Practical Management Science
Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Joburg Logistics (JL), a distributor of various products in
Polokwane receives their products from suppliers in
Durban, Cape Town, and Johannesburg. The company's
management is concerned with the supply cost of a
certain product that is supplied by a manufacturer in
Durban. Currently JL has a contract with Transnet Freight
Rail (TFR) for the transport of the orders from Durban. The
following are the rail rate and transit time:
Transit time (rail)
Rail rate
5 days
R2.75/unit
The impact on the transport and inventory carrying cost
because of this arrangement is a concern of the logistics
director, Mrs Micky. As a result, Mrs Micky has requested
the logistics manager to evaluate the option to use a 3PL
service provider for the shipment from Durban to
Johannesburg. The logistics manager has identified a
certain 3PL company that has the capacity to perform this
contract. However, in order to provide a transport rate, the
3PL company required the size and frequency of orders.
JL currently uses the EOQ approach to determine the
order size and based on this the 3PL company has
provided the following transport rates:
EOQ Order 100 units
Transport rate (Rand/unit) 3.50 3.10
Transit time (days)
3
1
The logistics manager has obtained the following
information:
Annual demand (units)
Product value (Rand/unit)
Inventory carrying cost
Order cost
In-transit inventory carrying cost
Which option would you recommend that GP use?
(Hint: Assume 360 days/annum. Comparison of the
possible options should be based on TAC)
1 000
R650
20%
R35
12%
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Transcribed Image Text:Joburg Logistics (JL), a distributor of various products in Polokwane receives their products from suppliers in Durban, Cape Town, and Johannesburg. The company's management is concerned with the supply cost of a certain product that is supplied by a manufacturer in Durban. Currently JL has a contract with Transnet Freight Rail (TFR) for the transport of the orders from Durban. The following are the rail rate and transit time: Transit time (rail) Rail rate 5 days R2.75/unit The impact on the transport and inventory carrying cost because of this arrangement is a concern of the logistics director, Mrs Micky. As a result, Mrs Micky has requested the logistics manager to evaluate the option to use a 3PL service provider for the shipment from Durban to Johannesburg. The logistics manager has identified a certain 3PL company that has the capacity to perform this contract. However, in order to provide a transport rate, the 3PL company required the size and frequency of orders. JL currently uses the EOQ approach to determine the order size and based on this the 3PL company has provided the following transport rates: EOQ Order 100 units Transport rate (Rand/unit) 3.50 3.10 Transit time (days) 3 1 The logistics manager has obtained the following information: Annual demand (units) Product value (Rand/unit) Inventory carrying cost Order cost In-transit inventory carrying cost Which option would you recommend that GP use? (Hint: Assume 360 days/annum. Comparison of the possible options should be based on TAC) 1 000 R650 20% R35 12%
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