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Supply Chain Management

Answers to Questions
7-1. McDonalds: The company is supplied by food distributors and restaurant product suppliers (for
plates, napkins, etc.). Production is located in retail
sites that are usually small and are near large easily
accessible customer markets. Their inventory levels
are typically small because food cannot be stored in
large quantities. Their primary mode of transportation is trucking.
Ford: Ford suppliers include raw materials and
auto parts. They receive some items on-demand for
JIT production and some is stored in warehouses.
Production is in large plants with heavy-machinery in
close proximity to good transportation sources. Ford
plants are located all over the world as are their distribution systems. Transportation is by all modes of
transportation.

7-6. In a transshipment problem the sources and destinations can also serve as intermediate shipping points
through which items can be transported.
7-7. Answer depends on the company the student selects.
7-8. Answer depends on the company the student selects.
7-9. Answer depends on the e-marketplace selected.
7-10. Answer depends on the transportation exchange
selected.
7-11. Answer depends on the ERP provider selected.
7-12. Answer depends on the international logistics
provider selected.

Answers to Problems
7-1.

7-2. A few suppliers or carriers are easier to coordinate. If


a company gives one or two suppliers all of their business they can be more demanding on quality and
deliveries. Single-sourcing provides the supplier or
carriers with economy of scale that enables them to
reduce costs.
7-3. The strategic goals are low cost and customer service. Purchasing from suppliers must be on time or
the entire supply chain is delayed, creating late
deliveries to customers. Erratic and poor quality
supply can also increase costs. If facilities are not
located properly it can delay product or service flow
through the supply chain, and increase costs for
longer deliveries. Production inefficiency and poor
quality can cause delays in product or service flow
and it also creates the need for more inventory
which increases cost. Inefficient transportation can
also result in higher inventories to offset delays and
raise costs, and, causes delayed delivery to customers.

TC = $82,600
7-2. No effect. The Gary Mill has 60 tons left over as surplus; reducing the capacity at Gary to 30 tons still
leaves 30 tons.
7-3.

7-4. Answer depends on the businesses selected.


7-5. The answer depends on example/business the student
selects. One example is a grocery chain that ships
foodstuffs from several warehouse/distribution centers to various stores.

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TC = $5,080
7-4. There is no effect; the shipping routes remain the
same

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7-5.

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7-11.

TC = $19,500
7-6.

TC = $13,200
7-7.

Select alternative 2; add a warehouse at Charlotte.


7-12.

TC = $7,075
7-8.

Total increase in output = 1,605 units


7-13.

TC = $3,260
7-9. No change; the total minimum cost remains $3,260
and all routes are the same.
7-10.
TM = 364 miles
7-14.

TC = $21,930

TP = $159,000

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7-15.

7-18.

TC = $1,070; this solution is optimal, but several multiple optimal solutions exist.

Optimal. Total travel time = 21,200 minutes


The overall travel time increased by 500 minutes,
which divided by all 1,400 students is only an increase
of 0.357 minutes per student. This does not seem to be
a significantly large increase.
7-19.

7-16.

Optimal, Total Profit = $1,528 with multiple optimal


solutions at (B, 2), (E, 4) and (B, Dummy)
Optimal total time = 15.0 hours
7-17.

Optimal (with multiple optimal solutions)


Total travel time = 20,700 minutes

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7-20. If Easy Time purchased all the baby food demanded
at each store from the distributor total profit would
be $1,246, which is less than buying it from the other
locations as determined in problem 7-19. This profit is
computed by multiplying the profit at each store by
the demand. In order to determine if some of the
demand should be met by the distributor a new
source (F) must be added to the transportation
tableau from problem 7-19. This source represents
the distributor and has an available supply of 150
cases, the total demand from all the stores. The
tableau and optimal solution is shown as follows.

Supply Chain Management

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7-23.

Total cost, Z = $278,000


It is cheaper for National Foods to continue to operate it own trucking firm.

Optimal. Total profit = $1,545 with multiple optimal


solutions
7-21.

7-24. Increasing the supply at Sacramento, Jacksonville and


Ocala to 25 tons would have little effect, reducing the
overall monthly shipping cost to $276,000, which is
still higher than the $245,000 the company is currently spending with its own trucks.
Alternatively, increasing the supply at San
Antonio and Montgomery to 25 tons per month
reduces the monthly shipping cost to $242,500 which
is less than the companys cost with their own trucks.
7-25.

Z = $723,500
Penalty costs = 200 $800 = $160,000
Optimal: total transport time = 1,275 hours
7-22.

Total Cost = $823,000

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CASE SOLUTION: Stateline Shipping and


Transport Company
This case is an example of an extension of the general transportation model known as the transshipment problem. In a
transshipment model items are shipped from sources to
intermediate transshipment points and then to their ultimate destinations. The transshipment problem can be solved
as a transportation model with transportation solution methods. The following solution, although displayed in tableau
format, was solved with POM for Windows.

The total cost of this solution is $2,630 per week. There are
multiple optimal solutions. The solution is summarized as
follows.
1.
1.
2.
3.
4.
4.
5.
6.

Kingsport
Kingsport
Danville
Macon
Selma
Selma
Columbus
Allentown

2.
3.
B.
C.
3.
5.
A.
2.

Danville = 16 bbls
Macon = 19 bbls
Los Canos = 80 bbls
Duras = 78 bbls
Macon = 17 bbls
Columbus = 36 bbls
Whitewater = 65 bbls
Danville = 38 bbls