Question $1$:

Mode choice:

ABC is a U$.$S$.$ based activewear company. They plan to expand their legging business into

Europe. Their expected production rate at the factory is expected to be $300$ pallets of packages

per day. They keep no inventory at the factory for safety stock. The cost of space at the factory is

$$25$ per pallet per year. The value of each pallet is $$1,000.$ The company is looking at opening a

warehouse in Vienna for storage and distribution of the $300$ pallets per day. They plan is to keep

$100$ pallets for safety stock per day. The cost of space at the Vienna facility will be $$40$ per pallet

per year and each pallet will have a value of $$1,200.$ The company uses a holding cost rate of

$20\%.$

The company is evaluating $2$ alternative modes of transportation from LA to Vienna: Ocean and

Air

$$ Air transport will take $5$ days with a max shipment size of $500$ cartons at a total cost of

$$2,100$ per shipment.

$$ Ocean transport will take $20$ days, with a max shipment size of $$5,000$ units at a total cost

of $$1,200$ per shipment.

Determine what is the optimal shipment size for each mode based on total logistics cost and

make a recommendation for which transportation mode the company should select.