THE STANDARD DEVIATION IS STATED IN THE PROBLEM. Weekly demand for smartphones averaged 1,000 and had a standard deviation of 400.

Jackie Chen, vice president of China Imports, was looking to design a framework to select transportation modes for various products imported from China to the United States. His basic options were to either use air freight or ocean shipping. Airfreight was faster and more reliable, but ocean shipping was much cheaper. He decided to evaluate the shipping decision for two very different product categories

consumer electronics, such as smartphones, and

-- decorative hardware, such as door handles and hinges.

China Imports provided a variety of products to its customers from a warehouse near the Port of Long Beach, California. The company incurred an annual holding cost of 25 percent on all inventory held and aimed to provide a 98 percent cycle service level on its products. The high level of service aligned with the high quality of products that the company imported.

Transportation Options from China

Air freight and ocean shipping were the two options available to move product from China to the United States. Air freight charged $10 per kilogram shipped and required a minimum shipment of 50 kg. The lead time on air freight was one week. Ocean shipping was much cheaper and cost $1 per kilogram. However, it took longer with a lead time of 9 weeks.

Product Characteristics

Weekly demand for smartphones averaged 1,000 and had a standard deviation of 400. Each smartphone cost $300 and weighed 0.1 kg. Weekly demand for decorative hardware averaged 5,000, with a standard deviation of 1,000. Each unit of decorative hardware cost $20 and weighed 1 kg.

Study Questions

1. What is the annual cost of using air freight to import smartphones? What is the annual cost of using ocean shipping to import smartphones?

2. What is the annual cost of using air freight to import decorative hardware? What is the annual cost of using ocean shipping to import decorative hardware?

3. What other factors should be considered in the choice of transportation mode? What mode would you recommend for each product?