A hardware manufacturer signs a contract with Home Depot to provide wood screws. The manufacturer has 3 supply locations. They need to deliver to 12 Home
A hardware manufacturer signs a contract with Home Depot to provide wood screws. The manufacturer has 3 supply locations. They need to deliver to 12 Home Depot stores. Each supply location ships 100,000 boxes per year per to each of the 12 Home Depot store. The trucks can delivery up-to 20,000 boxes and cost $1,000 per load plus $250 per delivery. The cost of holding one box in inventory for a year is $1.00. The supply chain manager of the hardware manufacturer is considering whether to use direct shipping from the supplier locations to retail stores (full truck loads in each shipment) or setting up milk runs from supplier to retail stores (without a distribution center). In each milk run, a truck may deliver to 2,3, or 4 Home depot stores.
a.What is the total cost (inventory holding + truck cost) for direct shipping option?
b.What is the minimum total cost for milk-run using full trucks? Calculate the total cost for a truck delivering to 2,3, or 4 locations.
c.What is the suggested shipping option? If the demand increases to 150,000 boxes per store, would your option change? Why or why not?