Question

When Vidalia onions are ready, the entire 13 county (plus parts of seven other counties) area in Georgia where they are grown is devoted to the harvest, packaging and shipping of this delicacy. The Onion Shack currently purchases 120,000 bags of onions each year at a price of $100 per bag (a bag is ten pounds). Onion Shack has historically purchased in lots of 3000 bags. Transit time and capacity vary as indicated in the table (lead time is 2 days more than transit time). The safety inventory that Onion Shack requires is 30% of lead time demand and the holding cost for a bag is 15% of cost.

Carrier Quantity Shipped (cwt) Quantity shipped (bags) Shipping cost ($/cwt) Transit time (days)
Mashburn Rail 200+ 2000+ $2.10 5
Sylvia Express 100+ 1000+ $2.35 3
Anita Enterprises 250+ 2500+ $1.35 3
Smith Trucking 250+ 2500+ $1.00 3

Use Scenario 14.1 to determine the safety inventory of the Mashburn Rail option if the Onion Shack purchases 240.000 bags of Vidalia onions each year.

O 3288.00
O 1973.00
O 1381.00
O 986.00

Answer 1

The student's question is centered on calculating inventory costs for the Onion Shack's Vidalia onion supply chain. It involves safety stock, lead time demand, and holding costs for effective inventory management.

Step-by-step explanation:

The student's question pertaining to the purchase, storage, and inventory management of Vidalia onions by the Onion Shack is based on supply chain management principles within the domain of Business. To calculate the inventory related costs and strategies, understanding of concepts such as safety inventory, holding costs, and lead time is essential.

The Onion Shack purchases 120,000 bags of onions annually, which equates to a daily demand of approximately 328 bags (120,000 bags / 365 days). The company maintains a safety stock that is 30% of the lead time demand to mitigate the risk of stockouts. This is crucial as onions are a perishable commodity and any disruption in supply could lead to significant losses. The holding cost of a bag of onions is calculated to be $15 per bag (15% of $100).

Given these parameters, the Onion Shack would need to ascertain the optimal order quantity that minimizes total costs while ensuring continuous availability of onions to meet consumer demands. This includes taking into account the lead time for deliveries plus an additional two days, while also considering the costs of holding excess inventory which is impacted by the holding cost.