EXAMPLE $14-2$

Trade$-$Offs When Selecting Transportation Mode

Essem Electric $($EE$)$ is a major appliance manufacturer with a large plant in the Chicago area. EE purchases all the motors for its appliances from Westview Motors, located near Dallas. EE arently purchases $120,000$ motor each year from Westview at a price of $$120$ per motor. Remand has been relatively constant for several years and is expected to stay that way. Each motor averages about $10$ pounds in weight, and EE has traditionally purchased lots of $3,000$ molor. Westview ships each $EE$ order within a day of receiving it $($lead time is one day more tuntransit time$).$ Transit time using truck is three days and transit time for rail is five days. At its usembly plant, $EE$ carries a safety inventory equal to $50$ percent of the average demand. for morr during the replenishment lead time. EE's annual cost of holding inventory is $25$ percent.

The plant manager at $EE$ has received several proposals for transportation and must decide athe one to accept. The details of various proposals are provided in Table $14-4,$ where one cwt palal $100$ pounds.

Golden's pricing represents a marginal unit quantity discount $($see Chapter $11).$ Golden's persentative has proposed lowering the marginal rate for the quantity over $250cwt$ in a shiptat from $$\frac{4}{c}wt$ to $$\frac{3}{c}wt$ and suggested that $EE$ increase its batch size to $4,000$ motors to take Whatage of the lower transportation cost. What should the plant manager do$?$