Q. A power plant in California uses coal at rate of 100,000 lbs per day. It also uses MRO (Maintenance, Repair and Operations) material at a rate of 1,000 lbs per day. Coal comes from Wyoming and MRO material comes from Chicago. Coal costs $0.01 per lb whereas MRO material costs $10 lb on average. Holding costs at power plant are 25% per year. You have 2 transportation choices:
Train
Lead time = 15 days
Carload (100,000 lbs) costs $400/carload Full Train (70 cars) costs $15,000/ train
LTL Truck
Lead time = 4 days Minimum cost = $100 Cost for shipment size:
0.08 $/lb 0.07 $/lb 0.06 $/lb
TL Truck
≤10,000 lbs
10,000 < shipment ≤ 20,000 lbs 20,000 < shipment ≤ 40,000 lbs
Lead time = 3 days
2,000 $/load - Standard trailer (up to 40,000 lbs) 2,600 $/load - Reinforced trailer (up to 60,000 lbs)
Safety inventory of coal and MRO materials is kept at twice consumption during led time of supply.
a) Illustrate what mode of transportation do you recommend for coal and for MRO materials?
b) Why?