Jones Company, a company producing and distributing household electrical products, is evaluating whether to invest in...

 

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Jones Company, a company producing and distributing household electrical products, is evaluating whether to invest in a local warehouse close to the market. In the current situation without a warehouse, orders are directly shipped to its customers (wholesalers) as individual shipments. For simplicity, we assume all shipments that are delivered directly have the same shipment size, and they are called the average shipment. Each average shipment costs $10 to process and $26 in shipment costs. If a local warehouse is built, then the warehouse can receive volume shipments, which are larger in size than the average shipments. Suppose that the size of a volume shipment is equal to the size of 20 average shipments. Each volume shipment costs $160 to process and $460 in transport to the warehouse. After a volume shipment arrives at the warehouse, local deliveries are made in the average shipment size and each local delivery costs $4. The warehousing cost of an average shipment is $3. For these questions, you need to use the Network Transportation Cost Minimization model below. Network Transportation Cost Minimization As a general rule, warehouses would be added to the network in situations where (P₁ + T₁ [{² Σ Nx +W₂ + L ≤ Σ(Px + T₂) Lx} = [ Where P₁ = Processing cost of volume shipment; T = Transportation cost of volume shipment; W = Warehousing cost of average shipment; L = Local delivery of average shipment; N₁ = Number of average shipments per volume shipment; P = Processing cost of average shipment; and T = Direct freight cost of average shipment. Jones Company, a company producing and distributing household electrical products, is evaluating whether to invest in a local warehouse close to the market. In the current situation without a warehouse, orders are directly shipped to its customers (wholesalers) as individual shipments. For simplicity, we assume all shipments that are delivered directly have the same shipment size, and they are called the average shipment. Each average shipment costs $10 to process and $26 in shipment costs. If a local warehouse is built, then the warehouse can receive volume shipments, which are larger in size than the average shipments. Suppose that the size of a volume shipment is equal to the size of 20 average shipments. Each volume shipment costs $160 to process and $460 in transport to the warehouse. After a volume shipment arrives at the warehouse, local deliveries are made in the average shipment size and each local delivery costs $4. The warehousing cost of an average shipment is $3. For these questions, you need to use the Network Transportation Cost Minimization model below. Network Transportation Cost Minimization As a general rule, warehouses would be added to the network in situations where (P₁ + T₁ [{² Σ Nx +W₂ + L ≤ Σ(Px + T₂) Lx} = [ Where P₁ = Processing cost of volume shipment; T = Transportation cost of volume shipment; W = Warehousing cost of average shipment; L = Local delivery of average shipment; N₁ = Number of average shipments per volume shipment; P = Processing cost of average shipment; and T = Direct freight cost of average shipment.

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The company should choose to build a local warehouse This is because the total cost of building a lo... View the full answer