Question

Motorola obtains its smartphones and wall chargers from its contract manufacturer located in China to supply the U.S. market, which is served from a warehouse located in Memphis, Tennessee. Demand for both items at the Memphis warehouse is normally distributed. Daily mean and standard deviation of demand for smartphones is 5,000 and 2,000, whereas those for the wall chargers is 12,000 and 1,500, respectively. Each smartphone costs $400 and weighs 250 gr; each wall charger costs $25 and weighs 50 gr. Annual holding cost for the smartphones is calculated at 35%, while it is 20% for the wall chargers. The target CSL at the warehouse is 96 percent.

The company is debating whether to use ocean shipping or air freight from China. Including time to clear customs, ocean shipping results in an average lead time of 64 days with a standard deviation of 12 days, and costs $4,000 per container. Each shipping container has a capacity of 10,000 kgs. Air freight results in an average lead time of 24 days with a standard deviation of 8 days (including time in customs), and costs $1000 per shipment plus $15.00 per 1kg of freight weight.

Assume that Motorola takes ownership of the inventory as soon as it leaves the manufacturer in China. Hint: This means you have to consider the in-transit inventory.

Considering inventory holding and transportation costs, what is the annual cost of using air freight to import smartphones? What is the annual cost of using ocean shipping to import smartphones? Which transportation mode should they use for the smartphones?

Answer 1

Ansocy No Conf of transit for Bnanbphones Avorage demand 5 000 standard deviation 2000 Approrimate 5000 + 2000 granges 5000 - 2000 3000 , 늬OO0 hous end = 3000 end high 7000 Aenage hotding conf - 5000 X $4 00 X35 /. : Smans phonts cork $ 400,000 n akipping Ocean 64 days Average lead time 1a days Standard deviation Approzimate range 64 - la , 64; + 12 46 52 Lous end = 52 닉6 hậh end

Pega NO Conf containers $400 0 pen Capacity per container 10,000 kgs fral conf f Cecan tan Post fhal conf for 52 conf + înventory holding cont 5a days x acoeight lead -fime days Conf e containers orquired x $ 4000 No-of uniko = Required 'fnventorg x alo of days Inmntory holding conf x $ 140 (* 4035%. - J1Y0) Nlo.of units Cean transit Requined Pventory cweight los end Avenge High and 4000 3000 5000 450 1450 1250 lead time 52 days Cont ainer veguird conf • of unis inventory holding conf 65000 91000 3৭০০0 10 40,000 2 8000 16000 260,000 364 000 156000 no. 5096 0000 364C0000 a1840000 final coiof a1856000 36428000 5100 0000 Hor 16 days lead time 95000 54000 [33000 Container required 10 40,000 380,000 56000 Conf 2400 0 532000 No of units nventory holding cont tinal conf 2.2800 0 53000000 74480000 3192000 O 32148000 53580000 75012 O00

Paga mo n'i Ocean tramport conf în bluo $a185 6000 to $ 45020 orange coof A tranmpoat fina days final corf - Inventory holding coaf + cont -for is days lead time coeight x 16 coaf - $40 x do -g anils (400x 35%, = 140 hvenbay holding lo.of units Candays - 8dayse 16) Roquined fnventary x is X 16 Air transit Requined Tiventory cocignt -for 16 days lead time Conf low end Average High end 5000 3000 400 0 750 1350 1450 12000 20,000 28 000 4Q1000 181000 301000 no g unik 80,000 112C00 48000 fnventary holdag coef final corf 15 680000 11900.000 6 420000 16101000 11501000 6901000 4 7500 66500 for 38 days lead time Conf 28500 998500 413500 4 28500 190, 000 no of units (38 xequirad imentang 114000 - Inventory holding conf final cof 2 66O0,000 31040000 15960000 16388500 27313 500|3 8238500

Poge.ino NO (4) An fheight conf s between $ 6901000 to $ 38238500 from both the transik , Air trans port ås very much cheaper than the occan thansport . :. Ars transport ů to be cysed.