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A Total Cost Approach to Understanding Supply Chain RiskUsing 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...
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…
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