Construct a financial model to determine the redelivery/rehandling cost, lost sales, invoice deduction cost, and net income for the following:
a. On-time delivery increases from 98 percent to 99 percent with a 2 percent increase in transportation cost.
b. Order fill rate decreases from 99 percent to 98 percent with operating cost remaining constant.
Selling price/order = $150/order
Gross profit/order = $35/order
Lost sales rate:
On-time delivery failure = 20%
Order fill failure = 25%
Supply Chain Performance Measurement and Financial Analysis 181
Annual orders = 200,000
Rehandling cost = $100/order
Invoice deduction/service failure = $75/order
Transportation cost = $1,000,000
Average inventory = $1,000,000
Interest cost = $1,500,000
Inventory carrying cost rate = 25%/$/yr.
Warehousing cost = $750,000
Other operating cost = $500,000
Cash = $3,000,000
Accounts receivable = $4,000,000
Fixed assets = $30,000,000