Delivery Strategy in

MoonChem Case Analysis

Submitted By: Group 3
Manish Kumar
Mohit Upadhay
Satyander Singh
Shubham Divyanshu
Q1.What is the annual cost of MoonChem’s strategy of sending full
truckloads to each customer in the Peoria region to replenish consignment
inventory?
Truck Capacity(Q): 40000 pounds Truck delivery cost/delivery(S): $400
Holding cost(H): 25% Consignment Cost(C): $1
Annual Demand(S,M,L): 12000, 60000, 144000
Total Cost: SD/Q +HCQ/2
• TC Small: $5120
• TC Medium: $5600
• TC Large: $6440
Q2.Consider different delivery options and evaluate the cost of each. What
delivery option do you recommend for MoonChem?

• Alternative 1: Creating one group consisting all customers

• Alternative 2: Creating two equal groups ( 1 Large, 3 Medium, 6 Small)
• Alternative 3: Creating three different groups for each customer
Alternative 1
• D(S,M,L): 144000, 360000, 288000 (792000)
å
k
Di hCi
• n*(order frequency): 8.56 but Demand is more n* = i=1
2S *
• So, n*: 19.8
• Q*(S,M,L): 7273, 18182, 14545 ( S: $1350
• Annual Order Cost(Sn*) : $26730
• Annual Holding Cost(Q*/2*hC): $5000
• Total Cost: $31730
Alternative 2
• Demand(S,M,L): 12000*6 + 60000*3 + 144000*1 (396000) for 1 group
• S: 350 + 10*50= $850
• n*: 7.63 But Demand is more
• So, n*: 9.9
• Q*(S,M,L): 7273, 18182, 14545
• Annual Ordering Cost: $850*9.9*2= $16830
• Annual Holding Cost: $5000*2= $10000
• Total Cost: $26830
Alternative 3
• D(S,M,L) : 144000, 360000, 288000
• S(S,M,L) : $950, $650, $450
• n*(Small): 4.35 n*(Medium):8.32 but more required(n*:9) n*(Large):8.94
• Q*(S,M,L): 33082, 40000, 32199 (105282)
• Annual Ordering Cost: $4132.5+$5850+$4023= $14005.5
• Annual Holding Cost: $4135+$5000+$4025= $13160
• Total Cost: $27165
Conclusion
Alternative 2 is cheaper than the rest while Alternative 1 is costliest
Q3.How does your recommendation impact consignment inventory for
MoonChem?

• Cycle Inventory for current plan: 20000 pounds

• Alternative 1 CI: 20000 pounds
• Alternative 2 CI: 40000 pounds
• Alternative 3 CI: 52641 pounds
Thank You