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Astro Industries of Minneapolis, MN, makes weekly shipments to 20 customers in the Dallas area. Each customer’s order weighs, on average, 1,500 pounds. A direct truck shipment from Minneapolis to Dallas costs $1,800. The maximum load per truck is 40,000 pounds.
a) How much would it cost Astro to make direct, single-order shipments to all of its customers each week? What would the utilization level for the trucks look like?
b) Suppose a Dallas-based warehousing firm has agreed to run a break-bulk warehousing operation for Astro at a cost of $75 per hundred-weight. Local deliveries to each customer would tack on another $100 per customer per week. How much money could Astro save by going with the break-bulk solution?
c) How high would the warehousing cost (currently at $75 per hundred-weight) have to be before break-bulk warehousing is no more attractive than direct shipments?
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