documents tips home work chapter 1 2 3 4 5 6 7 business logisticssupply chain management ronald h ballou

Solution: Plant Location cwt Material Transport Cost Houston to Taiwan Unit Production Cost cwt Product Transportation/ storage charges Houston to Chicago cwt Product Transportation /st

Home Work Chapter 1 to 7 Book: Business Logistics/Supply Chain Management Ronald H Ballou Excel sheet:

Logistics

management.xlsx

Student Name: Shaheen Sardar

Course Name: Logistics Management

Department: Industrial and Management Engineering, Hanyang University, South Korea.

Home Work 1 Chapter 1: Business Logistics/Supply Chain

Question 12: Suppose that a manufacturer of men's shirts can produce a dress shirt in its Houston, Texas, plant for

$8 per shirt (including the cost of raw materials) Chicago is a major market for 100,000 shirts per year The shirt ispriced at $15 at Houston plant Transportation and storage charges from Houston to Chicago amount to $5 perhundredweight (cwt.) Each packaged shirt weighs 1 pound

As an alternative, the company can have the shirts produced in Taiwan for $4 per shirt (including the cost ofraw materials) The raw materials, weighing about 1 pound per shirt, would be shipped from Houston to Taiwan at acost of $2 per cwt When the shirts are completed, they are to be shipped directly to Chicago at a transportation andstorage cost of $6 per cwt An import duty of $0.50 per shirt is assessed

(a) From a logistics-production cost standpoint, should the shirts be produced in Taiwan?

(b) What additional considerations, other than economic ones, might be considered before making a final decision? Solution:

Plant Location

cwt Material Transport Cost (Houston to Taiwan)

Unit Production Cost

cwt Product Transportation/

storage charges (Houston to Chicago)

cwt Product Transportation /storage charges (Taiwan to Chicago)

Unit Import Duty

Note: hundredweight (cwt) = 100 pounds weight

Each packed shirt weight = 1 pound

Raw material weight per shirt = 1 pound

Unit Material Transport Cost = Raw Material Density/CWT Unit Product Transport Cost = Product Density/CWT

Example: $2/100 = $0.02

Plant Location

Unit Material Transport Cost (Houston to Taiwan)

Unit Production Cost

Unit Product Transportation/

storage charges (Houston to Chicago)

Unit Product Transportation /storage charges (Taiwan to Chicago)

Unit Import Duty

Following formulas are used.

 Total Material Transport Cost = Product Volume * Unit Material Transport Cost

 Total Product Transport Cost = Product Volume* Unit Product Transport Cost

 Total Production Cost = Product Volume * Unit Production Cost

 Total Import Duty = Product Volume * Unit Import Duty

 Total Cost = Total Material Transport Cost + Total Product Transport Cost + Total Production Cost + Total Import Duty

 Total Price = Product Volume * Shirt Price/unit

 Total Profit = Total Price - Total Cost

Plant Location

Product Volume

Total Production Cost

Total Material Transport Cost

Unit Product Transport Cost

Total Import Duty

Total Cost

Shirt price/

unit

Total price Profit

Houston plant

(USA) 100000 $800,000 0 $5,000 0 $805,000 $15 $1,500,000 $695,000 Outsourcing to

Taiwan (Asia) 100000 $400,000 $2,000 $6,000 $50,000 $458,000 $15 $1,500,000 $1,042,000

From a logistics-production cost standpoint, the shirts should be produced in Taiwan There is a cost for rawmaterials from Houston to Taiwan, but still is cheaper than the Houston plant when other costs are combined.Following additional considerations might be considered before making a final decision

 How long the shirts would be stored (holding cost) from plant-to-truck-to-final destination

 Order processing cost for suppliers needs to be done strategically (to have least cost of shipping to Chicago)

 How order is transported at least cost, most efficiently, and within the time allotted

 Supplier availability in Taiwan.

 Capacity availability in Taiwan.

 Risk of late delivery in Taiwan.

 Quality and reliability issues in Taiwan.

 Effective inventory lot-sizing in Taiwan.

 Other strategic considerations in USA as well as in Taiwan.

Home Work 2 Chapter 2: Logistics/Supply Chain Strategy and Planning

Question 13: The traffic manager of the Monarch Electric Company has just received a rate reduction offer from a

trucking company for the shipment of fractional horsepower motors to the company's field warehouse The proposal

is a rate of $3 per hundredweight (cwt.) if a minimum of 40,000 pounds is moved in each shipment Currently,shipments of 20,000 pounds or more are moved at a rate of $5 per cwt If the shipment size falls below 20000pounds, a rate of $9 per cwt applies

To help the traffic manager make a decision, the following information has been gathered:

Annual demand on warehouse 5,000 motors a year

Warehouse replenishment orders 43 orders a year

Weight of each motor, crated 175 lb per motor

Standard cost of motor in warehouse $200 per motor

Stock replenishment order handling cost $15 per order

Inventory carrying cost as percentage of average value of inventory on hand for a year 25% per yearHandling cost at warehouse $ 0.30 per cwt

Should the company implement the new rate?

Circumstance 1: Rate for shipment weight ≥ 40000 = $3 per cwt (New proposal)

Circumstance 2: Rate for shipment weight ≥ 20000 = $5 per cwt (Present)

Circumstance 3: Rate for shipment weight < 20000 = $9 per cwt (Present)

Shipment size is more than 20000 or minimum 40000, so we will not investigate Circumstance 3.

Weight of total motors (annual requirement) = 5000 motors/year * 175 lb /motor = 875000 lb / year = 8750 cwt/year (i.e 1 cwt = 100 lb.)

Cost for Circumstance 1: (For new proposal)

Trucking cost = $3/cwt * 8750 cwt / year = $ 26250/year

Number of orders= 875000lb / year

40000 lb. =21 orders

Ordering cost = 21 orders * $ 15 /order = $ 315

Inventory carrying cost= 40000 lb

Cost for Circumstance 2: (For present situation)

Trucking cost = $5/cwt * 8750 cwt / year = $ 43750

Number of orders= 875000lb / year

20000lb =43 orders

Ordering cost = 43 orders * $ 15 /order = $ 645

Inventory carrying cost= 20000lb

Circumstance 1 Total Cost: (For new proposal) = $ 34905

Circumstance 2 Total Cost: (For present situation) = $ 49877

Yes, the company should implement the new rate.

Home Work 3Chapter 3: Logistics/Supply Chain Product

Question 11: Davis Steel Distributors is planning to set up an additional warehouse in its distribution network.

Analysis of item-sales data in its other warehouses shows that 25% of the items represent 75% of the sales volume.The company also has an inventory policy that varies with the items in the warehouse That is, the first 20% of theitems are the A items and are to be stocked with turnover ratio of 8 The next 30% of the items, or B items, are tohave turnover ratio of 6 The remaining C items are to have a turnover ratio of 4 There are to be 20 products held atthe warehouse with sales forecasted to be $2.6 million annually What dollar value of the average inventory wouldyou estimate for the warehouse?

Solution:

Y =cumulative fraction o f sales

X =cumulative fractionof items

A=a constant ¿ be determined

Projected items sales = difference between cumulative sales for successive items

Turnover ratio for theitem= Projected Item Sales

Average inventory level Averageinventory level= Projected Item Sales

Turnover ratio for the item

YA= (1+ 0.125)0.20

0.125+0.20 =0.69

Cumulative sales (YA) =$2600000*0.69 = 1,800,000

Projected Item Sales (YA) = $1,800,000

Averageinventory levelA= Projected ItemSales

Turnover ratio for the item =

$ 1,800,000

8 = $ 225,000

YA +B= (1+ 0.125)0.50

0.125+0.50 =0.90

Cumulative sales (YA +B) =$2,600,000*0.90 = $2,340,000

The product group B sales will be A+B sales less A sales

Projected Item Sales (YB) = YA +B− YA = $2,340,000- $1,800,000 = $540,000

Averageinventory levelB= Projected ItemSales

Turnover ratio for theitem =

The product group C sales will be A+B+C sales less A+B sales

Projected Item Sales (YC) = YA +B +C− YA + B = 2,600,000-$2,340,000= $260,000

Averageinventory levelC= Projected Item Sales

Turnover ratio for the item =

$ 260,000

4 = $ 65,000

Dollar value of the average inventory for the warehouse is

¿ Average inventory levelA+ Average inventory levelB+ Average inventory levelC

¿ $ 225,000+$ 90,000+$ 65,000=$ 380,000

Question 12: Beta Products is planning to add another warehouse Ten products from the entire line are to be stored

in the new warehouse These products will be the A and B items All C items are to be served out of the plant.Forecasts of annual sales that are expected in the region of the new facility are 3 million cases (A, B, and C items).Historical data show that 30 percent of the items account for 70 percent of the sales The first 20 percent of the entireline are designated as A items, the next 30 percent as B items, and the remaining 50% as C items Inventory turnoverratios in the new warehouse are projected to be 9 for A items and 5 for B items Each inventory item, on the average,requires 1.5 cubic feet of space Product is stacked 16 feet high in the warehouse

What effective storage space is needed in square feet excluding aisle, office, and other space requirements?

Solution:

All C items are to be served out of the plant So, we will consider only A and B

Y =cumulative fraction of sales

X =cumulative fractionof items

A=a constant ¿ be determined

Projected items sales = difference between cumulative sales for successive items

Turnover ratio for theitem= Projected Item Sales

Average inventory level

Averageinventory level= Projected Item Sales

Turnover ratio for the item

Space requirement = 1.5 cubic feet

Stack height requirement = 16 feet

Effective storage space= Average inventory× space requirement

$ 353171 ×1.5 feet3

16 feet

Effective storage space required = 33110 feet2

Question 13: An analysis of the product line items in the retail stores of the Save-More Drug chain shows that 20%

of the items stocked account for 65% of the dollar sales A typical store carries 5,000 items The items accountingfor the top 75% of the sales are replenished from warehouse stocks The remainder is shipped directly to stores frommanufacturers or jobbers How many items are represented in the top 75% of sales?

Solution:

Y =cumulative fraction of sales

X =cumulative fractionof items

A=a constant ¿ be determined

29% of the items represent the top 75% of sales

Total number of items = 5,000

Number of items that represent 75% of sales = 0.29*5000 = 1450

Question 14: The cost associated with producing, distributing, and selling a domestically produced automotive

component to Honda in Japan can be summarized as follows:

Cost type Cost per Unit, $

Purchased materials 25Manufacturing labor 10

Transportation Varies by shipment size

Transportation costs vary as follows If the purchase (shipping) quantity is 1000 units or less, thetransportation cost is $5 per unit For more than 1000 units but less than or equal to 2000 units, the transportationcost is $4 per unit For more than 2000 units, the transportation cost is $3 per unit.

Construct a price schedule, assuming the vendor would like to pass the transportation economies on to thecustomer Indicate the discount percentage the customer will receive through buying at various quantities

Question 6: The Cleanco Chemical Company sells cleaning compounds (dishwashing powders, floor cleaners,

nonpetroleum lubricants) in a keenly competitive environment to restaurants, hospitals and schools Delivery time

on orders determines whether a sale can be made The distribution system can be designed to provide differentaverage levels of delivery time through the number and location of warehousing points, stocking levels and orderprocessing procedures The psychical distribution manager has made the following estimates of how service affectssales and the cost of providing service levels:

Percentage of orders delivered in one day

Estimated annual sales (millions of $) 4.0 8.0 10.0 11.0 11.5 11.8 12.0Cost of distribution (millions of $) 5.8 6.0 6.5 7.0 8.1 9.0 14.0

(a) What level of service should the company offer?

(b) What effect would competition likely have on the service level decision?

Solution (a): Profit = Estimated annual sales – cost of distribution

Percentage of orders delivered in one day

Estimated annual sales (millions of $) 4.0 8.0 10.0 11.0 11.5 11.8 12.0

Profit is $4 million at 80% service level Company maximizes the profit when it serves at 80% service level Company should offer 80% of service level

Solution (b): Suppose the product’s price and quality is the same in all competing companies If a company A

increases its service level, other competitor companies will also increase their service levels Based on competition,

the company A will change its service level, resulting in change in its profit (otherwise loss of customers).

Question 7: Five years ago, Norton Valves, Inc., introduced and publicized a program under which 56 items in its

hydraulic valve line would be made available on a 24-hour-delievery basis, instead of normal 1-to 12-week deliveryperiod Quick order processing, stocking to anticipated demand, and using premium transportation services whennecessary were elements of the 24-hour delivery program Sales history was recorded for the five years before theservice change as well as for a five-year period after the change Because only a portion of the product family wassubject to the service improvement, the remaining products (102 items) served as a control group Statistics for one

of the test product groups showing the before and after annual units sales levels are given as follows:

Sales before service change Sales after service change Product Family 5-Year Average Standard

Deviation 5-Year Average Standard Deviation

 Standard Deviation: For the individual sales

 Test group: Products in family with 24-hour delivery

 Control group: Products in family with 1-to 12-week delivery

The average value of products in this family was $95 per unit The incremental cost for the improved service was $2per unit, but the company did not intend to pass along the costs as a price increase Instead it hoped that additionalsales volume would more than offset the added costs The profit margin on sales at the time was 40 percent

(a) Should the company continue the premium service policy?

(b) Appraise the methodology as a way of accuracy determining the sales-service effect.

Solution: (a)

 Before: (1342+185)*95*0.40 = $58026

 After: (2295+224)*95*0.40 – (2295*2) = $91132

 Company should continue the premium service policy

Solution: (b) We appraise the methodology as a way of accurately determining the sales-service effect.

Question 8: A food company is attempting to set the customer service level (in-stock probability in its warehouse)

for a particular product line item Annual sales for the item are 100,000 boxes, or 3846 boxes biweekly The productcost in inventory is $10, to which $1 is added as profit margin Stock replenishment is every two weeks, and thedemand during this time is assumed to be normally distributed with a standard deviation of 400 boxes Inventorycarrying costs are 30% per year of item value Management estimates that a 0.15% change in total revenue wouldoccur for each 1% change in the in-stock probability

(a) Based on this information, find the optimum in-stock probability for the item.

(b) What is the weakest link in this methodology? Why?

Solution: (a) Optimum service level is the point where the change of cost equals to the change of profit (∆p = ∆c)

∆p = Trading margin*sales response rate *annual sales

∆p = $1*0.0015*100000

∆p = $150 per year (per 1% change in the service level)

∆c = annual carrying cost * standard product cost * ∆z*demand standard deviation over replenishment lead time

Solution: (b) The weakest link in methodology is that ∆p is assumed as constant for all service levels, in fact, in

most cases ∆p is a decreasing function of service level We do not have the correct data about interrelation of servicelevel and sales (Weakest link in this analysis is estimating the effect that a change in service will have on revenue)

Question 9: An item in the product line for the food company discussed in question 8 has the following

characteristics:

Sales response rate = 0.15% change in revenue for a 1% change in the service level

Trading margin = $0.75 per case

Annual sales through the warehouse = 80,000 cases

Annual carrying cost = 25 %

Standard product cost = $10

Demand standard deviation = 500 cases per 1 week lead time

Lead time = 1 week

Find the optimum service level for this item

Solution: Optimum service level is the point where the change of cost equals to the change of profit (∆p = ∆c)

∆p = Trading margin*sales response rate *annual sales

∆p = $0.75*0.0015*80000

∆p = $90 per year (per 1% change in the service level)

∆c = annual carrying cost * standard product cost *∆z*demand standard deviation over replenishment lead time

∆c = 0.25*$10*∆z*500

∆c = $ 1250 ∆z

∆p = ∆c

stock probability increases to the 10% level (y), sales and profit drop to one-half of those at target level Decreasing

the out of stock percentage from the target level seems to have little impact on sales, but it does increase inventorycarrying cost substantially The following data have been collected on the item:

Other expenses associated with stocking the item @0.30

Annual item sold @ 95% in-stock 880

The retailer estimates that every one percentage point that the in-stock probability is allowed to vary from the target

level, the unit cost of supplying the item decreases according to C = (1.00-0.10) (i.e y-m), where C is the cost per unit, y is the out-of-stock percentage, and m is the target out-of-stock percentage

How much variability from the target stocking percentage should the retailer allow?

Question 5: A logistics manager for a television producer in South Korea has been given the responsibility for

setting up a logistics information system for his company How would you answer his question below?

(a) What types of information do I want from the information system? Where would I obtain the information? (b) Which item in information database should I retain in the computer for easy access? How should I handle the

remainder?

(c) What types of decision problems would the information system help me address?

(d) What models for data analysis would be most useful in dealing with these problems?

Answer (a): We can get amount of sales, times, sales location, order data, inventory rate, transport cost, etc from

customers, company, books, and company files

Answer (b): Logistics manager decides the criteria for judgment when he makes the decision For example:

 How important is the data stored on computer database?

 What data is not required to keep on computer due to computer memory problems?

 Is it necessary to respond quickly?

 How frequent efforts are required for data management?

Answer (c): Information system helps the company to solve logistics problems.

Answer (d): Mathematical and statistical models.

Question 6: For the following companies, suggest the types of data that should be collected to plan and control their

supply chain:

(a) A hospital

(b) A city government

(c) A tire manufacturer

(d) A retailer of general merchandise

(e) An ore-mining company

Answer (a): A hospital = Number of customers, rooms, patients, doctors, etc.

Answer (b): A city government = Number of customers, employees, etc.

Answer (c): A tire manufacturer = Number of orders, sales, location, etc.

Answer (d): A retailer of general merchandise = Information of items, inventory, etc.

Answer (e): An ore-mining company = Expected demand, logistics, amount of minerals, etc.

Home Work 6 Chapter 6: Transport Fundamentals Question 14: A power company in Missouri can buy coal for its generating plants from western mines in Utah or from eastern mines in Pennsylvania The maximum purchase price for coal of $20 per ton at the Missouri plant is set according to the price of competing energy forms The cost to mine coal in the West is $17 per ton and

in the East is $15 per ton Transportation cost from the eastern mines is $3 per ton What is the value of

transportation from the western mines?

Solution:

The cost to mine coal + transportation cost should be ≤ $20 per ton

For East:

Cost to mine coal in the East = $15

Transportation cost in the East = $3

Total cost in the East = $15 + $3 = $18

For West:

Cost to mine coal in the West = $17

Transportation cost in the West = $x

Total cost in the West = $17 + $x

The maximum purchase price for coal is decided by competition

Now, total cost in the West must be as follow:

$17 + $x ≤ $18

Transportation cost in the West must be as follow:

$x ≤ $18 - $17

$x ≤ $1

Therefore, Transportation cost in the West must be ≤ $1, if we want to purchase coal from West

Question 15: Shipments for a certain product originate at point X and are to be sent to points Y and Z Y is

an intermediate point to X and Z The rate of Y is $1.20 per cwt., but due to competitive condition at Z, the rate of Z

is $1.00 per cwt (hundredweight) Apply the principle of blanketing back, and explain how it eliminates ratediscrimination

For any product classification number below 50, use 50 in Table 6-6

d) A 30000-lb shipment of cat accessories at a density of 10 lb per cubic foot moving between Louisville, Kentucky, and Chicago, Illinois.

e) A 24000-lb shipment of advertising circulars not printed on newsprint moving between Louisville, Kentucky, and Chicago, Illinois A rate discount of 40 percent is offered.

Solution (a): From Table 6-4, the item number for place mats is 4745-00 Classification is 100, and minimum

weight is 20000 lb The 2500 lb is less than minimum weight of 20000 lb for a truckload shipment From the Table6-5, for Los Angeles, the rate for shipment of ≥ 20000 is 87.27 cents/cwt The shipping charges are as follows:

25 cwt * $87.27 = $2181.75

Solution (b): From Table 6-4, the item number for rubber displays for advertising purposes is 4980-00.

Classification is 100, and minimum weight is 20000 lb The 150 lb is less than minimum weight of 20000 lb for atruckload shipment From the Table 6-5, for Providence, RI, the rate for minimum shipment is 93.51 cents/cwt Theshipping charges are as follows:

1.5cwt * $93.51 = $140.265

The rate for < 500 lb is 54.01 cents/cwt The shipping charges using the < 500 lb are as follows:

$54.01 * 1.5 cwt = $81.02

$81.02 is less than $140.265 We should pay the minimum charges.

Solution (c): From Table 6-4, the item number for emery cloth in packages is 2055-00 Classification is 55 for Less Than Truckload (LTL), and 37.5 for Truckload Minimum weight is 36000 lb There are following three options

(Using Table 6-6):

 Ship LTL at class 55 and 27000 lb shipment ($5.65/cwt*270 = $1525.50)

 Ship at class 55 and 30000 lb rate ($3.87/cwt*300 = $1161) = Lowest cost

 Ship at class 37.5 and 36000 lb rate ($3.70/cwt*360 = $1332.50)

Solution (d): From Table 6-4, the item number for cat accessories is 2070-00 Classification is 65 (see 2070-07: 10

but less than 12) Using Table 6-6, the rate at 30000 lb is $4.21/cwt, and shipping charges are as follows:

4.21*300 = $1263

Solution (e): Using Table 6-4, not printed on newsprint are classified 55 (4860-00) for a Truck load of 24000 lb.

Calculate break weight as follows

Br eak weight= RateNext×WeightNext

3.87 ×30000

5.65 =20549 lb.

Since current shipping weight of 24000 lb exceeds the break weight, ship as if 30000 lb Hence,

3.87*300 = $1161 Now, discount the charges by 40 percent as follows:

$1161 * (1-0.40) = $696.60

Question 21: A traffic manager has two options in scheduling a truck to make multiple pickups and

deliveries The pick-up delivery problem is shown pictorially in Figure 6-11 The traffic manager can ship theaccumulated volumes as single shipments between the designated points or can use the stop-off privilege at $25 perstop for any or all portions of the trip If the traffic manager wishes to minimize shipping costs, which alternativeshould be chosen? Assume that the final destination point incurs the stop-off change?

According to Figure 6.11, alternative 1 is without stop-off.

Alternative 1: Separate shipment (without stop-off privilege)

Loading/unloading Route Rate $/cwt cwt Rate $/cwt. Stop-off charge Charges

Total charges $1,004

Alternative 2: With stop-off privilege

Loading/unloading Route Rate $/cwt cwt Rate $/cwt. Stop-off charge Charges

Alternative 3: With stop-off privilege

Loading/unloading Route Rate $/cwt cwt Rate $/cwt. Stop-off charge Charges

basis Wagner has the responsibility for providing transportation The traffic manager has three transportationservice choices for delivery rail, piggyback, and truck He has compiled the following information

Transport Mode Transit Time, Days Rate, $/Unit Shipment Size, Units

We use following formulas:

 Transport cost = transportation rate * annual demand

 Item value at buyer's inventory = price per unit

 Item value at vendor's inventory = price per unit – transport cost per unit (e.g 500– 25 = 475 for rail)

 In-transit inventory cost= Inventory carrying cost * item value at vendor's inventory* annual demand *

Inventory cost of Wagner (supplier) 593750 399000 257500

Inventory cost of Electronic Distributors (Buyer) 625000 437500 312500

Total Cost 2729024 3192664 5026438

Mode of transportation Rail Piggyback truck

Rail has the lowest total cost

Question 2: Suppose two truck services are being considered for deliveries from a company plant to one of itswarehouses Service B is cheaper but slower and less reliable than service A The following information has beenassembled:

Production price, f.o.b source $50/cwt

In-transit carrying cost 20%/year

Inventory carrying cost 30%/year

In-stock probability during the lead time 30%

Service A Service B

Transit time (LT) 4 days 5 days

Variability (std dev., sLT) 1.5 days 1.8 days

A reorder point control method of inventory control is used at the warehouse From the point of view of theinventory in the warehouse, which truck service should be selected? (Note: Refer to Chapter 9 on inventorymanagement for discussion of the reorder point method of inventory control Hint: The standard deviation of thedemand-during-lead-time distribution is s’ = d(sLT), where sLT is assumed the transit time variability and d is the

daily demand rate.)

Solution: