Lesson 20 Supply Chain Management Solutions

#1: A manager at Strateline Manufacturing must choose between two shipping alternatives: 2 day freight
and 5 day freight. Using 5 day freight would cost $135 less than using 2 day freight. The primary
consideration is holding cost, which is $10 per unit per year. Ten thousand items are to be shipped.
Which alternative would you recommend? Why?
2 day freight
Incremental holding cost of 5 day freight is $821.92 which is more than the savings.
Incremental holding cost = 10,000*$10*(3/365) = $821.92

#2: A manufacturer ships always ships 80 boxes of parts to fulfill customer orders. Each box has a price of
$200 and holding costs are 30% of price. The customer pays the freight and schedules the freight lines.
The customer shipping manager has three alternatives: overnight at a cost of $300, 2 day at a cost of $260,
and 6 day at a cost of $180.
Complete the following information.
Units
Unit Price $
Total Ship $
Total Holding Cost per shipment $

Alternatives
Overnight
2-day
6-day

80
200
16000
4800

Shipping
Cost

Incremental
Days

Incremental
Cost $

Total Cost

300
260
180

0
2
6

0.00
26.30
52.60

300.00
286.30
232.60

Which alternative should the shipping manager choose? Why?

6-day because it has a lower total cost

#3: A manager must make a decision on shipping. There are 2 shippers: A and B.
Both offer a 2 day rate: A for $500 and B for $525
A offers a 3 day rate of $460 and a 9 day rate of $400
B offers a 4 day rate of $450 and a 7 day rate of $410
Annual holding costs are $35% of unit price. Three hundred boxes are to be shipped and each box has a
price of $140.

Complete the following information.

Units
Unit Price $
Total Ship $
Total Holding Cost per shipment $

Alternatives
2-day
3-day
9-day

Alternatives
2-day
4-day
7-day

300
140
42700
14700

Shipping
Cost

Shipper A
Incremental
Days

Incremental
Cost $

Total
Cost

500
460
400

0
1
7

0.00
40.27
281.92

500.00
500.27
681.92

Shipping
Cost

Shipper B
Incremental
Days

Incremental
Cost $

Total
Cost

525
450
410

0
2
5

0.00
80.55
201.37

525.00
530.55
611.37

Which alternative should the shipping manager choose? Why?

Shipper A 2-day, because it has the lowest total cost