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Innovation Distribution Company: A Total Cost Approach Understanding Supply Chain Risk CaseThe initial purchase cost per unit paid to Dong Hai Supply is calculated as follows. The current exchange rate is 1 CNY China Yuan Renminbi = 0.14646 U.S. Dollar. As pointed out, the price per unit in Dong Hai supply is 547 ¥.
Therefore, the price per unit is 547 x 0.14646 = 80.11362.
The initial purchase cost per unit in U.S. Dollars is $80.11 (Frankel, 2013).
The average time for an order filling a TEU container to come from Dong Hai Supply in Chengdu, China to the distribution center in Alliance Fort Worth
Dong Hai Supply in Chengdu, China to the distribution center in Alliance Fort Worth
Mean
Variance
Standard Deviation
Time for processing and manufacturing order at Dong Hai
Moving Container by Rail from Chengdu to Shanghai
Loading to ship at Port of Shanghai
Pacific Ocean to Port of Long Beach
Clearing Customs and Unloading at Long Beach
Long Beach to Alliance Fort Worth
4
Total lead time for Dong Hai
43
11.9025
3.45
Actual Days for order in Transit
28
Therefore, the average time is 43 days.
ii. The average time for an order filling a TEU container to come from CousinsAg in Wahoo, Nebraska to the distribution center in Alliance Fort Worth
CousinsAg in Wahoo, Nebraska to the distribution center in Alliance Fort Worth
Mean
Variance
Standard Deviation
Time for processing and manufacturing order at CousinsAg
10
From supplier to Alliance Fort Worth
5
Total lead time for CousinsAg
15
1.2996
1.14
Actual days for order in Transit
5
Therefore, the average time is 15 days.
Question 3
The cost to ship a TEU container from Dong Hai Supply in Chengdu, China, to IDC's Alliance Fort Worth Distribution Center.
IEC charges ¥ 12,414.5 for each TEU shipped. Import tariffs and duties are $325 per TEU and shipping cost from Long Beach to AFW is $2,250.
Remember, 1 CNY China Yuan Renminbi = 0.14646 U.S. Dollar or use the $80.11 rate....
The total cost is calculated as follows:
Transportation Cost from Dong Hai Supply to Alliance Fort Worth
TEU Shipment Charge
$1,818.23
Import tariffs and duties per TEU
$325.00
Rail Shipping Cost Long Beach to AFW
$2,250.00
Total Transportation Cost
$4,393.23
Hence, the total transportation cost for shipping a TEU container from Dong Hai Supply to AFW distribution center is $4,393.23.
Question 4
Economic order quantity (EOQ) can be delineated as the inventory order quantity level that diminishes the total cost of inventory, with regard to the most significant costs, which are carrying costs and ordering costs (Coyle et al., 2016).
i. Economic Order Quantity if we purchase everything from CousinsAg
CousinsAg
Annual Demand
21,500
Ordering Cost
$105.00
Carrying Cost
32.20%
EOQ
Thus, the EOQ is 406 units
ii. Economic Order Quantity if we purchase everything from Dong Hai Supply
Dong Hai Supply
Annual Demand
21,500
Ordering Cost
$182.00
Carrying Cost
32.20%
EOQ
Thus, the EOQ is 551 units.
Question 5
As pointed out, the objective is to maintain an in-stock probability of 97.7% for customers.
i. Units of safety stock will we need to hold if we purchase everything from Dong Hai Supply
Dong Hai Supply
Standard Deviation for Topping Up
3.45
Average days for topping up
43
Deviation of everyday sales
11
Average daily sales
58.90411
Units of Safety Stock
Thus, the units of safety stock needed to be held if everything is purchased from dong Hai Supply is 431 units.
ii. Units of safety stock will we need to hold if we purchase everything from CousinsAg
CousinsAg
Standard Deviation for Topping Up
1.14
Average days for topping up
15
Deviation of everyday sales
11
Average daily sales
58.90411
Units of Safety Stock
Thus, units of safety stock needed…
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
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