Innovation Distribution Co Supply Chain Risk

A Total Cost Approach to Understanding Supply Chain Risk Using the current exchange rate, what is the initial purchase cost per unit (in U.S. dollars) paid to Dong Hai Supply? (Do not include transportation costs.) The exchange rate between the U.S. Dollar and the Chinese Renminbi is: Dollar = 6.92 CNY China Yuan Renminbi CNY China Yuan Renminbi = 0.1445 U.S. Dollar The quoted price by Dong Hai Supply at the factory is 547 China Yuan Renminbi.

Therefore, the initial purchase cost per unit is The initial purchase cost is $79.04 for every unit (Frankel, 2013).

What is the average time for an order filling a TEU container to come from Dong Hai Supply in Chengdu, China, to IDC's Alliance Fort Worth Distribution Center? From CousinsAg in Wahoo, Nebraska, to IDC's Alliance Fort Worth Distribution Center? Dong Hai Supply to Alliance Fort Worth Distribution Center Dong Hai Supply order processing time = 15 days From Chengdu rail to Port of Shanghai = 1 day Loading at the Port of Shanghai = 4 days Transit on ocean between Port of Shanghai to Port of Long Beach = 16 days The unloading period at Port of Long Beach = 3 days Time from Rail Port of Long Beach to Alliance Fort Worth = 4 days Therefore, the total lead time for the supplier is 43 days.

For Chinese Supplier Mean Variance Standard Deviation Dong Hai Supply order processing time 15 0 From Chengdu rail to Port of Shanghai 1 0.4 Loading at the Port of Shanghai 4 2 Transit on ocean between Port of Shanghai to Port of Long Beach 16 8 The unloading period at Port of Long Beach 3 1.5 Time from Rail Port of Long Beach to Alliance Fort Worth 4 0 43 11.9 3.449638 Actual Days in Transit 28 The standard deviation as calculated above is 3.45 days. ii.

From Cousins Ag to Alliance Fort Worth Distribution Center Cousins Ag order processing time = 10 days Rail from Wahoo to Alliance Fort Worth = 5 days Therefore, total lead time is a period of 15 days.

For United States Supplier Mean Variance Standard Deviation Cousins Ag order processing time 10 1 Rail from Wahoo to Alliance Fort Worth 5 0.3 15 1.3 1.140175 Actual Days in Transit 5 Therefore, the average time for an order filling a TEU container to come from Dong Hai Supply to the distribution center in Alliance Fort Worth is 43 days whereas from Wahoo, Nebraska to the distribution center in Alliance Fort Worth is 15 days. 3. Using the current exchange rate, what is the cost (in U.S.

dollars) to ship a TEU container from Dong Hai Supply in Chengdu, China, to IDC's Alliance Fort Worth Distribution Center? China United States TEU cost from Chengdu Shanghai to Long Beach Import tariffs and duties Rail Cost from Port of Long Beach to Alliance Fort Worth Transportation Cost Therefore, the total cost altogether is $1,793.90 + $325 + $2,250 = $4,368.90 4.

What is the economic order quantity (use unit price only; do not include transportation costs) if we purchase everything from CousinsAg? From Dong Hai Supply? The Economic Order Quantity is the number of units that a firm ought to add to its inventory with every particular so as to minimize the total costs of inventory, which include shortage costs, holding costs and ordering costs (Shim and Siegel, 1999). The following calculation outlines the EOQ for Cousins Ag and Dong Hai Supply.

Dong Hai Cousins Ag Price per unit 80.11 85 Annual Demand 21,500 21,500 Ordering Cost Carrying Cost 32.20% 32.20% Economic Order Quantity The economic order quantity for Dong Hai is different from that of Cousins Ag owing to the variances in the unit cost as well as the ordering cost. In particular, for the Dong Hai supply chain, the lower unit price is because of the greater unit quantities.

What is more, based on the EOQ model, having a higher ordering cost will give rise to greater lot sizes and orders that are less regular (Shim and Siegel, 1999). Therefore, the EOQ for Dong Hai Supply is 551 units whereas that of Cousins Ag is 406 units. 5.

How many units of safety stock will we need to hold if we purchase everything from Dong Hai Supply? From CousinsAg? Safety stock takes into account the level of additional stock that is preserved and kept in place to alleviate the risk of experiencing a shortage in raw materials or total stock outs altogether, owing to qualms in levels of supply and demand (Shim and Siegel, 1999). As pointed out, the objective is to maintain an in-stock probability of 97.7% for the consumers (Frankel, 2013).

Dong Hai Cousins Ag Average Daily Sales 58.90411 58.90411 Deviation of Daily Sales 11 11 Average Replenishment Cycle 43 15 Standard Deviation of Replenishment 3.45 1.14 Safety Stock Units Therefore, the safety stock units for Dong Hai Supply is 431 units whereas that for Cousins Ag is 159 units. The significant variance between these two levels of units is owing to the substantial difference in the transit time for the supply chains. 6. Inventory carrying costs are based on the value of the product at the time it is held in inventory.

What is the in-transit carrying cost per unit (in dollars and cents) if we purchase everything from Dong Hai Supply? From CousinsAg? The Annual In-Transit Inventory Cost is calculated using the following formula: Annual in-transit inventory cost = The Annual In-Transit Inventory Level in Units x Mean Value per Unit of Inventory x Carrying Cost of In-Transit Inventory Dong Hai Supply Cousins Ag Actual Days in Transit 28 5 Cost of Unit during Transit 80.11 85 Other additional costs 0 0 Carrying Cost 32.20% 32.20% Total In-transit Carrying Cost for every Unit 1.978827 0.374932 The actual days in transit for Dong Hai are 28 days whereas those for Cousins Ag are 5 days, which indicates a significant variance between the two.

The in-transit carrying cost for Dong Hai Supply is $1.98 for every unit whereas that for Cousins Ag is $0.37 for every unit. 7. What average inventory level (in units) will we hold at the IDC's Alliance Fort Worth Distribution Center if we purchase everything from Dong Hai Supply? (Be sure to consider both safety stock and cycle stock.) From CousinsAg? The average inventory is obtained by adding up the average cycle stock and the safety stock units.

Average inventory level can be delineated as the average number of days that an organization takes to retail all of its inventory. The average cycle cost is calculated by dividing the economic order quantity by 2. Dong Hai Cousins Ag EOQ Average Cycle Cost Safety Stock Units Average Inventory Therefore, the average inventory held at Alliance Fort Worth if the firm purchases everything from Dong Hai Supply is 707 units whereas if everything is bought from Cousins Ag, the average inventory held is 362 units. 8.

Inventory carrying costs are based on the value of the product at the time it is held in inventory. When the product is sitting in the IDC Alliance Fort Worth Distribution Center, its value is a combination of purchase price plus any transportation costs to get it from the supplier to the DC plus in-transit carrying costs.

What is the total annual inventory carrying cost (in dollars) for the safety stock and cycle stock inventory held at the Alliance Fort Worth Distribution Center if we purchase everything from Dong Hai Supply? From CousinsAg? In question 7 above, the average inventory is calculated in units, which are 707 units for Dong Hai while for Cousins Ag the number of units is 362 units. This question considers the average inventory calculated in dollars, taking into account the inventory carrying cost and the value for every unit at Alliance Fort Worth.

The value for every unit is obtained by adding the unit price, the In-Transit carrying cost and the cost of transportation. Dong Hai Cousins Ag Unit Price 80.11 85 Cost to Transportation (Transport Cost/EOQ) 7.929038 4.55665 In-Transit Carrying Cost 1.98 0.37 Value per unit 90.01904 89.92665 Dong Hai Cousins Ag Average Inventory Value per Unit 90.02 89.93 Carrying Cost 32.20% 32.20% Annual Inventory carrying Cost 20478.92 10482.6 Therefore, the average inventory cost for Dong Hai is $20,478.92 whereas that for Cousins Ag is $10,482.60. 9. Inventory carrying costs are based on the value of the product at the time it is held in inventory.

When the product is sitting at IDC's Alliance Fort Worth Distribution Center, its value is a combination of purchase price plus any transportation costs to get it from the supplier to the DC plus in-transit carrying costs. On a per-unit basis (in dollars), what is the total inventory carrying cost for the safety stock and cycle stock inventory held at IDC's Alliance Fort Worth Distribution Center if we purchase everything from Dong Hai Supply? From CousinsAg? Question 8 above calculates the total annual inventory cost for both supply chains.

In this question, we consider the total carrying cost of inventory for every unit. As is known, the total number of units for every year is 21, 500 units. Therefore, this is calculated as follows: Dong Hai Cousins Ag Annual Inventory carrying Cost 20478.92 10482.6 Annual Units 21500 21500 Carrying Cost per Unit 0.952508 0.487563 Therefore, on the basis of every unit, the total inventory carrying cost for the safety stock and cycle stock inventory held at Alliance Fort Worth if everything is bought from Dong Hai Supply is.