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ASSIGNMENT THREE: SHIPMENT & INVENTORY BALANCING

ASSIGNMENT THREE: SHIPMENT & INVENTORY BALANCING (20 MARKS) This assignment we will explore the issue of trade-offs with mode of transport, transportation costs and shipment availability. We are working for the supply chain for wheat flour producing company. Happy Wheat Cereal is currently operating two packaging plants, located on in Calgary and second in Toronto. Students will only need to look at one movement, and only one segment of the supply chain: between the mill and the two packaging plants. The flour mill produces 500,000 metric tons of flour per year and produces flour at a steady pace. 70% of the flour is shipped to commercial bakeries and food processors. This part of the supply chain is not examined in this exercise. The remaining 30% of the flour is destined for the retail market, and is shipped by the mill to the Happy Wheat Cereal packaging plants. Two-thirds of the shipments go to the Calgary plant, and one-third goes to Toronto. The shipment from the mill to the packaging centres is done in bulk, by rail. Each rail car holds 80 tonnes of flour. With the current ordering process ordering single car loads and the possible cost savings, Happy Wheat Cereal's supply and purchasing manager are interested in understanding the total cost transportation if they decided to order in lot sizes of: a) once a year b) twice a year or c) three times a year. If the mill decides to ship flour in multiple car shipments, and if the shipments have to be unloaded within 12 hours after arrival, it will have to build bulk storage facilities, and will have to absorb the carrying costs of that inventory. With these costs factored in the annual carrying cost of the flour will be 25% of the value of product. The wholesale value of the flour is $350 per tonne Lead time is 20 days between orders and delivery Happy Wheat Cereal is forecasting the demand 200,000 (Note: you need to figure out the distribution for Toronto and Calgary Plants) Happy Wheat Cereal's annual carrying costs is at 25% the value of the product Happy Wheat Cereal has also calculated there variable order cost to be $500 per order General Ref LTL LTL LTL TL Rail Rail Rail Rail Unit 1 Case 2 Pallets 4 Pallets 10 Pallets Single Car 25 Cars 50 Cars 100 Cars Kilograms 80 2,000 4,000 10,000 80 2,000 4,000 8,000 Pick up Notification 2hrs 1 day 1 day 1 day 5 day 10 day 17 days 3 weeks Ship Time 5 days 10 days 10 days 10 days 5 days 10 days 10 days 10 days Instructions: 1. Calculate the dimensional weight of the items below. (2 marks) 2. Calculate the chargeable weight of the items below and apply the appropriate rate. (2 marks) 3. List the total charge for each method of shipment. (2 marks) 4. Calculate the savings per metric tonne with multi-car shipments (4 marks) 5. How many times per year will Happy Wheat Cereal place an order of size Q"? Calgary? Toronto? (4) 6. Using the data from the EOQ formula, what quantity provides the most efficient delivery? Calgary? Toronto? (4) 7. Taking a look at Holding vs Ordering inventory, what are a few learning points from this activity? (2) Chart: (Question 4) Freight Rate Savings from Multi-car Shipments Calgary Toronto Freight rate: Savings: Freight Rate: Savings: $/car & $/tonne $/tonne $/car & $/tonne $/tonne Shipment size Status quo (single cars) 25 cars 50 cars 100 cars