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Flanger is an industrial distributor that sources from hundreds of suppliers. The two modes of transportation available for inbound shipping are LTL (less than truckload) and TL (truck­ load). LTL shipping costs $1 per unit, whereas TL shipping costs $400 per truck. Each truck can carry up to 1,000 units. Flanger wants a rule assigning products to shipping mode (TL or LTL) based on annual demand. Each unit costs $50, and Flanger uses a holding cost of 20 percent. Flanger incurs a fixed cost of $100for each order placed with a supplier. a. Determine a threshold for annual demand above which TL is preferred and below which LTL is preferred. b. How does the threshold change [relative to part (a)] if unit cost is $100(instead of $50) with all other data unchanged? Which mode becomes preferable as unit cost grows? c. How does the threshold change [relative to part (a)] if the LTL cost comes down to $0.8 per unit (instead of $ per unit)?

Operation Management, Management Studies

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