Back to the question, we had considered in the previous quiz.

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$=30\mathrm{.}4375$ 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 $6$s 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?