Question

Acme retail inc. wants to import shampoo from Brazil. The daily demand at Acme stores for shampoo is 1800 bottles per day with a standard deviation of 550. Acme is considering two suppliers to source from.

Option 1) Amazon Products Inc. will charge $5 per bottle, and the transportation from its factory to our distribution center (DC) in Texas will cost $0.8 per bottle. The supplier carries a large reserve of shampoo and only needs to fill up specially designed bottles for us on receiving an order. Filling up the bottles and getting them ready to be shipped takes 2 days. The transit from the factory to our DC takes 17 days.

Option 2) Rio Products Inc. will charge $4.5 per bottle, and the transportation from its factory to our DC in Texas will cost $1 per bottle. Rio Products also keeps a large quantity of shampoo ready and only needs to fill up bottles upon receiving the order. It takes Rio Products 3 days to fill up the bottles and get them ready to be shipped. The transit time from its factory to our DC is 21 days.

The cycle service level of shampoo is set at 95% (therefore z = 1.65 and Ez = 0.020637). An out of stock situation results in lost sales which incurs a loss of 5$. For both suppliers shipments will be in FEU containers, and each container can carry 30,000 shampoo bottles. Orders will be placed for 1 container at a time and the ordering cost is $100 for both suppliers. Acme’s inventory carrying cost is 0.20 $/$/year. Acme’s stores are open 6 days a week, 52 weeks a year.

What is the annual transportation cost for Acme, if Amazon Products is selected as the supplier? (please enter your answer rounded to 2 decimal places)

Note: Annual transportation cost is simply the transportation rate ($/ unit) multiplied by the annual demand (D). For example, if transportation rate is $2/unit and we have an annual demand of 1000 units, then annual transportation cost will be 2 x 1000 = 2000.

What is the annual transportation cost for Acme, if Rio Products is selected as the supplier? (please enter your answer rounded to 2 decimal places)

Note: Annual transportation cost is simply the transportation rate ($/ unit) multiplied by the annual demand (D). For example, if transportation rate is $2/unit and we have an annual demand of 1000 units, then annual transportation cost will be 2 x 1000 = 2000.

Please compute the total relevant cost (total inventory cost + total transportation cost) for each option. Then select the correct option based on your cost calculations:

		It is better to go with Amazon Products, because total cost (inventory + transportation) is only 558,362 where as with Rio products the total cost is 686,535
		It is better to go with Rio Products because the total cost (inventory + transportation) is 54,147 less than what the total cost is for Amazon Products.
		It is better to go with Rio Products because it has lower transportation cost than Amazon Products
		It is better to go with Rio Products, because total cost (inventory + transportation) is only 511,073 where as with Amazon products the total cost is 648,167

Answer 1

annual demand of shampoo bottles

1800*52*6=561600 bottles

containers required for demand=561600/30000=18.72

rond off to 19 containers each year

bottles ordered by acme=19*30000=570000

1 container =30000 bottles which will supply for 16.6 days

order cost =1900(100*19)

excess orde =570000-561600=8400

inventory carrying cost for 8400=8400*.20=1680

annual tranasportaiao n cosat for amazon =570000*.8=456000

annual transpotatin cost for rio= 570000*1= 570000

total cost for amazon=570000*5+456000+1900+1680=3309580

total cost for rio=570000*4.5+570000+1900+1680=3138580

sao it is better to go with rio .