Question

Extra part needed to be answered

Baseball Card Emporium (BBE) of Lewistown, Pennsylvania, is a distributor of baseball cards to sports card retailers. Its market area encompasses most of Pennsylvania, eastern Ohio and New Jersey. The cards are printed in Neenah, Wisconsin, and currently shipped to Lewistown via Motor Carrier transportation. Kenny Craig, vice President of Logistics, has asked his staff to evaluate using air carrier service to ship the cards.

Nick Gingher, director of distribution, has collected the following information:

 Annual demand: 5,000 cases of cards

 Assume BBE operates 365 days of the year

 Standard deviation of daily demand is 7 cases

 Case value (price): $200/case

 Annual inventory carrying cost: 28%

 Ordering cost/order: $100

 In-transit inventory carrying cost: 18%

 Transit time using motor carrier: 5 days

 Transit time using air carrier: 2 days

 Air carrier rate: $1.50 per cwt

 Motor carrier rate: $0.80 per cwt

 Unit weight: 50 lbs. per case

Case Questions

1. What is the EOQ for BBE in cases? In pounds?

2. What is the total cost of the EOQ (including only ordering and inventory

carrying costs)

3. Consider that for each case of demand unmet BBE loses $200 (the value of the

case). Using, the motor carrier results in on average 13 cases excess and 3 cases short in each order cycle. While the from air carrier’s service contract you anticipate that on average there will be on average 11 cases excess and 4 cases short in each cycle.

a. What is the EOQ when using the motor carrier

B-What is the total cost (ordering, inventory carrying, excess and shortage costs) using the motor carrier ?

c. What is the EOQ when using the air carrier

d. What is the total cost (ordering, inventory carrying, excess and shortage

costs) using the air carrier ?

4. You calculate the standard deviation for air carrier is 1 day and for motor

carrier is 2 days. Calculate:

a. The critical ratio (assume ?? = ? ∗ ?)

b. The pipeline and safety stock for the air carrier

c. The pipeline and safety stock for the motor carrier

d. The reorder point for the air carrier

e. The reorder point for the motor carrier

5. What is the total cost (ordering, inventory carrying, safety, pipeline, shortage, and transportation costs) for the air and motor carrier?

a. Which alternative should BBE use?

Extra

1. Consider negotiating an improvement in the air carrier service. What should be the expected cases short each cycle by air, for air to be the preferred mode? (1%)

2. Jans Mertens, the EVP of SCM is unhappy with the low customer service arguing that the stockout cost/ unit vastly undervalues the cost of each unit short. Jans has asked you to calculate a stockout cost/unit that would put the PNS service at 90%, 95% and 98%. (2%)

3. Based off these new service levels what is the ROP for the:

a. Air carrier (1%)

b. Motor Carrier (1%)

Answer 1