Reference no: EM13264374

Question 11. Carole Wilson, Transportation Manager of Applied Technologies, has a shipment of 150 computer  monitors originating at the company's plant in Santa Fe Springs, California. The shipment, valued at $29,250, is  destined for a DC in St. Louis, Missouri. John Miller, receiving manager at the St. Louis DC, has established a  standardized transit time for the shipment to be 2.5 days. Mr. Miller assesses an opportunity cost of $6.00 per monitor for each day beyond the standard. Ms. Wilson has three transportation options available. 

a.  Cross Country Haulers, a long-haul trucking company, can ship the monitors at a  contracted rate of $1.65/mile. The distance from Santa Fe Springs to St. Louis is 1940 miles. Cross   Count ry estimates that it can deliver the shipment in 3 days. A truck can carry 192 monitors. 

b. The Sea-to-Shining Sea (STSS) Railway can pick up the shipment at the plant's dock and  deliver the monitors directly to the St. Louis DC. STSS can ship the railcar of monitors for a flat charge of $1500. Ms. Wilson has recently experienced delays with the switching of its railcars and expects delivery to take 5 days. 

c. Ms. Wilson has also negotiated an agreement with Lightning Quick Intermodal, Inc. (LQI), a third-party carrier that utilizes both motor and rail transportation. LQI can pick up the shipment by truck at  the plant and deliver it to an intermodal railyard in Bakersfield, California, where the trailer is placed onto a flat railcar. 

The servicing railway, the Rocky Mountain Railway (RMR), then delivers the trailer to  another intermodal yard near St. Louis, where the trailer is unloaded and transported by truck to the DC.  Lightning Quick offers the origin-to-destination transportation for $2500. Transit  time is anticipated at 2.5 days. From past experience, Mr. Miller has discovered that the additional  handling inherent with Lightning Quick's service results in 3 percent product

Question 15. Essen Beer Company has a brewery in Michigan's Upper Peninsula and is setting up distribution at Jackson, Michigan, in the state's Lower Peninsula. Essen packages its beverages in barrels and in 24-can cases. Barrels must be maintained at temperatures below 60 degrees Fahrenheit until retail delivery. The company's logistics department must determine whether to operate  individual private warehouses for barrels and cases or to utilize a single warehouse with barrels placed in a carefully controlled environment separate from cases. Assume that cases are not to be stored or transported in refrigerated environments.  Essen experiences a weekly demand of 300 barrels and 5,000 cases. The company has arranged truckload transportation with Stipe Trucking Service. Stipe operates refrigerated and non-refrigerated trailers, as well as multi-compartmented trailers that are half refrigerated and half not. A refrigerated truckload can hold 72 barrels, while a non-refrigerated truckload holds 400 cases. The multi-compartmented trailer can hold 36 barrels and 200 cases. The costs for these services and other related expenses are detailed below:

• Truckload costs
• Refrigerated $550
• Non-refrigerated $400
• Multi- compartmented $500
• Warehouse expenses
• Individual warehouses
• For case storage only
• Capital   $1,250/week
• Labor     $2,500/week
• For barrel storage
• Capital   $2,500/week
• Labor $1,600/week
• Single consolidated warehouse
• Capital   $3,500/week
• Labor $3,200/week

 

a. Considering demand and all costs depicted above, does the single, consolidated  warehouse or the two individual warehouses represent the least-total-cost alternative?

b.  Now assume that Stipe Trucking Service will provide only the multi-compartmented trailers to serve the proposed consolidated warehouse. Which plan is the least-cost alternative in this scenario?

Question 18. Dandy Collectibles is opening a new warehouse. Bob Lee, the warehouse manager, is trying to determine the labor compensation package that most productively utilizes resources. The typical compensation plan offers an hourly wage rate of $13. Mr. Lee is also considering an incentive plan. The incentive plan rewards solely on performance with order pickers earning $0.40/unit prepared for shipping. A typical week shows the number of ordered units that must be prepared for shipping.  Errors sometimes happen in Dandy's order picking. Product mishandling occurs in 1 percent of the orders under the incentive plan and in 0.5 percent of the orders under the hourly wage plan. Errored orders are scrapped and result in lost revenue of $60 per occurrence. Hourly workers pick 20 units per hour. Incentive workers pick 28 units per hour. Regardless of the plan  designation, employees work 40-hour weeks. Union restrictions prevent Dandy from operating on Saturday and Sunday. The labor union also restricts Dandy from hiring part-time workers. Orders need not be filled daily, but all orders must be shipped by week's end (Friday). Assume that hiring and training costs are negligible.

 a. How many workers are needed under each plan for the typical week's demand?

b.  Which plan meets the typical week's demand at the lowest cost, including lost sales resulting from errors?

Question 19. Mitchell Beverage Company produces Cactus Juice, a popular alcoholic beverage. Recently the firm has experienced problems of product pilferage at the warehouse. In one month, 3,200  bottles of Cactus Juice, representing 0.4 percent of the month's volume, could not be located for shipping. Should the problem go unresolved, it is anticipated that it will continue at this rate. The forecasted annual sales volume for Cactus Juice is 9.6 million bottles. Each bottle sells for $4.50. Steve Davis, vice president of distribution, has asked you to look into the following security options to reduce the pilferage problem.

a.  Hire four security guards to patrol the warehouse floor all hours of the day, 7 days a week. The firm would offer a wage of $14.50/hour to the guards as well as a benefits package expected to be worth $2,000 per employee per year. The presence of security guards should lower pilferage to 0.2 percent of volume. Only one guard would be on duty at any one time.

 b.  Implement an electronic detection system based on bar code technology. This would require purchasing bar code equipment for the packaging facility and warehouse.  Electronic scanning devices must also be purchased and placed at warehouse entrances. Alarms sound whenever a bar-coded item passes through a warehouse entrance without clearance. The electronic detection package, including bar code printers and readers, will cost $120,000. In addition, employees at the plant and warehouse will be trained to use the new equipment at a one-time cost of $8000. Monthly maintenance of the system is expected to cost $800. Also, a bar code specialist must be hired. The specialist would earn a salary of $49,000 per year. Product pilferage is expected to be lowered to 0.1 percent of volume with the electronic security system. The system has an estimated life of 8 years. Accrue all costs evenly over the life of the equipment. 

c.  Install security cameras in key locations throughout the warehouse. It has been  determined that six cameras could adequately record warehouse operations. Each camera costs $1200. The support devices and installation will cost $36,000. Four security guards would be hired for the purpose of viewing the security monitors for suspicious activity.

One guard would be on duty at all times. The guards each earn $12/hour, in a 42-hour workweek, and receive a benefits package worth $1000 per year. Pilferage under this system would be 0.05 percent of volume. The monitoring equipment is expected to have a life of 12 years. Accrue all fixed costs evenly over the life of the equipment.  Should the firm implement any of the options above, or make no investment and allow the  pilferage to continue at the rate of 0.4 percent of volume? Compare the costs and benefits of each option on an annual basis.

Question 25. Forest Green Products provides private label vegetables for grocery chains throughout the  Midwest. They currently have distribution centers in Columbus, Ohio; St. Louis, Missouri; and Minneapolis, Minnesota. The typical annual capacity requirements for Forest Green are 5 million cases with a case split of 35 percent, 40 percent, and 25 percent for Columbus, St. Louis, and Minneapolis, respectively. The company is reassessing its materials handling and storage  capability in each facility. The technology alternatives being considered are mechanized, semi-automated, and information-directed systems. Table 3 summarizes the acquisition, annual fixed cost, per case variable cost, and life span of each system alternative. The acquisition and annual fixed cost are quoted in terms of dollars per million units of capacity. In other words, a DC requiring two million units of capacity would double the specified cost. The annual fixed cost does not include depreciation for the acquisition cost. Assume that the total square footage of the 3 DCs is the same. 

Table 3 

Materials Handling Alternative             

                                                        Mechanized           Semi automated         information – directed          

One time Acquisition cost                   $1, 000,000           $3, 000,000                     $1, 500,000

Annual fixed cost                              $50,000                $200, 000                         $150, 000

Per case variable cost                          $0.30                   $0.08                                   $0.15

 

Usage life span (years)                       10                             5                                      7

a.  What system alternative should be used for each DC based on annual cost? How does this decision change if Net Present Value (NPV) is considered over the life of the system? Assume a 10 percent discount rate. 

b.  Assume that for simplicity's sake, Forest Green wants to use only one system alternative for all three DCs. What is the system with the lowest NPV for the life of the system for the combination of DCs?

 c.  What other qualitative factors should be considered?