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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. E purchases all the motors for its appliances from Westview Motors, located near Dallas. EE winently purchases $120,000$ motors each year from Westview at a price of $$120$ per motor. Demand has been relatively constant for several years and is expected to stay that way. Each notor averages about $10$ pounds in weight, and $EE$ has traditionally purchased lots of $3,000$ mors. Westriew ships each $EE$ order within a day of receiving it $($lead time is one day more tun ransit 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 whe one to accept. The details of various proposals are provided in Table $14-4,$ where one cwt palas $100$ pounds.

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

$\backslash$table$[[$GQEle $14-4$ Transportation Proposals for EE Electric$],[,$Range of Quantity Shipped $($cwt$),$Shipping Cost $($$$/$cwt$)],[,200+,6\mathrm{.}50],[$den freightwing,$100+,7\mathrm{.}50],[$en freightways,$50-150,8\mathrm{.}00],[$Freightways$,150-250,6\mathrm{.}00],[,250+,4\mathrm{.}00]]$