A company in Italy manufactures and sell the product "Mini Bike". The company operates at maximum capacity, producing seven days a week, which makes 50.000 units per year. (To make it simple, we assume that a year has 50 weeks.)

The value of a Mini Bike unit leaving production is 100. The cost of capital is estimated to 20%. The cost for holding inventory is 15%, which gives a total inventory carrying cost percentage of 35%. No safety stock is kept in Italy.

Mini Bike is distributed to a wholesaler in the UK, where it's sold to the end customers. There are two transportation alternatives - by rail or by truck:

• By rail means a dispatch every 14 days. The transportation time is one week. The cost is 4/unit.
• By truck means a dispatch every week. The transportation time is two days. The cost is 6/unit.

In the UK, the wholesaler has a safety stock corresponding to half a week of sales.

Which distribution alternative gives the lowest total cost when considering the transportation cost and inventory carrying cost, in Italy, during transportation and in the UK?

1. What is theInventory holding cost in Italy, if transportedby train?/year
2. What is theInventory holding cost in Italy, if transportedby truck?/year
3. What is theInventory holding cost during transportation, if transportedby train?/year
4. What is theInventory holding cost during transportation, if transportedby truck?/year
5. What is theInventory holding cost in the UK, if transportedby train?/year
6. What is theInventory holding cost in the UK, if transportedby truck?/year
7. What is thecost for transportation, if transportedby train?/year
8. What is thecost for transportation, if transportedby truck?/year
9. What is thetotal cost, if transportedby train?/year
10. What is thetotal cost, if transportedby truck?/year

Answer rating: 100% (QA)

To determine the lowest total cost considering transportation and inventory carrying costs lets calculate the relevant costs for each scenario First l... View the full answer