3. Consider the following data for two alternative transportation modes, truck, and rail:

Truck Rail

Shipment Price $2000 $2700

Vehicle Capacity 3200 cases 5400 cases

Max Transit Time 5 days 10 days

Min Transit Time 3 days 6 days

Average Transit Time 4 days 8 days

1 month=30.4375 days.

The product to be shipped is canned fruit. The value is $20 per case. Demand for the product is 1500 cases per month. The interest rate is 25% per annum for inventory holding. We aim at providing a 95% service level.

Note: Include safety stock in your calculations. Assume demand is constant. Assume lead-time is normal, which means that (practically) the range (i.e. max-min) of transit-time values will equal to 6s where s is the standard deviation of lead time.

What will be the annual transportation (order) cost if we ship using Rail full capacity? How will it change if we use EOQ rather than full capacity in rail transportation?

4. Continuing from the previous question, based on total logistics cost, which transportation method would you select? Explain your reasoning and show calculations for all cost components,