A company imports parts from Taiwan through the Port of Seattle on the West Coast. The parts are destined for its assembly operations on the East Coast. Shipments are by rail and require 21 days transit time. The parts are worth $250 each at the port, and 40,000 of them are used annually in assembly operations Inventory carrying costs are 25 percent per year. The rail rate to the East Coast is $6 per 100 lb, and crated parts weigh 125 lb each.
As an alternative, trucking can be used to cross the country in seven days. Truck rates are $11 per cwt. Do the savings from reduced in-transit inventories justify the higher cost of trucking?