Cyclone Transportation is a medium$-$sized truckload carrier based in Ohio, the United States. You are a procurement manager of this company, whose main responsibility is the procurement of diesel fuel for the company$$s fleet of Class $8$ trucks.

You have been assigned to negotiate the fuel contract for the Perrysburg, Ohio market. Your assistant has collected the following per gallon information concerning the major truck stop chains $($A$,$ B$,$ and C$)$ around that area. You will use this information to analyze each fuel vendor$$s proposed contract.

Chain A

$$

Retail Price

Retail Price

Truck Stop Cost

Date

$($Incl$.$ State Tax$)$

$($No State Tax$)$

$($No State Tax$)$

$10/20/17$

$2\mathrm{.}822$

$2\mathrm{.}568$

$2\mathrm{.}514$

$10/21/17$

$2\mathrm{.}810$

$2\mathrm{.}557$

$2\mathrm{.}421$

$10/22/17$

$2\mathrm{.}938$

$2\mathrm{.}674$

$2\mathrm{.}460$

$10/23/17$

$2\mathrm{.}958$

$2\mathrm{.}692$

$2\mathrm{.}738$

$10/24/17$

$2\mathrm{.}927$

$2\mathrm{.}664$

$2\mathrm{.}570$

Chain B

$$ Retail Price Retail Price Truck Stop Cost

Date $($Incl$.$ State Tax$)($No State Tax$)($No State Tax$)$

$10/20/17$

$2\mathrm{.}972$

$2\mathrm{.}705$

$2\mathrm{.}475$

$10/21/17$

$2\mathrm{.}946$

$2\mathrm{.}681$

$2\mathrm{.}557$

$10/22/17$

$2\mathrm{.}922$

$2\mathrm{.}659$

$2\mathrm{.}606$

$10/23/17$

$2\mathrm{.}831$

$2\mathrm{.}576$

$2\mathrm{.}439$

$10/24/17$

$2\mathrm{.}846$

$2\mathrm{.}590$

$2\mathrm{.}550$

Chain C

$$ Retail Price Retail Price Truck Stop Cost

Date $($Incl$.$ State Tax$)($No State Tax$)($No State Tax$)$

$10/20/17$

$2\mathrm{.}956$

$2\mathrm{.}690$

$2\mathrm{.}618$

$10/21/17$

$2\mathrm{.}844$

$2\mathrm{.}588$

$2\mathrm{.}362$

$10/22/17$

$2\mathrm{.}794$

$2\mathrm{.}543$

$2\mathrm{.}466$

$10/23/17$

$2\mathrm{.}982$

$2\mathrm{.}714$

$2\mathrm{.}516$

$10/24/17$

$2\mathrm{.}802$

$2\mathrm{.}550$

$2\mathrm{.}353$

Your company purchases approximately $100,000$ gallons of diesel fuel each month in the Perrysburg market. Chains A$,$ B$,$ and C have each sent you a contract in hopes of winning your company$$s business. The contract proposals are listed below.

Bids

$$

Supplier

Method

Retail Discount

Pump Fee

Transaction Fee

A

Cost plus

$$

$0\mathrm{.}02$

$0\mathrm{.}25$

B

Retail minus

$0\mathrm{.}03$

$$

$0\mathrm{.}00$

C

Best of

$0\mathrm{.}02$

$0\mathrm{.}03$

$0\mathrm{.}50$

As discussed in this chapter, the price of the cost$-$plus method is given by the truck stop cost plus pump fee, while that of the retail$-$minus method is given by the retail price $($without state tax$)$ minus retail discount. There is also a transaction fee associated with purchasing fuel from each of the vendors. This is a onetime cost per transaction, meaning that your trucks must pay this cost every time they buy fuel, regardless of the amount of fuel purchased. The average fuel purchase quantity of your drivers $($per transaction or per refueling stop$)$ is roughly $100$ gallons.

Case Questions

Given the proposed contracts, what is your company$$s average cost of fuel per gallon with each of the fuel vendors?

Which truck stop chain should you choose if your goal is to minimize fuel cost?

Chain B really wants your business and says they will do anything to obtain it$.$ What should their retail discount be in order to obtain your business?