Best Oil serves three customers near Spencer and maintains consignment inventory at each facility, meaning that Best Oil owns the inventory and manages replenishments. Currently, BestOil uses full truckload (TL) deliveries to each customer at a cost of $1050 per truck, and each truck has a capacity of 12 tons. Best Oil is considering whether to aggregate deliveries to the three facilities on a single truck. Doing so would cost $800 per trip, plus $250 per stop (thus, if they made 1 stop it would be equal to the $1050 quoted earlier).

 

The demand at customer 1 is 20 tons per year, customer 2 is 60 tons per year, and customer 3 is 8 tons per year.

Each ton of oil costs $10,000 to produce, and BestOil annual holding cost percentage is 25%.

For each of the following scenarios, determine the total annual cost to BestOil , and the flow time at each customer.

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1. BestOil continues the policy of delivering a full truckload (12 tons) to each customer on each order.

a) Annual cost to BestOil under FTL? (Exclude material costs)

b) Flow Time under FTL of Customer 1?

2. BestOil delivers the EOQ to each customer (i.e., they keep making separate trips to each customer, but they do not require the truck to be full).

a) Annual cost to BestOil under EOQ? (Exclude material costs)

b) Flow Time under EOQ for customer 1?

3. BestOil completely aggregates (i.e., they deliver to every customer on every delivery using one truck) and uses the optimal number of orders per year.

a) Annual cost under completeaggregation? (Exclude material costs)

4. BestOil delivers to a subset of customers on each delivery.

What customer is the anchor product? 1, 2, or 3?

a) Annual cost under select aggregation? (Exclude material costs)

Flow Time under select aggregation of Customer 1?

Which aggregation option gives the lowest cost? FTL, EOQ, or Aggregation

Which aggregation option gives the lowest flow times for Customer 1? FTL, EOQ, or Aggregation