Reference no: EM132421519

KAR Foods, a large Brazilian food processing company, serves three regions near Sao Paulo, and maintains consignment inventory (owned by KAR Foods) at each location. Currently, KAR uses refrigerated TL transportation to deliver separately to each customer. Each truck costs $700 plus $150 per stop. KAR Food is considering aggregating deliveries to Sa~o Paulo on a single truck. A careful study of the sales regions revealed three large customers, three medium-sized customers, and ten small customers. Demand at the large customer is 60 tons a year, demand at the medium customer is 24 tons per year, and demand at the small customer is 8 tons per year. Product cost for KAR Foods is $10,000 per ton, and it uses an annual holding cost of 25 percent. Truck capacity is 12 tons.

a. What is the annual transportation and holding cost if KAR Food ships a full truckload to each customer when they are running out of stock?

b. What is the optimal delivery policy to each customer if KAR Food ships separately to each of them? What is the annual transportation and holding cost?

c. What is the optimal delivery policy to each customer if KAR Food aggregates shipments to each of the three customers on every truck that goes to Sa~o Paulo? What is the annual transportation and holding cost?

d. Can you come up with a tailored policy that has lower costs than the policies in (b) or (c)? What are the costs and inventories for your suggested policy?

Attachment:- Problem.rar