1.

What is the annual cost of MoonChems strategy of sending full truckloads to each customer in the Peoria region to replenish consignment inventory? MoonChems customer profile appears in Table 1 !" and is reproduced belo#$ Customer Type %mall Medium *arge Number of Customers 1& ( & Consumption (Pounds per Month) 1' )' 1&'

+ach truck has a fi,ed capacity of " ' pounds and costs MoonChem -" per delivery. The %mall customers use only 1&' pounds per year' so a " ' truckload represents better than a three year supply. Total policy cost is obtained using a /0" ' an %0-" ' and an hC 0 1&)231-13. SD hCQ + Q & -" 11&' 3 1&)231-13" ' TCSmall = + " ' & -" 1( ' 3 1&)231-13" ' TCMedium = + " ' & -" 11""' 3 1&)231-13" ' TCLarge = + " ' & TC =

'

= -)'1& = -)' ( = -(' ""

4actoring in the number of each class of customers$ -)'1& 1& + -)' ( ( + -(' "" & = -1 5'6& &. Consider different delivery options and evaluate the cost of each. What delivery option do you recommend for MoonChem? MoonChem has the option of scheduling multiple deliveries on a single truck #ith a base charge of -7) for the truck and -) for each delivery the truck makes8 truck capacity remains at " ' pounds. Three alternatives that students might consider include creating a 9supergroup: of all customer deliveries on a single truck' creating three groups consisting of customers #ithin each class' and creating t#o groups consisting of one large' three medium' and si, small customers each. Costs for each of these alternatives are e,amined in turn. ;lternative 1$ The %upergroup The supergroup approach has a total annual demand of 56&' pounds of the base chemical and #ould incur a shipping cost of -7) <& 1-) 30-17) . The optimal order fre=uency is$

n =
>

k i =1

Di hCi 1-131&)23 + 7( ' 1-131&)23 + 1&??' &1-17) 3 31-131&)23

&S >

1""'

= ?.)( This number of shipments per year re=uires a truck capable of holding far more than " ' pounds8 dividing 56&' pounds by the " ' pound truck capacity sets the number of orders per year at 16.?. +ach truck #ill hold 1""' @16.?05'&57 pounds for the small customers8 7( ' @16.?01?'1?& pounds for the medium customers' and &??' @16.?01"')") pounds for the large customers to be divided e=ually among the number of customers in each siAe range. Cycle inventory across all customers in each class is half of the order =uantity and results in annual holding costs of -6 6' -&&57' and -1?1? for small' medium' and large respectively 1-)' total3. The annual ordering cost of this policy is 116.? orders31-17) @order3 0 -&('57 . Total plan cost is -)' <-&('57 0-71'57 .

;lternative &$ %eparate groups for the %mall' Medium' and *arge customers nSmall =
>

k i =1

Di hCi

&S >

1""'

1-131&)23 &1-6) 3

= ".7) nMedium =
>

k i =1

Di hCi

&S >

7( '

1-131&)23 &1-() 3

= ?.7& nLarge =
>

k i =1

Di hCi

&S >

&??'

1-131&)23 &1-") 3

= ?.6"

The optimal number of shipments for the Medium customers re=uires a capacity greater than " ' per truck' so dividing 7( ' pounds by " ' pounds@truck indicates that 6 orders per year is practical. The actual order siAes for each class and the resultant holding and ordering costs are sho#n in the table$ Class %mall Medium *arge Order Size 77' ?& " ' 7&'166 Holding Cost -"'17) -)' -"' &) Ordering Cost -"'17) -)'?) -"' &)

The total plan cost is -&5'15 ;lternative 7$ T#o groups #ith ( %mall' 7 Medium' and 1 *arge customer each +ach group has an annual demand of 76(' and an ordering cost %0-?) . n =
>

k i =1

Di hCi 1-131&)23 + 11""' &1-?) 3 31-131&)23 l

&S > 1-131&)23 + 1? '

5&'

= 5.(7 This ordering fre=uency e,ceeds truck capacity8 dividing group demand by " ' pounds per truck gives 6.6 orders annually. Plan specifics appear in the table$ Class %mall Medium *arge Order Size 5'&57 1?'1?& 1"')") Holding Cost -6 6 -&'&57 -1'?1? Ordering Cost -?) 16.631&3 0 -1('?7

The total plan cost is -&('?7 ;lternative 7 is -7" cheaper than ;lternative & and both are over -"' than ;lternative 1. cheaper

7. Bo# does your recommendation impact consignment inventory for MoonChem? The consignment inventory drops significantly from its initial levels. The current system' #ith each customer ordering in lots of " ' pounds has a cycle inventory of & ' pounds for each of the & sites' resulting in a system!#ide cycle inventory of " ' pounds. ;lternative 1 has a cycle inventory of " ' @& 0 & ' pounds ;lternative & has a cycle inventory of 177' ?&<" ' <7&'1663@&0)&'("1 pounds ;lternative 7 has a cycle inventory of 1" ' @&3>& 0 " ' pounds