck travels a milk run with
deliveries to k(Cell B21) stores. Each truck is fully loaded. Thu
Holding cost per unit per year = $ 0.20 retail store gets (truck capacity / k) units per batch.
Cost / stop = $ 100
Direct Shipping Using Full Trucks
Batch size, Q = 40,000
Average inventory at store = 20,000
Number of shipments / year = 3
Truck cost / retail store / supplier = $ 3,300
Total truck cost = $ 105,600
Holding cost / retail store / supplier = $ 4,000
Total holding cost = $ 128,000
Total holding and truck cost = $ 233,600
Milk Run Using Full Trucks
Number of stores / truck 4
Batch size = 10,000
Average inventory at store = 5,000
Number of shipments / year = 12
Truck cost / retail store / supplier = $ 4,200
Total truck cost = $ 134,400
Holding cost / retail store / supplier = $ 1,000
Total holding cost = $ 32,000
Total holding and truck cost = $ 166,400
We present the following analysis:
Direct shipping using full trucks: Each truck travels full from one
supplier to one retail store.
Direct shipping using optimally loaded trucks: Each truck travels
with the optimal batch size (EOQ) from one supplier to one
retail store.
Milk run using full trucks: Each truck travels a milk run with
deliveries to k(Cell B21) stores. Each truck is fully loaded. Thus, each
retail store gets (truck capacity / k) units per batch.
Direct Shipping Using Optimally Loaded Trucks
Optimal batch size = 36,332
Average inventory at store = 18,166
Number of shipments / year = 3.302891295
Truck cost / retail store / supplier = $ 3,633
Total truck cost = $ 116,262
Holding cost / retail store / supplier = $ 3,633
Total holding cost = $ 116,262
Total holding and truck cost = $ 232,524
Example 14-2: Trade-offs when selecting transportation mode
Change the annual demand in Cell D
Number of motors purchased per year = 120,000 to see how the preferred alternative
Cost per motor = $ 120
Weight per motor = 0.1 cwt
Safety inventory as percentage of lead time demand = 50%
Holding cost = 25%
Transportation proposals for Eastern Electric
Quantity
shipped Quantity shipped Shipping cost Transit time
Carrier (cwt) (motors) ($/cwt) (days)
AM Railroad 200+ 2000+ $ 6.50 5
Northeast trucking 100+ 1000+ $ 7.50 3
Golden Freightways 50-150 500-1500 $ 8.00 3
Golden Freightways 150-250 1500-2500 $ 6.00 3
Golden Freightways 250+ 2500+ $ 4.00 3
Golden Freightways (new
proposal) 250+ 2500+ $ 3.00 3
Lot Size Transportation Transportation Cycle Lead Time
Transportation Alternative (Motors) Cost/cwt Cost Inventory (days)
AM Rail 2,000 $ 6.50 $ 78,000 1,000 6
Northeast 1,000 $ 7.50 $ 90,000 500 4
Golden 500 $ 8.00 $ 96,000 250 4
Golden 1,500 $ 8.00 $ 96,000 750 4
Golden 2,500 $ 7.20 $ 86,400 1,250 4
Golden 3,000 $ 6.67 $ 80,000 1,500 4
Golden (Old proposal) 4,000 $ 6.00 $ 72,000 2,000 4
Golden (new proposal) 4,000 $ 5.63 $ 67,500 2,000 4
ange the annual demand in Cell D3 in increments of 120,000
see how the preferred alternative changes.
Safety In-Transit Total
Inventory Inventory Inventory Holding Cost Total Cost
986.00 1,644.00 3,630.00 $ 108,900 $ 186,900
658.00 986.00 2,144.00 $ 64,320 $ 154,320
658.00 986.00 1,894.00 $ 56,820 $ 152,820
658.00 986.00 2,394.00 $ 71,820 $ 167,820
658.00 986.00 2,894.00 $ 86,820 $ 173,220
658.00 986.00 3,144.00 $ 94,320 $ 174,320
658.00 986.00 3,644.00 $ 109,320 $ 181,320
658.00 986.00 3,644.00 $ 109,320 $ 176,820
Example 14-3: Trade-offs When Aggregating Inventory
Highval
Weight (lbs) 0.1 Impact of transportation cost on options
Cost $ 200 - Change transportation cost multiplier in Cell B15
Mean weekly demand / territory, µH = 2 Impact of SD of demand on options
SD of demand, σH = 5 - Change SD of HighVal demand in Cell B6
Lowval Impact of customer order size on options
Weight (lbs) 0.04 - Change customer order size multiplier in Cell B16
Cost $ 30
Impact of holding cost on options
Mean weekly demand / territory, µL = 20 - Change holding cost multiplier in Cell B17
SD of demand, σL = 5
Cycle service level = 0.997
Holding cost = 0.25
Transportation cost multiplier 1
Customer order size multiplier 1
Holding cost multiplier 1
Current Scenario Option A Option B
Number of stocking locations 24 24 1
Reorder interval (weeks) 4 1 1
HighVal Cycle inventory 96 24 24
HighVal safety inventory 737.3 466.3 95.2
HighVal inventory 833.3 490.3 119.2
LowVal cycle inventory 960 240 240
LowVal safety inventory 737.3 466.3 95.2
LowVal inventory 1697.3 706.3 335.2
Annual inventory cost $ 54,395 $ 29,813 $ 8,473
Shipment type Replenishment Replenishment Customer order
Shipment size
Highval 8 2 1
LowVal 80 20 10
Shipment weight (lbs) 4 1 0.5
Number of shipments / year 13 52 2496
Annual transport cost $ 530 $ 1,148 $ 14,464
Total Annual Cost $ 54,926 $ 30,961 $ 22,938
n options
ultiplier in Cell B15
tions
in Cell B6
on options
ultiplier in Cell B16
ns
in Cell B17
Example 14-4: Trade-off between transportation cost and responsiveness
Two-Day Response Three-Day response Four-Day response
Quantity Quantity Quantity
Day Demand Shipped Cost ($) Shipped Cost ($) Shipped Cost ($)
1 19,970 19,970 299.70 0 0 0 0
2 17,470 17,470 274.70 37,440 474.40 0 0
3 11,316 11,316 213.16 0 0 48,756 587.56
4 26,192 26,192 361.92 37,508 475.08 0 0
5 20,263 20,263 302.63 0 0 0 0
6 8,381 8,381 183.81 28,644 386.44 54,836 648.36
7 25,377 25,377 353.77 0 0 0 0
8 39,171 39,171 491.71 64,548 745.48 0 0
9 2,158 2,158 121.58 0 0 66,706 767.06
10 20,633 20,633 306.33 22,791 327.91 0 0
11 23,370 23,370 333.70 0 0 0 0
12 24,100 24,100 341.00 47,470 574.70 68,103 781.03
13 19,603 19,603 296.03 0 0 0 0
14 18,442 18,442 284.42 38,045 480.45 38,045 480.45
$ 4,164.46 $ 3,464.46 $ 3,264.46