Preview Extract

Business Logistics/
Supply Chain
Management
Planning, Organizing, and Controlling the Supply Chain
Fifth Edition
Instructorโs Manual
Ronald H. Ballou
Weatherhead School of Management
Case Western Reserve University
CONTENTS
Preface
Chapter 1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Business Logistics/Supply Chain๏พA Vital Subjectโฆโฆโฆ
Logistics/Supply Chain Strategy and
Planningโฆโฆโฆโฆโฆ
The Logistics/Supply Chain Product…โฆโฆโฆโฆโฆโฆโฆโฆ
Logistics/Supply Chain Customer Serviceโฆ..โฆโฆโฆโฆโฆ
Order Processing and Information Systemsโฆโฆโฆโฆโฆโฆ.
Transport Fundamentalsโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ..
Transport Decisionsโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ.
Fowler Distributing Companyโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ..
Metrohealth Medical Centerโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ.
Orion Foods, Incโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ……………
R & T Wholesalersโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ…
Forecasting Supply Chain Requirementsโฆโฆโฆโฆโฆ.โฆโฆ
World Oilโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ..
Metro Hospital โฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ.
Inventory Policy Decisionsโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ..
Complete Hardware Supply, Incโฆ.โฆโฆโฆโฆโฆโฆโฆโฆ..
American Lighting Productsโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ.
American Red Cross: Blood Servicesโฆโฆโฆโฆโฆโฆโฆ..
Purchasing and Supply Scheduling Decisionsโฆโฆโฆโฆโฆ.
Industrial Distributors, Incโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ
The Storage and Handling Systemโฆโฆโฆโฆโฆโฆโฆโฆโฆ…
Storage and Handling Decisionsโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ..
Facility Location Decisionsโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ.
Superior Medical Equipment
Companyโฆโฆโฆโฆโฆโฆ….
Ohio Auto & Driverโs License Bureauโฆโฆโฆโฆโฆโฆโฆ.
Southern Brewery โฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ
The Logistics Planning Processโฆโฆโฆโฆโฆโฆโฆโฆโฆโฆ…
Usemore Soap
Companyโฆโฆโฆโฆโฆโฆโฆ.โฆโฆโฆโฆโฆ..
Essen USAโฆโฆโฆโฆโฆโฆโฆ.โฆโฆโฆโฆโฆ..
Logistics/Supply Chain Organizationโฆโฆโฆโฆโฆโฆโฆโฆ.
Logistics/Supply Chain
Controlโฆโฆโฆโฆโฆ..โฆโฆโฆโฆโฆ.
iii
1
2
4
9
13
14
17
35
41
48
52
65
84
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94
121
124
131
134
144
147
148
162
186
190
198
204
208
217
229
230
ii
PREFACE
This instructor’s guide provides answers to the more quantitatively oriented problems at
the end of the textbook chapters. If the questions or problems are for discussion or they
involve a substantial amount of individual judgment, they have not been included.
Solutions to the cases and exercises in the text are also included. These generally
require computer assistance for solution.
With the text, you are provided with a collection of software programs, called
LOGWARE, that assist in the solution of the problems, cases, and exercises in the text.
The LOGWARE software along with a userโs manual is available for downloading from
the Prentice Hall website or this book. The userโs manual is in Microsoft Word or
Acrobat .pdf formats. This software, along with the userโs manual, may be freely
reproduced and distributed to your classes without requiring permission from the
copyright holder. This permission is granted as long as the use of the software is for
educational purposes. If you encounter difficulty with the software, direct questions to
Professor Ronald H. Ballou
Weatherhead School of Management
Case Western Reserve University
Cleveland, Ohio 44106
Tel: (216) 368-3808
Fax: (216) 368-6250
E-mail: [email protected]
Web site: www.prenhall.com/ballou
iii
CHAPTER 1
BUSINESS LOGISTICS/SUPPLY CHAIN๏พA VITAL SUBJECT
12
(a) This problem introduces the student to the evaluation of alternate channels of
production and distribution. To know whether domestic or foreign production is least
expensive, the total of production and distribution costs must be computed from the
source point to the marketplace. Two alternatives are suggested, and they can be
compared as follows.
Production at Houston:
Total cost = Production cost at Houston + Transportation and storage costs
= $8/shirt๏ด100,000 shirts + $5/cwt. ๏ด1,000 cwt.
= $805,000/year
Production at Taiwan:
Total cost = Production cost in Taiwan
+ Transportation and storage costs from Taiwan to Chicago
+ Import duty + Raw material transportation cost from Houston
to Taiwan
= $4/shirt๏ด100,000 shirts + $6/cwt. ๏ด1,000 cwt. + $0.5/shirt๏ด100,000 shirts
+ $2/cwt. ๏ด1,000 cwt.
= $458,000/year
Producing in Taiwan would appear to be the least expensive.
(b) Other factors to consider before a final decision is made might be:
(i) How reliable would international transportation be compared with domestic
transportation?
(ii) What is the business climate in Taiwan such that costs might change in favor of
Houston as a production point?
(iii) How likely is it that the needed transportation and storage will be available?
(iv) If the market were to expand, would there be adequate production capacity
available to support the increased demand?
1
CHAPTER 2
LOGISTICS/SUPPLY CHAIN STRATEGY AND PLANNING
13
The purpose of this exercise is to allow the student, in an elementary way, to examine the
tradeoffs between transportation and inventory-related costs when an incentive
transportation rate is offered. Whether the incentive rate should be implemented depends
on the shipment size corresponding to the minimum of the sum of transportation, inventory, and order processing costs. These costs are determined for various shipping
quantities that might be selected to cover the range of shipment sizes implied in the
problem. Table 2-1 gives a summary of the costs to Monarch for various shipment sizes.
From Monarch’s point of view, the incentive rate would be beneficial. Shipment
sizes should be approximately doubled so that the 40,000 lb. minimum is achieved. It is
important to note that the individual cost elements are not necessarily at a minimum at
low shipment sizes, whereas order-processing costs are low at high shipment sizes. They
are in cost conflict with each other. Transportation costs are low at high shipment sizes,
but exact costs depend on the minimum volume for which the rate is quoted.
In preparation for a broader planning perspective to be considered later in the text, the
student might be asked what the place of the supplier is in this decision. How does he
affect the decision, and how is he affected by it? This will focus the student’s attention
on the broader issues of the physical distribution channel.
2
TABLE 2-1
Evaluation of Alternative Shipment Sizes for the Monarch Electric Company
Current
Proposed
57 motors
114 motors
171 motors
228 motors
285 motors
or
or
or
or
or
10,000 lb.
20,000 lb.
30,000 lb.
40,000 lb.
50,000 lb.
Type of cost
Transportation
3๏ด8,750
9๏ด8,750
5๏ด8,750
5๏ด8,750
3๏ด8,750
= $26,250
R๏ดD
= $78,750
= $43,750
= $43,750
= $26,250a
b
Inventory carrying
0.25๏ด200๏ด114/2
0.25๏ด200๏ด171/2
0.25๏ด200๏ด228/2
0.25๏ด200๏ด285/2
0.25๏ด200๏ด57/2
= $2,850
= $4,275
= $5,700
= $7,125
I๏ดC๏ดQ/2
= $1,425a
c
Order processing
5,000๏ด15/57
5,000๏ด15/114
5,000๏ด15/171
5,000๏ด15/228
5,000๏ด15/285
D๏ดS/Q
= $1,316
= $658
= $439
= $329
= $263a
Handling
0.30๏ด8,750
0.30๏ด8,750
0.30๏ด8,750
0.30๏ด8,750
0.30๏ด8,750
H๏ดD
= $2,625
= $2,625
= $2,625
= $2,625
= $2,625
Total
$84,116
$49,883
$51,089
$36,263
$34,904a
a
Minimum values.
Students should be informed that average inventory can be approximated by one half the shipment size.
c
Demand D has been converted to units per year.
LEGEND
R = transportation rate, $/cwt.
D = annual demand, cwt.
I = inventory carrying cost, %/year.
C = cost of a motor, $/motor.
Q = shipment size in motors, where Q/2 represents the average number of motors maintained in inventory.
S = order processing costs, $/order.
H = handling costs, $/cwt.
b
3
CHAPTER 3
THE LOGISTICS/SUPPLY CHAIN PRODUCT
3
The 80-20 principle applies to sales and items where 80 percent of the dollar volume is
generated from 20 percent of the product items. While this ratio rarely holds exactly in
practice, the concept does. We can apply it to these data by ranking the products by
sales, and the percentage that the cumulative sales represent of the total. The following
table shows the calculations.
Product
code
08776
12121
10732
11693
10614
12077
07071
10542
06692
09721
14217
11007
Total
Dollar
sales
$71,000
63,000
56,000
51,000
46,000
27,000
22,000
18,000
14,000
10,000
9,000
4,000
$391,000
Cumulative
sales
$ 71,000
134,000
190,000
241,000
287,000
314,000
336,000
336,000
354,000
368,000
378,000
391,000
Cumulative
sales as
% of total
18.2
34.3
48.6
61.6
73.4
80.3
85.9
90.5
94.1
96.7
98.9
100.0
Cumulative
items as
% of total
8.3
16.7
25.0
33.3
41.7
50.0
58.3
66.7
75.0
83.3
91.7
100.0
The 80-20 rule cannot be applied exactly, since the cumulative percent of items does
not break at precisely 20 percent. However, we might decide that only products 08776
and 12121 should be ordered directly from vendors. The important principle derived
from the 80-20 rule is that not every item is of equal importance to the firm, and that different channels of distribution can be used to handle them. The 80-20 rule gives some
rational basis for deciding which products should be shipped directly from vendors and
which are more economically handled through a system of warehouses.
6
(a) Reading the ground transport rates for the appropriate zone as determined by zip code
and the weight of 27 lb. (rounding upward of 26.5 lb.) gives the following total cost
table for the four shipments.
4
To
zip code
11107
42117
74001
59615
a
Catalog
price
$99.95
99.95
99.95
99.95
UPS
zone
2
5
6
8
Transport
costa
$ 7.37
10.46
13.17
18.29
Total
cost
$107.32
110.41
113.12
118.24
Use 27 lb.
(b) The transport rate structure is reasonably fair, since ground rates generally follow
distance and size of shipment. These are the factors most directly affecting transport
costs. They are not fair in the sense that customers within a zone are all charged the
same rate, regardless of their distance from the shipment origin point. However, all
customers may benefit from lower overall rates due to this simplified zone-rate
structure.
10
(a) This is a delivered pricing scheme where the seller includes the transport charges in
the product price. The seller makes the transport arrangements.
(b) The seller prices the product at the origin, but prepays any freight charges; however,
the buyer owns the goods in transit.
(c) This is a delivered pricing scheme where the freight charges are included in the
product price, however the freight charges are then deducted from the invoice, and
the seller owns the goods in transit.
(d) The seller initially pays the freight charges, but they are then collected from the buyer
by adding them to the invoice. The buyer owns the goods in transit, since the pricing
is f.o.b. origin.
(e) The price is f.o.b. origin. The buyer pays the freight charges and owns the goods in
transit.
Regardless of the price policy, the customer will ultimately pay all costs. If a firm
does not consider outbound freight charges, the design of the distribution system will be
different than if it does. Since pricing policy is an arbitrary decision, it can be argued
that transport charges should be considered in decision making, whether the supplying
firm directly incurs them or not.
11
This shows how Pareto’s law (80-20 principle) is useful in estimating inventory levels
when a portion of the product line is to be held in inventory. An empirical function that
approximates the 80-20 curve is used to estimate the level of sales for each product to be
held in inventory. According to Equation 3-2, the constant A is determined as follows.
5
A๏ฝ
X (1 ๏ญ Y ) 0.25(1๏ญ.75)
๏ฝ
๏ฝ 0125
.
Y๏ญX
0.75 ๏ญ 0.25
The 80-20 type curve according to Equation 3-1 is:
Y๏ฝ
(1 ๏ซ A) (1 ๏ซ 0125
. )X
๏ฝ
A๏ซ X
0125
.
๏ซX
This formula can be used to estimate the cumulative sales from the cumulative item
proportion. For example, item 1 is 0.05 of the total number of items (20) so that:
Y๏ฝ
(1 ๏ซ 0125
. )( 0.05)
๏ฝ 0.321
0125
.
๏ซ 0.05
Of the $2,600,000 in total annual warehouse sales, item 1 should account for
0.321๏ด2,600,000 = $835,714.
By applying this formula to all items, the following inventory investment table can be
developed which shows sales by item. The average inventory investment by item is
found by dividing the turnover ratio into the item sales. The sum of the average
inventory value for each item gives a total projected inventory of $380,000.
Inventory Investment Table
Product
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
A
B
C
Cumulative
item proportion, X
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
Cumulative
sales, Y
$ 835,714
1,300,000
1,595,454
1,800,000
1,950,000
2,064,705
2,155,263
2,228,571
2,289,130
2,340,000
2,383,333
2,420,689
2,453,226
2,481,818
2,507,142
2,529,719
2,550,000
2,568,293
2,584,884
2,600,000
Projected
item sales
$ 835,714
464,286
295,454
204,546
150,000
114,706
90,558
73,308
60,559
50,870
43,333
37,356
32,537
28,592
25,324
22,587
20,271
18,293
16,591
15,116
Turnover
ratio
8
8
8
8
6
6
6
6
6
6
4
4
4
4
4
4
4
4
4
4
Total
Average
inventory
value
$104,464
58,036
36,932
25,568
25,000
19,118
15,093
12,218
10,093
8,478
10,833
9,339
8,134
7,148
6,331
5,647
5,068
4,473
4,148
3,779
$380,000
6
12
This problem involves the application of Equations 3-1 and 3-2. We can develop an 8020 curve based on 30 percent of the items accounting for 70 percent of sales. That is,
X (1 ๏ญ Y ) 0.30(1 ๏ญ 0.70)
๏ฝ
๏ฝ 0.225
0.70 ๏ญ 0.30
Y๏ญX
A๏ฝ
Therefore, the sales estimating equation is:
Y๏ฝ
(1 ๏ซ 0.225) X
0.225 ๏ซ X
By applying this estimating curve, we can find the sales of A and B items. For
example, 20 percent of the items, or 0.2๏ด20 = 4 items, will be A items with a cumulative
proportion of sales of:
YA ๏ฝ
(1 ๏ซ 0.225)( 0.20)
๏ฝ 0.5765
0.225 ๏ซ 0.20
and 3,000,000๏ด0.5765 = 1,729,412.
The A+B item proportion will be:
YA๏ซ B ๏ฝ
(1 ๏ซ 0.225)( 0.50)
๏ฝ 0.8448
0.225 ๏ซ 0.50
and 3,000,000๏ด0.8448 = 2,534,400. The product group B sales will A+B sales less A
sales, or 2,534,400 ๏ญ 1,729,412 = $804,988.
The product group C will be the remaining sales, but these are not of particular
interest in this problem.
The average inventories for A and B products are found by dividing the estimated
sales by the turnover ratio. That is,
A:
B:
1,729,412/9
804,988/5
Total inventory
= 192,157
= 160,988
353,155 cases
The total cubic footage required for this inventory would be 353,155๏ด1.5 = 529,732
cu. ft. The total square footage for products A and B is divided by the stacking height.
That is, 529,731/16 = 33,108 sq. ft.
7
13
This problem is an application of Equations 3-1 and 3-2. We first determine the constant
A. That is,
A๏ฝ
X (1 ๏ญ Y ) 0.20(1 ๏ญ 0.65)
๏ฝ
๏ฝ 0156
.
0.65 ๏ญ 0.20
Y๏ญX
and
0.75 ๏ฝ
(1 ๏ซ 0156
. )X
0156
.
๏ซX
Solving algebraically for X, we have:
X๏ฝ
AxY
0156
. x 0.75
๏ฝ
๏ฝ 0.288
1 ๏ซ A ๏ญ Y 1 ๏ซ 0156
.
๏ญ 0.75
That is, about 29% of the items (0.288๏ด5,000 = 1,440 items) produce 75% of the sales.
14
The price would be the sum of all costs plus an increment for profit to place the
automotive component in the hands of the customer.
This would be
25+10+5+8+5+transportation cost, or 53+T. Based on the varying transportation cost,
the following price schedule can be developed.
Quantity
1 to 1,000 units
1,001 to 2,000 units
>2,000 units
a
Price per unit
53+5=$58
53+4.00=57
53+3.00=56
Discount
0
1.7%a
3.5%
[(58 – 57)/58][100]=1.7%
8
CHAPTER 4
LOGISTICS/SUPPLY CHAIN CUSTOMER SERVICE
6
(a) This company is fortunate to be able to estimate the sales level that can be achieved at
various levels of distribution service. Because of this, the company should seek to
maximize the difference between sales and costs. These differences are summarized
as follows.
Percent of orders delivered
within 1 day
Contribution to 50 60 70 80 90 95 100
profit
-1.8 2.0 3.5 4.0 3.4 2.8 -2.0
The company should strive to make deliveries within 1 day 80 percent of the time for
a maximum contribution to profit.
(b) If a competing company sets its delivery time so that more than 80 percent of the
orders are delivered in 1 day and all other factors that attract customers are the same,
the company will lose customers to its competitor, as the sales curve will have shifted
downward. Cleanco should adjust its service level once again to the point where the
profit contribution is maximized. Of course, there is no guarantee that the previous
level of profits can be achieved unless the costs of supplying the service can
correspondingly be reduced.
7
(a) This problem solution requires some understanding of experimental design and
statistical inference, which are not specifically discussed in the text. Alert the
students to this.
The first task is to determine the increase in sales that can be attributed to the
change in the service policy. To determine if there is a significant change in the
control group, we set up the following hypothesis test.
z๏ฝ
X 2 ๏ญ X1
s22
s2
๏ซ 1
N 2 N1
๏ฝ
224 ๏ญ 185
612 79 2
๏ซ
102 102
๏ฝ
39
.
๏ฝ 394
36.48 ๏ซ 6118
.
Now, referring to a normal distribution table in Appendix A of the text, there is a
significant difference at the 0.01 level in the sales associated with the control group.
That is, some factors other than the service policy alone are causing sales to increase.
Next, we analyze the test group in the same manner.
9
z๏ฝ
2,295 ๏ญ 1,342
576 2 3352
๏ซ
56
56
๏ฝ
953
๏ฝ 10.7
5,924 ๏ซ 2,004
This change is also significant at the 0.01 level.
The average increase in sales for the control group is 224/185 = 1.21, or 21%.
The average sales increase in the test group is 2295/1342 = 1.71, or 71%. If we
believe that 21% of the 71% increase in the test group is due to factors other than
service policy, then 71 ๏ญ 21 = 50% was the true service effect. Therefore, for each
sales unit, an incremental increase in profit of (0.40๏ด95)(0.50) = $19 can be realized.
Since the cost of the service improvement is $2, the benefit exceeds the cost. The
service improvement should be continued.
Note: If the students are not well versed in statistical methodology, you may wish
to instruct them to consider the before and after differences in the mean values of
both groups as significant. The solution will be the same.
(b) The use of the before-after-with-control-group experimental design is a methodology
that has been used for some time, especially in marketing research studies. The
outstanding feature of the design is that the use of the control group helps to isolate
the effect of the single service variable. On the other hand, there are a number of
potential problems with the methodology:
๏ท The sales distributions may not be normal.
๏ท The time that it takes for diffusing the information that a service change has taken
place may distort the results.
๏ท The products in the control group may not be mutually exclusive from those in the
test group.
๏ท The method only shows the effect of a single step change in service and does not
develop a sales-service relationship.
๏ท It may not always be practical to introduce service changes into on-going
operations to test the effect.
8
(a) The optimum service level is set at that point where the change in gross profit equals
the change in cost.
The change in gross profit:
๏P = Trading margin ๏ด Sales response rate ๏ด Annual sales
= 1.00๏ด0.0015๏ด100,000
= $150 per year per 1% change in the service level
The change in cost:
๏C = Annual carrying cost ๏ด Standard product cost ๏ด ๏z
10
๏ด Demand standard deviation for order cycle
= 0.30๏ด10.00๏ด400๏ด๏z
Now, set ๏P = ๏C and solve for ๏z.
150 = 1200๏ด๏z
๏z = 0.125
From the tabulated changes in service level with those changes in z, the service level
should be set between 96-97%.
(b) The weakest link in this analysis is estimating the effect that a change in service will
have on revenue. This implies that a sales-service relationship is known.
9
The methodology is essentially the same as that in question 7, except that we are asked to
find X instead of Y. That is,
๏P = 0.75๏ด0.0015๏ด80,000
= 90
and
๏C = 0.25๏ด1,000๏ด500๏ด๏z
= 1250๏ด๏z
Then,
๏P= ๏C
90 = 1250๏ด๏z
๏z = 0.072
From the normal distribution (see Appendix A), the z for an area under the curve of
93% is 1.48, and for 92%, z is 1.41. Since the difference of 1.48 ๏ญ 1.41 = 0.07, we can
conclude that the in-stock probability should be set at 92-93%. Of course, the change in z
is found by taking the difference in z values for 1% differences in the area values under
the normal distribution curve for a wide range of area percentages.
10
Apply Taguchiโs concept of the loss function. First, estimate the loss per item if the
target level of service is not met. We know the profit per item as follows.
11
Sales price
Cost of item
Other costs
Profit per item
$5.95
-4.25
-0.30
$1.40
Since one-half of the sales are lost, the opportunity loss per item would be
Profit per item
Sales lost
$1.40 ๏ด (1/2)(880)
Opportunity loss ๏ฝ
๏ฝ $0.70/item
880
Current sales
Next, find k in the loss function.
L ๏ฝ k ( y ๏ญ m) 2
0.70 ๏ฝ k (10 ๏ญ 5)2
0.70 ๏ฝ k ( 25)
k ๏ฝ 0.03
out-of-stock % at point where ยฝ sales are lost
Target %
Finally, the point where the marginal supply cost equals the marginal sales loss is
( y ๏ญ 5) ๏ฝ
B
0.10
๏ฝ
๏ฝ 1.67%
2k 2(0.03)
y ๏ฝ 1.67 ๏ซ 5 ๏ฝ 6.67%
The retailer should not allow the out-of-stock percentage to deviate more than 1.67%,
and should not allow the out-of-stock level to fall below 1.67 + 5 = 6.67%.
12
CHAPTER 5
ORDER PROCESSING AND
INFORMATION SYSTEMS
All questions in this chapter require individual judgment and response. No answers are
offered.
13
CHAPTER 6
TRANSPORT FUNDAMENTALS
14
The maximum that the power company can pay for coal at its power plant location in
Missouri is dictated by competition. Therefore, the landed cost at the power plant of coal
production costs plus transportation costs cannot exceed $20 per ton. Since western coal
costs $17 per ton at the mine, the maximum worth of transportation is $20 ๏ญ $17 = $3 per
ton. However, if the grade of coal is equal to the coal from the western mines, eastern
coal can be landed in Missouri for $18 per ton. In light of this competitive source,
transportation from the western mines is worth only $18 ๏ญ $17 = $1 per ton.
15
Prior to transport deregulation, it was illegal for a carrier to charge shippers less for the
longer haul than for the shorter haul under similar conditions when the shorter haul was
contained within the longer one. To be fair, the practice probably should be continued.
If competitive conditions do not permit an increase in the rate to Z, then all rates that
exceed $1 per cwt. on a line between X and Z should not exceed $1 per cwt. Therefore,
the rate to Z is blanketed back to Y so that the rate to Y is $1 per cwt. By blanketing the
rate to Z on intervening points, no intervening point is discriminated against in terms of
rates.
16
(a) From text Table 6-4, the item number for place mats is 4745-00. For 2,500 lb., the
classification is 100 since 2,500 lb. is less than the minimum weight of 20,000 lb. for
a truckload shipment. From text Table 6-5, the rate for a shipment ๏ณ2,000 lb. is
8727ยข/cwt. The shipping charges are $87.27 ๏ด 25 cwt. = $2,181.75.
(b) This is an LTL shipment with a classification of 100, item number 4980-00 in text
Table 6-4. From Table 6-5, the minimum charge is 9351ยข and the rate for a <500 lb.
shipment is 5401ยข/cwt. Check the charges using the <500 lb. rate and compare it to
the minimum charge. That is,
$54.01 ๏ด 1.5 cwt. = $81.02
Since this is less than the minimum charge of $93.51, pay the minimum charge.
(c) From Table 6-4, the item number is 2055-00 with a classification of 55 for LTL and
37.5 for TL at a minimum weight of 36,000 lb. There are three possibilities that need
to be examined:
(1) Ship LTL at class 55 and 27,000 lb. shipment.
(2) Ship at class 55 and 30,000 lb. rate.
(3) Ship at class 37.5 and 36,000 lb. rate.
14
Try (1): Rate is $5.65/cwt. 5.65 ๏ด 270 = $1,525.50.
Try (2): Rate is $3.87/cwt. 3.87 ๏ด 300 = $1,161.00
Lowest cost
Try (3): Rate is $3.70/cwt. 3.70 ๏ด 360 = $1,332.00
(d) The shipment is a truckload classification (2070-00) of 65. The rate at 30,000 lb. is
$4.21/cwt. The charges are 4.21 ๏ด 300 = $1,263.00.
(e) Classification of this product is 55 (4860-00) for a truckload of 24,000 lb. Check the
break weight according to Equation 6-1.
Break weight =
3.87 ๏ด 30,000
๏ฝ 20,549 lb.
5.65
Since current shipping weight of 24,000 lb. exceeds the break weight, ship as if 30,000
lb. Hence, 3.87 ๏ด 300 = $1,161.00. Now, discount the charges by 40 percent. That is,
$1,161 ๏ด (1 ๏ญ 0.40) = $696.60
21
The question involves evaluating two alternatives. The first is to compute the transport
charges as if there are three separate shipments. The next is to see if a stop-off privilege
offers any cost reduction. The comparison is shown below.
Separate shipments
Loading/unloading Route
22,000
A to D
3,000
A to C
15,000
B to C
Rate, Stop-off
$/cwt. charge
Charges
$3.20
–$704.00
2.50
–75.00
1.50
–225.00
Total charges $1,004.00
With stop-off
Ship direct to B and split deliver thereafter.
Rate, Stop-off
Loading/unloading Route $/cwt. charge
Charges
25,000
A to B $1.20
$ 300.00
40,000
B to D 2.20
880.00
Stop-off @ C
$25.00
25.00
Stop-off @ D
25.00
25.00
Total charges $1,230.00
Direct shipment
15

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