What is economic order quantity of containers

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Reference no: EM132215588

Technoport distributes home appliances in Mexico. The company owns and operates retail stores all over Mexico.

The company imports its products from China. Containers are loaded at manufacturing facilities in Guangzhou having two options for inland transportation. They can be shipped to the ports of Yantian or Hong Kong. Shipping lines offer regular services from Yantian to Mazatlan and from Hong Kong to Mazatlan. Finally, containers are shipped by truck from the port of Mazatlan to different locations in Mexico.

On average, it takes 40 days to get the products through the port of Yantian. The total transportation cost of this route (Guangzhou-Yantian-Mazatlan) is $2220 per container. Similarly, it takes 38 days to get the goods when the origin port is Hong Kong. The transportation cost of this route (Guangzhou-Hong Kong-Mazatlan) is $2340 per container.

Demand for containers is normally distributed with an average of 340 containers per year and annual standard deviation of 34.0 containers. One container is worth $ 25000 of products. The company takes ownership of the goods at the manufacturing plant’s dock and will incur in holding costs from that point on. Technoport’s annual holding charge is 20% and the company includes the transportation cost when calculating inventory costs. It costs $2500 to make an order, independent of the number of containers shipped. Technoport’s cycle service level target is 95% and uses 350 days per year for planning purposes.

What is the economic order quantity (EOQ) of containers that Technoport should order?

Reference no: EM132215588

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