Question

You are the supply chain manager at Houston Freight Shipping & Trucking and wish to choose between two alternatives to ship 2000 electronic component parts from Houston to New Orleans, Louisiana. The price of each component is $10 per unit, for a total cost of items of $20,000 (= 2000 * $10) The two options are similar except for delivery times, as shown below. Option 1: Two-day delivery, costing the company a total of $4,000 Option 2: Five-day delivery, costing the company a total of $3,800, The primary consideration is the holding cost, which is 30 percent of price of the items shipped per year (H = 0.30). a. Which shipping option would you recommend? Show your work b. What other factors beside the shipping cost differences in part a should be considered for decision making? Discuss.

Answer 1

Option 2 is the recommended shipping option as it has a lower total cost compared to Option 1. Other factors to consider besides shipping cost differences include reliability of the shipping company, insurance coverage, track record of on-time deliveries, customer reviews and satisfaction, potential damages or losses during transportation, and availability of tracking and tracing facilities.

Step-by-step explanation:

To recommend the shipping option, we need to calculate the holding cost for each option. The holding cost is calculated as 30% of the price of the items shipped per year. For Option 1, the holding cost is 30% of $20,000 which is $6,000. For Option 2, the holding cost is also $6,000.

Considering the total cost of each option:

• Option 1: $4,000 (shipping cost) + $6,000 (holding cost) = $10,000
• Option 2: $3,800 (shipping cost) + $6,000 (holding cost) = $9,800

Option 2 is the recommended shipping option as it has a lower total cost compared to Option 1.

Other factors to consider besides shipping cost differences include:

• Reliability of the shipping company
• Insurance coverage
• Track record of on-time deliveries
• Customer reviews and satisfaction
• Potential damages or losses during transportation
• Availability of tracking and tracing facilities