Question: Construct a financial model to determine the redelivery/rehandling cost, lost sales, invoice dedution cost, and net income for the following:

a. On-time delivery increases from 90 percent to 95 percent with a 5 percent increase in transportation cost.

b. Order fill rate decreases from 96 percent to 92 percent with inventory reduced by 5 percent.

Selling price/order = $150/order

Gross profit/order = $35/order

Lost sales rate:

On-time delivery failure = 15%

Order fill failure = 20%

Supply Chain Performance Measurement and Financial Analysis 181

Annual orders = 200,000

Rehandling cost = $125/order

Invoice deduction/service failure = $150/order

Transportation cost = $1,000,000

Average inventory = $1,000,000

Interest cost = $1,500,000

Inventory carrying cost rate = 25%/$/yr.

Warehousing cost = $750,000

Other operating cost = $500,000

Cash = $3,000,000

Accounts receivable = $4,000,000

Fixed assets = $30,000,000

Tax rate = 40%