Reference no: EM133176661
Steel Specialties is a wholesaler of stainless steel and tool steel. The company purchases its stainless steel from a mill located some 150 miles away. At present, the company operates its own truck. However, the truck is in need of repairs estimated at $30,000. Annual operating costs are $40,000 and the line haul costs are $2.20 per mile. The traffic manager wants to reduce the cost of bringing in the stainless steel, and because of the impending repair expense, she feels now is a good time to look at alternatives. She has solicited a number of proposals and has narrowed her choices down to a motor carrier and a rail carrier.
Heavy Metal Transport (HMT), a contract motor carrier, has an excellent reputation for service and reliability. It has submitted an incremental rate, $4.00/cwt. For shipments weighing less than 150 cwt., 3.80 for shipments between 150 and 200 cwt., $3.60 for shipments between 200 and 250 cwt., and $3.40 for shipments over 250 cwt. up to a maximum of 400 cwt.
Midland Continental Railway has submitted a piggyback rate of $3.25 per cwt. With a minimum load of 200 cwt. The piggyback rate includes pickup by truck at the steel mill, line haul by trailer on a flat car, and delivery by truck to Metal Specialities' warehouse.
They are considered to be a reliable carrier as well. The finance department estimates that Metal Specialities' annual inventory carrying cost is 20%, the cost of inventory in transit is 10%, and the cost of capital is 8%. The cost of placing an order for stainless steel is estimated to be $40 per order. Stainless steel presently costs $300 per cwt.
- Objective: Given the information provided, what would you advise the traffic manager to do?
- Discussion topic: in general, list the most efficient methods of distribution? What decision-making criteria make the physical distribution more optimized?