Question 1

A sparepart distributor is deciding on a policy for the use of TL or LTL transportation for inbound shipping. TL shipping costs $700 per truck plus $150 per pickup. Thus, a truck used to pick up from three suppliers costs 700 + (3 * 150). A truck can carry up to 2,500 units. The distributor incurs a fixed cost of $250 for each order placed with a supplier. Thus, an order with three distinct suppliers incurs an ordering cost of $750. Each unit costs $80, and the company uses a holding cost of 25 per cent.

Assume that product from each supplier has an annual demand of 4,500 units.

a) What are the optimal order size and annual cost if it is ordered independently of each other?

b) What are the optimal order size and the annual cost per product if TL shipping is used but two suppliers are grouped together per truck?

c) What is the optimal number of suppliers that should be grouped together? What is the optimal order size and annual cost per product in this case? What is the time between orders?

d) If partial aggregation is applied, would this be more efficient than the answer proposed in Question C?