Selecting Transportation Modes for China Imports

Desired cycle service level 98%

Holding cost 25%

Transportation Options
Air freight Ocean shipping
Shipping cost / kg. $ 10 Shipping cost / container $ 1,200
Minimum shipping quantity (kg.) 50 Container size (kg.) 15000
Mean lead time (weeks) 1 Mean lead time (weeks) 9
SD of lead time (weeks) 0.2 SD of lead time (weeks) 3
Ordering Cost Per Order $ 500 Ordering Cost Per Order $ 1,200

Product Characteristics
Smartphones Decorative hardware
Mean weekly demand 1,000 Mean weekly demand 5,000
SD of weekly demand 400 SD of weekly demand 1,000
Weight / unit (kg.) 0.1 Weight / unit (kg.) 1
Cost / unit $ 300.0 Cost / unit $ 20
Annual Demand 52000 Annual Demand 260000
Unit Holding Cost $ 75.0 Unit Holding Cost $ 5.0

Total Costs for Smartphones

Air freight Ocean Shipping
Optimal batch size 833 1290
Order quantity per batch 833 1290
Cycle inventory 416 645
Safety inventory 918 6,636
Transit inventory 1,000 9000
Total inventory 2335 16281
Annual holding cost $ 175,110 $ 1,221,063
Annual shipping cost $ 52,000 $ 416
Total Costs $ 227,110 $ 1,221,479

Total Cost for Decorative Hardware

Air freight Ocean Shipping
Optimal batch size 7211 11171
Order quantity per batch 7211 11171
Cycle inventory 3,606 5,586
Safety inventory 2,904 31,416
Transit inventory 5,000 45,000
Total inventory 11,510 82,002
Annual holding cost $ 57,550 $ 410,010
Annual shipping cost $ 2,600,000 $ 20,800
Total Costs $ 2,657,550 $ 430,810
-