Problem 1:

A) To determine if EDI will pay for itself within the first five years, we must begin by
determining the annual costs associated with the current, manual system over this period:
• Yr. (Order volume x cost/order) + (errors x cost/error) = Annual Cost
• 1 (20,000 x $2.50) + ((20,000 x 0.012) x $5.00) = $ 51,200
• 2 (20,000 x $2.50) + ((22,000 x 0.012) x $5.00) = $ 56,320
• 3 (25,000 x $3.00) + ((25,000 x 0.012) x $5.00) = $ 76,500
• 4 (30,000 x $3.00) + ((30,000 x 0.012) x $5.00) = $ 91,800
• 5 (36,000 x $3.00) + ((36,000 x 0.012) x $5.00) = $110,160
• The cumulative total cost of the manual system is = $385,980
b) EDI: device cost salary error cost order cost total cost
1year: 100000+38000 +20000x(3/1000)x8 +0.5x20000=148480
2year: 38000x(1+3%)+22000x(3/1000)x8 +0.5x22000=50668
3 year: 38000x(1+3%)^2+25000x(3/1000)x8+0.5x25000=53414
4 year: 38000x(1+3%)^3+30000x(3/1000)x8+0.5x30000=57243.6
5 year: 38000x(1+3%)^4+36000x(3/1000)x8+0.5x36000=61633.3
 Logistics Management Term Project

Problem 2:
If Mr. McNeely opts to implement a Web-based solution for order management instead of
manual order management system, this has a potential to impact his current means of ordering
processing by reducing time and effort. It will, also, improve customer relationship.

Problem 3:
The Universal Product Code (UPC) is a barcode symbology (i.e., a specific type of barcode)
that is widely used in the United States, Canada, United Kingdom, Australia, New Zealand, and
in other countries for tracking trade items in stores.
UPC (technically refers to UPC-A) consists of 12 numerical digits, that are uniquely assigned
to each trade item. Along with the related EAN barcode, the UPC is the barcode mainly used
for scanning of trade items at the point of sale, per GS1 specifications.[1] UPC data structures
are a component of GTINs and follow the global GS1 specification, which is based on
international standards. But some retailers (clothing, furniture) do not use the GS1 system
(rather other barcode symbologies or article number systems). On the other hand, some retailers
use the EAN/UPC barcode symbology, but without using a GTIN (for products, brands, sold at
such retailers only).
Benefits of UPC:

Numerous customer benefits and facilities are assured by the UPC code providers. You can
receive the UPC code and the EAN code at the same time. Each code is available for $1.29.
The bar codes are all authentic. After payment, you will be provided with a unique username
and password. You can login every time into the web site by using these username and password
and generate and re-generate the bar code for free. You only have to open the authorized web
site and register with payment in order to get all these facilities and benefits. This is a totally
legal and government recognized system.
Bar coding is the placement of computer readable codes on items, cartons, containers, pallets,
and even rail cars.

Bar coding provides quick and error-free transfer of shipment information that facilitates
shipment tracking at intermediate points.

Barcodes are often overlooked as a method for cutting costs and saving time. A valuable and
viable choice for businesses looking to improve efficiency and reduce overhead, barcodes are
both cost-effective and reliable.

1. Barcodes eliminate the possibility of human error. The occurrence of errors for
manually entered data is significantly higher than that of barcodes. A barcode scan is
fast and reliable, and takes infinitely less time than entering data by hand.

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2. Using a barcode system reduces employee training time. It takes only minutes to
master the hand-held scanner for reading barcodes. Furthermore, employees do not
have to gain familiarity with an entire inventory or pricing procedure. This also makes
employee training less expensive, since they do not have to be paid for extra training
time, and another employee does not have to be compensated for training them.

3. Barcodes are inexpensive to design and print. Generally they cost mere pennies,
regardless of their purpose, or where they will be affixed. They can be customized
economically, in a variety of finishes and materials.

4. Barcodes are extremely versatile. They can be used for any kind of necessary data
collection. This could include pricing or inventory information. Additionally, because
barcodes can be attached to just about any surface, they can be used to track not only
the products themselves, but also outgoing shipments and even equipment.

5. Inventory control improves. Because barcodes make it possible to track inventory so

precisely, inventory levels can be reduced. This translates into a lower overheard. The
location of equipment can also be tracked, reducing the time spent searching for it,
and the money spent replacing equipment that is presumed lost.

6. Barcodes provide better data. Since one barcode can be used for inventory and pricing
information, it is possible to quickly obtain data on both. Furthermore, barcodes can
be customized to contain other relevant information as needed. They provide fast,
reliable data for a wide variety of applications.

7. Data obtained through barcodes is available rapidly. Since the information is scanned
directly into the central computer, it is ready almost instantaneously. This quick
turnaround ensures that time will not be wasted on data entry or retrieval.

8. Barcodes promote better decision making. Because data is obtained rapidly and
accurately, it is possible to make more informed decisions. Better decision making
ultimately saves both time and money.

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Problem 4:
Given in the problem the following data:
- The aggregate monthly forecast for (June) = 12,000 pairs
- Los Angeles Distribution Center percent of the warehouse’s stock = 25%
- Memphis Distribution Center percent of the warehouse’s stock= 30%
- Dayton Distribution Center percent of the warehouse’s stock= 35%
- The remaining 10% are removed to be shipped directly from the warehouse.

A) Based on the aggregate forecast; the number of pairs of socks expected for each DC to
be demanded in June will be calculated as follows:

Los Angeles:

Given that the percentage of the warehouse stock for LA is 25% of the whole value
(12,000)

So that 25% × 12,000 = 3000 and this is the number of pairs of socks expected for Los
Angeles to be demanded in June

Memphis:

Given that the percentage of the warehouse stock for Memphis is 30% of the whole
value (12,000)

So that 30% × 12,000 = 3600 and this is the number of pairs of socks expected for
Memphis to be demanded in June

Dayton:

Given that the percentage of the warehouse stock for Dayton is 35% of the whole
value (12,000)

So that 35% × 12,000 = 4200 and this is the number of pairs of socks expected for
Dayton to be demanded in June

B) Suppose that the aggregate forecast for July results in a 6 % increase over June’s
forecast.

There will increase in a 6% of the whole value (12,000 pairs of socks) which will be
calculated as follows:

12,000 (the amount mentioned in the problem) + 12,000 × 0.06 (6%)

= 12,000 + 720

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= 12720 this will be the value after 6% increase in July

Los Angeles:

Given that the percentage of the warehouse stock for LA is 25% of the whole value
after the 6% increase will be 12720

So that 25% × 12,720 = 3180 and this is the number of pairs of socks expected for Los
Angeles after the 6% increase in July

Memphis:

Given that the percentage of the warehouse stock for Memphis is 30% of the whole
value after the 6% increase will be 12720

So that 30% × 12,720 = 3816 and this is the number of pairs of socks expected for Los
Angeles after the 6% increase in July

Dayton:

Given that the percentage of the warehouse stock for Dayton is 35% of the whole
value after the 6% increase will be 12720

So that 35% × 12,720 = 4452 and this is the number of pairs of socks expected for Los
Angeles after the 6% increase in July

The remaining 10% which are removed to be shipped directly from the warehouse:

10% × 12720 = 1272 and this is the number of pairs of socks expected for Los
Angeles after the 6% increase in July

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Problem 5:
Given in the problem the following data:
- The forecasting system for national sales has historically shown a 20% error rate.
- Carrying cost: $3000 per month
- The new forecasting system will cut the error level down to 12%
- Inventory carrying cost: 40% reduction per month

A) - Given that the new forecasting system will cost $1000 more per month
- The cutting off carrying will cost $1200 per month (0.40 × 3000) = 1200
- This means that we will pay $ 1000 and we will save $200
- Therefore; Mr. Georgy will have to implement this change.

B) The availability of the product for the customer will increase the customer
responsiveness as well as the service level. This will encourage customers to buy
products from the store and to provide the products at low prices.

Problem 6:
Given in the problem the following data:
- The DC experiences a daily demand of 400 spatulas.
- The average length of the performance cycle for spatulas is 14 days.
- Mr. Busfield requires that 500 spatulas be retained as safety stock.
- Safety stock (also called buffer stock) is a term used by logisticians to describe a level
of extra stock that is maintained to mitigate risk of stockouts (shortfall in raw material
or packaging) due to uncertainties in supply and demand.
A) The reorder point for spatuals is in the 14th day.
B) At first, we will explain what is meant by inventory level: The current amount of
a product that a business has in stock. The inventory level and sales rate of a product
will be used by a typical inventory manager to determine the optimal time for
either producing more, if they are managing a manufacturer's warehouse, or
to order more if the product is being stored as stock at a retail store.

a. Use the reorder point to find the order quantity: R = D x T + SS

= 400 x 14 + 500 = 6,100 spatulas reorder point is 6100, Order quantity is more
than or equal to 5600.
b. The average inventor is one-half the order quantity + safety sock: If Order
quantity is equal to 5600, then Average inventory = 5600/2+500 = 3,300 spatulas

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Problem 7:
Given in the problem the following data:
- Mr. Busfield expects to sell 44,000 measuring cups this year.
- The measuring cups will cost 75 cents each from Shatter Industries.
- Shatter charges $ 8 for processing each order.
- Inventory carrying cost= 12% annually.

A) Economic Order Quantity: The economic order quantity (EOQ) is the order
quantity that minimizes total holding and ordering costs for the year. Even if all the
assumptions don't hold exactly, the EOQ gives us a good indication of whether or not
current order quantities are reasonable.

D = 44,000 unit/year
U = $ 0.75 (75 cents)
Cost per order= $ 8
Annual inventory Carrying Cost: 0.12 (12% annually)

EOQ = 2*8* 44.000 / 0.12* 0.75

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= 704000/0.09
EOQ= 2796.8 units (2797 units approximately)

B) Total Cost = Total transportation cost + Total Carrying Cost + Total ordering Cost

Take it into consideration the table mentioned below:

Quantity Cost
< 4000 0.05 $ per unit
≥ 4000 0.04 $ per unit

Total ordering cost = D/Q × Cost per order = 44000/2797 x 8 = $125.85

Total ordering cost= D/Q × Cost per order = 44000/4000 x 8 = $ 88
Total carrying cost = Q/2 × annual inventory carrying cost × cost per unit
= 2792/2 × 0.12 × 0.75
= $ 125.86
Total Carrying Cost = 4000/2 × 0.12 × 0.75
= $ 180

Annual Total Cost = D × Total Cost per Unit

= 44000 × 0.05 = $ 2200
Annual Total Cost = 44000 × 0.04 = $ 1760

Total Cost = Total transportation cost + Total Carrying Cost + Total ordering Cost
= $ 125.85 +$ 125.86 +2200
= $ 2451.71
Total Cost = $ 88+ $ 180+ $ 1760+ $ 2028
= $ 2028
The difference in total cost = $ 2451.71 – $ 2028 = $ 423.71

C) EOQ = 4000 Units

Number of orders = D/Q = 44000/4000 = 11 orders/ year

Time between orders = Number of working days per years/ number of orders per year
= 365/11 = 33.18 days

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Problem 8:
Performance cycle = difference in time between ordering and receiving orders.
D = daily demand = 100 units/ day
Performance cycle = 8 days
A) ROP = D x T = 100 x 8 = 800 units
B) Average inventory = 800 (ROP = Quantity) = 800/2 = 400 units
C) ROP = D x T = 100 x 8+7/2 = 1150 units
D) Average Inventory = Q/2 + (P+D/ 2) +SS = 800/2 +7+100/2 = 400+53.5 = 435.5

Problem 9:

A) DS= 3500 (42000 – 7000) + 12500 + 6000/ 2500+2000 = 11.88 days

B)

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The Cincinnati DC = 11.88-12500/2500 × 2500 = 17200

The Phonix DC = 11.88- 6000/2000 × 2000 = 17760

Problem 10:

A) Yes, it is a normal distribution because mean= median = mode = 6

B)

= (42+ 32+ 3×22 +4 +4 +3× 22 + 32 +42) / 24

= 3.416

Therefore S = 1.85

C) Yes it is normal.
D)

= 4 × (10-12)2 + 8 (11-12)2 +16 (12-12)0 + 8 (13-12)2 + 4 (14-12) 2 / 40-1

= 4 × 22 + 8 +8 +4 × 22/ 39
= 144 / 39
= 3.692

E) σc = √(TSs2 + D2St2)
= √ 1 2 × (1.23)2 + (6)2 × (0.89)2 = 7 (Approximately)

F) Average inventory = order quantity + SS/ 2 = 36 + 7 ×3/ 2 = 28.5

G) F (K) = (1-SL) + Q/ σc = 1 – 99/100 × 36/7 = 0.05
H) F (K) = 0.05 so K will be equal to 1.2

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SS = k × σc = 1.2 × 7 = 8.4 (9 units approximately)

F (K) = (1-99/100) × (30/7) = 0.04 so K = 1.3 and SS = 1.3 × 7 = 9.1 (10 units
approximately)

Problem 11:
Given in the problem the following data:
a. Cost per truck = $600
Max capacity per truck = 7,000 gallons
Total pesticides to be transported = 9,500 gallons
No. of tank trucks needed = 9,500 / 7,000 = 1.35 => Hence, 2 trucks are needed. Total cost = 2 *
$600 = $1,200
TANK CAR (RAIL): Cost per tank car = $1,000
Max capacity per tank car = 23,500 gallons
Total pesticides to be transported = 9,500 gallons
No. of tank cars needed = 9,500 / 23,500 = 0.404 => Hence, 1 tank car are needed. Total cost = 1 *
$1000 = $1,000

b. Customer treatment is one of the qualitative factor which should be considered in this
decision. Safety and handling the gallons because it is hazard material.

Problem 12:
Given in the problem; the following items:
- Shipment of 150 computer
- From California to Missouri
- The value of this shipment $ 29.250
- 2.5 days (Standardized transit time)
- Delay = $ 6 per day per monitor

A) Cross country: will take 1.65 $/ mile.

Total miles = 1940 miles
Time = 3 days
Total cost = $ 3.201 for shipment
Half day of delay = $ 3 per computer
So, delay costs = 3 × 150 = $ 450
So, the total cost = $ 3,651

B) Sea to Shipment
Cost of shipment = 1,500
Cost of delay = 2.5×150×6 = $ 2,250
Total Cost = $ 3,760

C) LQI
S 2,500 but on time.
3% damage of 150 PC
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Damage devices = 5
1 device price = $ 195
5 device price = 5 × 195 = $ 9,75

Therefore, reimbursement = 0.33×975 = $ 325

Problem 13:
Given in the problem the following data:
- 12 truckloads of products each month from the receiving port in Bayonne, New Jersey
to a distributor in Pittsburgh, Pennsylvania.
- 376 miles: from Bayonne, New Jersey to Pittsburgh, Pennsylvania.
- $ 850 per truck.
- 65 miles: from Pennsylvania to Ohio.
- 430 miles: from Ohio to Bayonne.
- 380 miles: from Pennsylvania to Secaucus.

A) $ 1.2 per mile.

Total miles in going journey = 12 + 376 = 388 miles
Total miles in the whole journey = 388 + 380 = 768 miles
Total cost= 768 × $1.2= $ 921.6
Profit per truck= $ 850

He should refuse the agreement because the cost is higher than the profit and he will
lose.

B) 1.30 $ per mile. The Journey will start from Pittsburg = 12+376 = 388 miles × 1.2 =
465, 6 $
The journey will start from youngs town to secaucaus = 65 + 430 + 12 = 507 × 1.2 =
6084 $
Total cost = 465,6 + 608,4 = 1074 $ profit which the company will gain = 430 × 1.30 =
559 $
Total profit = 850 + 559 = 1409 $ this is the profit

C) Profit per month = 1409-1074 = 335 $ × 12 trucks = 4020 $

D) Yes, to provide loss caused by 380 miles = loss from Pittsburg to secaucaus.

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Problem 14:
a. Compare the storage and shipping costs associated with consolidated warehousing as
opposed to SPP’s current, direct shipping plan. Is any efficiency apparent through
consolidation?

As giving, the initial investment in the consolidated warehouse

= 200,000 $ to secure 10 years deal
Annual operating expenses = 48,000 $ * 10 years = 480,000$

Storage cost in the consolidating warehouse= 200,000 + 480,000 = 680,000$ in 10 years

Storage cost in the public warehouse = 6,000/ month = 72,000/Year = 720,000$ in 10 years

Transportation cost from the public warehouse= 300,000$ annually= 3,000,000$/10 years
Transportation cost from the consolidated warehouse = (3,000,000 * 75)/100
= 2,250,000 $ per 10 years
So, through the consolidated warehouse, SPP would save 40,000 $ as storage cost, and it would
also save 750,000 $ as transportation cost in the total 10 years.
It is very efficient to move to the consolidated warehouse.

b. Aside from potentially reducing costs, how else might SPP benefit by participating in the
consolidated warehouse?

By participating into a consolidated warehouse, SPP would get another advantage of reducing
the transportation time of the shipments from the new consolidated warehouse which is much
nearer to the Ace Motor Company, than the 20 miles away public warehouse. Sharing the risks
with others in warehousing and material handling is an extra advantage of the consolidating
warehouse.
This would give SPP more chances to focus on its development, inventory optimization,
enhanced flexibility and increased quality of the service. These all would surely reflect
positively on the customer satisfaction and long term relationship with Ace Motor Company.

c. What disadvantages might exist in a consolidated warehouse as opposed to a direct-

shipping situation?

In direct shipping from the public warehouse, SPP is in full control of the processes and the
decisions made for the transportation.
But in the consolidating warehouse, SPP has less control in the decision making process and
the consolidating warehouse requires collaboration among all five suppliers.
This is hard to coordinate in case if a conflict of interest exists between the five suppliers.

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Problem 15:

a. Considering demand and all costs depicted above, does the single, consolidated warehouse
or the two individual warehouses represent the least-total-cost alternative?

Giving the Warehouse expenses

Individual warehouses
For case storage only:
Capital $l,250/week
Labor $2,500/week
For barrel storage:
Capital $2,500/week
Labor $l,600/week
Single, consolidated warehouse
Capital $3,500/week
Labor $3,200/week

Two individual warehouses cost= Case storage + Barrel storage

= 1,250 + 2,500 + 2,500 + 1,600 = 7,850 $
Single consolidated warehouse cost = 3,500 + 3,200 = 6,700 $

Then the single consolidated warehouse will cost less by 1,150 $

b. Now assume that Stipe Trucking Service will provide only the multi-compartmented
trailers to serve the proposed consolidated warehouse.
Which plan is the least-cost alternative in this scenario?

Giving the Truckload costs

Refrigerated $550
Non-refrigerated $400
Multi-compartmented $500
Essen experiences a weekly demand of 300 barrels and 5,000 cases.
The multi-compartmented trailer can hold 36 barrels and 200 cases.
A refrigerated truckload can hold 72 barrels, while a non-refrigerated truckload holds 400 cases.

Then we need 5,000/ 200 = 25 multi-compartmented trailer to transport the shipment.

Which will cost 25 * 500 = 12,500$
with using the consolidated warehouse = 6,700 + 12,500 = 19,200 $
While we need 300/72 = 5 refrigerated truckload which cost = 5 * 550 = 2,750 $
we need also 5000/400 = 13 non-refrigerated truckload which cost = 13 * 400 = 5,200 $
Then the transportation by this way will cost= 2,750 + 5,200 = 7,950 $
Then the least-cost alternative scenario is to use refrigerated and non-refrigerated truckloads to
serve one consolidated warehouse = 7,950 + 6,700 = 14,650 $
Instead of the multi-compartment truckload which will cost = 12,500 + 6,700 = 19,200 $
Then we will save 4,550 $

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Problem 16:

1- Private warehouse for 1 year = 30,000 $

Cost for labor = 5 × 24000 = 120,000
Cost for transportation = 12.5 × 24000 = 300,000 $
Total cost = 30,000+120,000 + 300,000 = 450,000 $

2- Variable cost = 8 × 24000 = 192000 $

Transportation cost = 12.5 × 24000 = 300,000 $
Carrier cost = 5 × 24000 = 120,000 $
Total cost = 192,000 + 300,000 + 120,000 $ = 540,000 $

3- Fixed investments = 15,000 $

Logistics services = 20 × 24000 = 480,000 $
Total Cost = 15,000 + 480,000 = 495,000 $

4- The private warehouse will cost the least for the company so, the company have a full control
on its inventory and there is no reason to have extra cost for the transportation since we have
our own products (inventory) therefore the company will provide the customers with what they
want in the right time.

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Problem 17:
The Current System The New System
- Number of workers = 20 - $ 1.2 million upfront
- Average wage rate = $ 13 / hour - Only 8 workers …. 16. Hours over 2000
- Laborers workers with an average hours each year.
of 2,000 hours/year - Maintenance cost: $ 60000/year and 3%
- The mechanization costs $ 18,000 annually after 1st year.
annually to maintain - Warranty =15 years.
- Equipment purchased 2 years ago
with steady payments of $ 25,000
annually.
- In year 9, equipment will be
replaced by new machinery with
fixed annual costs of $ 35,000
- Maintenance will cost $ 12,000 per
year with the same 20 workers.
- Old machinery could be sold
immediately for $ 125,000

1- Mechanical Cost:
Labor’s cost = 20 × 13 × 2000 = 520,000 $ per year.
For 13 years = 520,000 $ × 13 = 6.760.000 $
Mechanization cost = 18,000 × 6 = 108,000 $
Purchase equipment = 2500 × 6 = 150,000 $
New machinery fixed cost = 35000 × 7 = 245000 $
Maintenance = 12,000 × 7 = 84 000 $
Therefore, the total in 15 years will be = 7,347,000 $

For the automated system:

Implementation = 1200,000 $
Labor cost = 8 × 13 × 2000 ×16 = 33 28 000 $

Specialty wage = 56000 + (56000 ×1.02) + (56000 x 1.02 2 ) + (56000 × 1.02 3) + (56000 x
1.024) + (56000 x 1.025 ) + (56000 x 1.026) + (56000 x 1.027 ) + (56000 x 1.028 ) + (56000 x
1.029) + (56000 x 1.0210) + (56000 x 1.0211) + (56000 x 1.0212) = 822 , 093 $

Maintenance:

60,000$ + (60,000 x 1.03) + (60,000 x 1.032) +(60,000 x 1.033)+ (60,000 x 1.034)+ (60,000 x
1.035) + (60,000 x 1.036) + (60,000 x 1.037) + (60,000 x 1.038) + (60,000 x 1.039) + (60,000 x
1.0310) + (60,000 x 1.0311) + (60,000 x 1.0312) = 937, 063 $

Total Cost : 822 , 093 $ + 937, 063 + 33 28 000 $+1200,000 – 125,000 $

After 10 years cost = 5, 646, 000 $ (Mechanical)

After 10 years cost = 5, 061, 001 $ (Automated)

2- Here in this case, we will apply the automated system as it will be better than the mechanical
one because it will help the company in increasing its productivity, high accuracy and better
tracking and this will help the company to have better relationship with its customers.

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Problem 18:

Typical Compensation plan Incentive Plan

- Wage rate= 13 $ per hour
- Error rate: 0.5% of orders under
wage rate
- Error results in $ 60 loss in
revenues per error
- Number per units/ hour …. 20
units/hour
- On performance
0.40/ unit prepared for shipping
- 1 % of orders under incentive plan.
- Number per units/hours …. 28 units per
hour

Regardless of plan; employees work 40 hours/ week and there is no work during the weekend
and no part timers.

Day Demand

Monday 3,400

Tuesday 3,625

Wednesday 3,205

Thursday 3,380

Friday 3,670

Weekly demand 17,280

A) Compensation plan – Hourly based
Wage rate = $13 per hour

Productivity per worker = 20 units per hour

Working hours = 40 hours per week

Error rate = 0.5%

Revenue lost per occurrence of error = $60

Average requirement of the workers = Weekly demand/(productivity per worker x

working hours)

= 17,280 units/(20 units per hour x 40 hours)

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= 21.6

Actual requirement of the workers = 22 workers

Labor cost = Number of workers x wage rate per hour x working hours

Labor cost = 22 x $13 x 40 = $11,440

Lost revenue = error rate x weekly demand x revenue lost per occurrence of error

Lost revenue = 0.005 x 17,280 x $60 = $5184

Total cost of hourly compensation plan = $11,440 + $5,184 = $16,624

B) Compensation plan – Performance based

Wage rate per unit = $0.40 per unit
Productivity per worker = 28 units per hour

Working hours = 40 hours per week

Error rate = 1%

Revenue lost per occurrence of error = $60

Average requirement of the workers = Weekly demand/(productivity per worker x

working hours)

= 17,280 units/(28 units per hour x 40 hours)

= 15.4

Actual requirement of the workers = 16 workers

Labor cost = Number of workers x wage rate per unit x working hours x productivity per
hour

Labor cost = 16 x $0.4 per unit x 40 hours x 28 units per hour = $7168

Lost revenue = error rate x weekly demand x revenue lost per occurrence of error

Lost revenue = 0.01 x 17,280 x $60 = $10,368

Total cost of hourly compensation plan = $7,168 + $10,368 = $17,536

Conclusion:

Hourly Performance
based plan based plan

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Number of
workers 22 workers 16 workers
required

$16,624 $17,536 per

Total cost
per week week

Thus, compensation plan on hourly based with 22 workers is cost effective than
performance based plan.

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Problem 19:

Given in the problem; the following data:

- In one month, (3200 bottles of Cactus Juice which representing 0.4% of the month’s
volume could not be located for shipping.
- The forecasted annual sales volume for Cactus Juice is 9.6 million bottles.
- Each bottle sells for $ 4.50
- To solve this problem, Steve Davis (Vice President of Distribution) will try one of the
following security options:

First Option:
They will hire 4 guards (24/7)
Wage rate: $ 14.5/ Hour
Benefit Package: $ 2000 per employee per year
0.2 % of volume is expected to be pirferaged
One guard every 6 hours

Second option:
Electric detection system on bar codes technology.
The equipment will cost 120,000
The training will cost $ 8000
Maintenance per month will cost $ 800
Specialist salary $ 49,000 per year
0.1 % of volume is expected to be pirferaged

Third option:
Installing 6 cameras and each one will cost: $ 1200
The support system devices and the installations will cost $ 36,000
Hiring 4 guards: $ 12 per hour, plus 42 hour per week and only one of them will work 168 hours
all times.
The benefit package will be $ 1000 per year
0.05 % priferage

Now, we are going to calculate each option in order to know which one we are going to
implement.

The first option calculations:

Wages: 14.5 $ × 24× 7 = 2.436 $ per week and per month and per year will be $ 116,928
Benefit package for the 4 security guards: $ 2000 ×4 = $ 8000 benefit per year.
0.2% × 9,6000,000 units = 19,200 units pirferaged and $ 86,400 per year
Therefore, the total cost will be $ 211, 328
Sales: 9,513600 units × 4.5$ = $ 42,811,200

The second option calculations:

Wages calculations: $ 120,000 +8000 + 800×12 (9600) + $ 49,000 = 17661

0.1% × 9,6000000 units = 9600 units (pirferaged)

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9600 units × 4.5 = $ 43.200

Total cost = $ 229,800
Sales = 9.590,400 × 4.5 $ = $ 43,156,800
The third option calculations:

$ 1200× 6 = $ 7200 plus $ 36,000 in addition to 3 guards × 42×12 = 1,512 + 1 guard will cost
$ 168 × 12 = $ 2, 016 $

0.0 5 % × 96000000 = 4800 units priferled

4800 × 4.5 = 21,600 $

Total cost: $ 238,144

Sales: 9,595 200 × 4.5 = 43,178, 400 $

Therefore, from the above mentioned calculations; we can conclude that the first option is the
better option to be implemented.

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Problem 20:

Given in the problem; the following data:

- Clock radios: X-100 and X-250 deluxe

- Both products are currently packaged in a single-wall corrugation.
- 0.5% of both are damaged between packaging and customer delivery.
- Company can package either model, or both in double-wall corrugated fiber board.
- Therefore reduces product damage by half.
- Current single-wall packaging cost 0.80/unit.
- Double wall packaging costs 20% more which means 0.96 $ per unit.
- X-100 have market value $ 40 and X-250 have market value $ 70.
- Damaged unites are a total loss.
- 12000 units (X-100)
- 7000 units (X-250)
- Forecast for next year volume: For X-100, this is consistent sales and for X-250 5%
increase in sales.

A- From the least-cost perspective, they should not use the double-wall corrugation with
the X-100 next year because it will cost them extra money and they should use the
double-wall corrugation instead of the double corrugation because it would not cost
extra money.

B-
C- Packaging design impacts sustainability in at least three ways. First, improved
packaging designs can enable a company to reduce the amount of materials used to
begin with, lowering costs and reducing the amount of material resources required. In
some cases, especially for product moves internal to a company, it may be possible to
get rid of packaging altogether, replacing it with some type of reusable containers.

Second, packaging can be designed to maximize the amount of materials that can be
recycled, eliminating waste and in some cases actually generating income from selling
corrugate, plastics or other materials to recyclers.
Third, smart package design may enable a company to place more units in a container
or on a pallet, reducing shipping costs. The same truckload move might be able to carry
many more items after a smart packaging redesign aimed at reducing the "cube" size of
the product, thus decreasing transport costs per unit. The same of course holds true for
an item design that might reduce parcel shipping costs in ecommerce, etc.

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Problem 21:

1-
σc = √(TSs2 + D2St2)
Where:
– σc = Standard deviation of combined probabilities;
– T = Average performance cycle time;
– St = Standard deviation of the performance cycle;
– D = Average daily sales; and
– Ss = Standard deviation of daily sales

σc = √(TSs2 + D2St2)
= √ 7 × 3 2 + 20 2 × 22 = 40.7 which will be 41 (approximately)

F (K) = (1- S) × Q / σc = (1-0.95) × 200/41 = 0.2439

K = 1.6
Therefore Safety Stock (SS) will be = 1.6 × 4.1 = 65.6 (66 units approximately)

Average inventory = Q/2 + SS = 200/2 +66 = 166 units

2- F(K) = (1-S1) × Q/ σc = 1-0.99 × 200/41 = 0.048

K = 2.2
SS = K × σc = 2.2 × 41 = 90.2 = 91 units

Average inventory = Q/2 + SS = 100+91 = 191 units

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Problem 22:
A- Average inventory = Q/2+(P+D/2) +SS = 7,000/2 +(10+1,000/2)+0 = 3500 +510 =4010
Carrying cost = average inventory result × 20% = 4010 × 20% = 802
B- and C – (will require a table to answer it )

Problem 23:

A- $ 1.30 per mile +9 × 100 = 901.13 $ and $ 1.30 per mile + 9 × 200 = 1801.3 $

B - A Service delivery process is a special process describing a complete and integrated

approach for performing a specific project type. It provides a complete end-to-end lifecycle

(for its scope) and can be used as a reference for running projects with similar characteristics.

Service definition is key to service management. Service definition enables both the customer

and the service provider to know what to expect and not expect from a service.

Problem 24:

1- Corrugated = 0.05$
Recyclable = 0.25 +0.02 = 0.27 $ for one year
If we calculated number of corrugated bar that equal to recyclable = 0.27/0.05 = 5.4
containers so they will be 5 containers (approximately)
Therefore 5 corrugated equals to one recyclable
So this means if the number ≥ 5; in this case, it would be better to use recyclable.
But, if the number is < 5; in this case, it would be better to use corrugated.

Problem 25:
A – Mechanized system should be used for each DC because it is given in the problem that
the annual fixed cost for the mechanized system is 50,000 and for 10 years; it will cost:
500000 $. However, the semi – mechanized system will cost 200,000 $ and for 5 years; it will
cost: 1000000 $ so we will choose the mechanized system which is cheaper.

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