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A parts distributor has an annual demand for machine parts of 10,000 per year with average cost of $10 per unit. There are two options for shipping this from Kuala Lumpur, Malaysia, (1) a combination of ship and train that will take 30 days at a cost of $3 per unit or (2) a combination of ship and truck that will take 20 days at a cost $4 per unit. The holding cost rate is 30% of unit cost per year.

a. Which mode of transportation is more economical? (round to the nearest dollar)

b. Would your answer change if the parts distributor keeps a safety stock of 100 units for option (1) and a safety stock of 50 units for option (2) (round to the nearest dollar)?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92599707

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