Question: Week 12 Exercise SCM Consider a part that is to be transported from China to Europe. The annual demand for the part is 40,000 units.

Week 12 Exercise SCM

Consider a part that is to be transported from China to Europe. The annual demand for the part is 40,000 units. Price is $150 per unit. Annual holding cost rate is 25% of unit price. There are two transportation options.

Air cargo: Takes 5 days (door to door) and costs $65 per unit.
Ocean freight: Takes 50 days and costs $10 per unit.

Because of variability of transportation time and demand, 1 week of demand will be kept at destination as safety stock if air cargo is used. On the other hand, 9 weeks of demand will be kept at destination as safety stock if ocean freight is used. Assume that order quantity is the same in both cases, and the shipping (freight) cost is charged when the item is delivered at the destination.

Calculate the following costs for Air cargo:		Answers
Annual freight cost
Annual in-transit holding cost
Annual safety stock holding cost
Total cost of Air Cargo

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