Fixit is a hardware chain focused on do-it-yourself customers. Fixit operates in the Kansas City area and has a distribution center that receives shipments from its supplier, Acme, located in Seattle, Washington. Demand at Fixit each month is 30,000 packs of bulky widgets. Currently, shipments from Acme to Fixit are sent by truck. The capacity of a typical truck is 5,000 packs. The average transit time for the truck from Seattle to KC is 5 days. In addition, the analysis of the data shows that the lead time has a standard deviation of 2 days.

Fixit accounting group has estimated that the annual holding cost is 20% of the cost of the product. Acme supplies a case of widgets for a price of $15 per pack. Assume the desired service level of 90% and Fixit keeps a safety stock at its KC distribution center to counter any potential delivery lead time variation. The cost for a truckload shipment from Seattle to KC, by a third- party carrier Shipit, is $3,000. In your calculations assume the following:

Supply chain inventory costs include pipeline stock, safety stock, and cycle stock.

Pipeline stock can be calculated with the standard formula where lead time equals the

average transit time between KC and Seattle.

Cycle stock can be calculated with the standard formula for fixed order quantity.

Safety stock covers the demand during the variability of lead time and is expressed as

Zservice**D, where =st. dev. of lead time in days and D=daily demand.

There are 30 days per month.

(Hint: Take a look at the Eastern Electric Corporation and the IKAE furniture examples of Class 4).

a) Calculate the total monthly supply chain cost (SC inventory plus transportation costs) for Fixit when they use Shipit as their choice of carrier. [8 points]

b) Railcar, a rail brokerage that works closely with railroads to schedule shipments, has made Fixit an offer to move product. Railcar also coordinate schedules with railroads to improve supply chain costs for shippers. The current offer by Railcar is a shipment price of $6,000 for one wagonload of widgets from Seattle to KC. The capacity of a wagon is 15,000 packs. Transit time is expected to be 18 days with a standard deviation, based on current performance, of 10 days. If Fixit were to use rail to ship product from Seattle to KC, what would be the impact on total monthly supply chain costs (how much decrease or increase, please specify)? [8 points]

c) Railcar has developed another shipping proposal by coordinating with the railroads so that the cost to ship remains the same but delivery performance is improved. Railcars proposed schedule drops the average transit time to 10 days and the standard deviation in transit time to 3 days. What would be the impact of this on total monthly supply chain costs at Fixit, if Fixit were to use Railcars new proposal? Similar to part b above, again please compare your answer to that of part a. [9 points]