Reference no: EM133388795

Case Study: Transportation manager is expecting two barges to arrive the next day at the river port. The transportation manager is concerned whether the two barges will arrive on schedule. Each barge has two FEU containers. The transportation manager knows that the barges may get delayed due to congestion at the upstream locks. The transportation manager also knows that the company must contract for third party logistics (3PL) trucking company to pick up the containers. The transit and delivery fees are fixed based on the load and distance (these costs are not part of the immediate considerations). The dilemma is that fewer than two barges may arrive, exactly two barges may arrive, or more than two barges may arrive. There is significant uncertainty. The transportation manager has to pay fees for storing the containers at the dock if there are insufficient trucks to transport the containers from the docks upon arrival or the transportation manager has to pay fees to the 3PL trucking company if there are insufficient containers for the waiting trucks and some of the trucks have to return to their terminals empty. The storage fee at the port is $100 per container per day. The "empty truck return" fee is $200 per truck. Each truck can haul only 1 FEU container.

The transportation manager realizes that the Poisson distribution will provide perspectives about determining the best course(s) of action. The situation is difficult because the company cannot do anything to facilitate the arrivals of the barges. The transportation manager most likely will have to pay fees unless the number of trucks available exactly matches the number of containers that arrive. Transportation manager's objective is to minimize the amount of fees that may have to be paid. However, there may be other factors that may have to be considered as well.

Question: How many trucks should the transportation manager contract for so that the fees are minimized? The SCM leaders expects a definitive recommendation with supporting details, especially the calculations and analysis. In other words, SCM leader expects a written memo outlining the logic of the recommendations.