Pratt & Whitney, a major aircraft engine manufacturer, wants to re-evaluate the transportation mode it uses to send unfinished parts to its joint-venture facility' in Chengdu, China.6 Annual demand is 2,900 units. At present the company uses air freight. It takes approximately six days from Los Angeles to Chengdu (due to pickup and delivery and customs delays). There are 20 parts in a lot, each weighing 30 kilograms. The air freight cost per part is $90. The pickup and delivery charges at origin and destination add up to $15 per part. The alternative is to use an ocean liner to ship the parts to Shanghai and from there to either use a truck or a train (a 1,000 km distance). The ocean freight for this lot size will cost $30 per part and will take 15 days. Tire truck from Shanghai to Chengdu will cost $20 per part and will take six days (due to pickup and delivery and customs delays). Transportation by rail will cost $15 per part and will take 14 days (due to pickup and delivery, customs, and transfer delays). In addition, for rail there is a $10 per part charge for pickup and delivery. The company’s inventory holding cost rate is 12 percent per year, and the value of each part is $ 1,000.
Due to variability of lead times, at the destination, safety stocks of 60,210, and 290 units will be kept if air, ship and truck, and ship and train are used, respectively. Determine the cheapest (total freight, delivery, and in-transit and safety' holding cost) mode of transportation for these parts.