Question

A medium sized distribution network consists of 8 stores and a distribution center. One of the products handled by this distribution center has a total annual demand of 240,000 units. These are eventually sold at the 8 stores that the distribution center serves. A trucking firm has been hired to make direct deliveries to each store on a monthly basis. The distribution center buys its need 3 times a year. The capacity of a truckload is 3000 units. The cost of each delivery is $650. The annual inventory holding cost per unit at the distribution center is $1.50, while it is $1.75 at each of the stores.

What is the price per unit cost to the distribution network of delivering this product?

What capacity should the truck have to minimize the unit cost without changing any of the other parameters?

Answer 1