Reference no: EM133059909
Question - You work at International Soybeans and your boss, Rita Wright, knowing that you are taking SC1x, asks you to help her to choose the best route to transport soybeans from Brazil to China.
She is currently considering two Brazilian ports to export the soybeans to Shanghai: Santos, located in the state of Sao Paulo, and Rio Grande, located in the state of Rio Grande do Sul. It takes on average 1.4 months, with a standard deviation of 0.2 months, to transport soybeans from the port of Santos to Shanghai, and the transportation cost for this route is $ 32.6 per ton. Similarly, it takes 1.6 months to ship soybeans to Shanghai through the port of Rio Grande, with a standard deviation of 0.1 months, and the transportation cost of this route is $33.7 per ton. The ocean transportation is made in bulk carrier ships, and the capacity of each ship is 60,000 tons. In both scenarios, the company would ship an economic order quantity in tons.
China's annual demand of soybeans is normally distributed with an average of 66436275 tons and standard deviation of 11072713 tons. International Soybeans pays its Brazilian suppliers $300 per ton of soybean. The company's holding charge is 15% per year and the company includes the transportation cost when calculating inventory costs. It costs $1200 to process the required paperwork to export the goods, independently of the volume shipped. The company's cycle service level target is 90%. International Soybeans takes ownership of the soybeans from the moment they are delivered at any Brazilian port. For planning purposes, consider that a year has 360 days (12 months).
Required - What is the annual cycle stock cost for exporting soybeans through the port of Rio Grande?