Joburg Logistics (JL), a distributor of various products inPolokwane receives their products from suppliers inDurban, Cape Town, and Johannesburg. The company'smanagement is concerned with the supply cost of acertain product that is supplied by a manufacturer inDurban. Currently JL has a contract with Transnet FreightRail (TFR) for the transport of the orders from Durban. Thefollowing are the rail rate and transit time:Transit time (rail)Rail rate5 daysR2.75/unitThe impact on the transport and inventory carrying costbecause of this arrangement is a concern of the logisticsdirector, Mrs Micky. As a result, Mrs Micky has requestedthe logistics manager to evaluate the option to use a 3PLservice provider for the shipment from Durban toJohannesburg. The logistics manager has identified acertain 3PL company that has the capacity to perform thiscontract. However, in order to provide a transport rate, the3PL company required the size and frequency of orders.JL currently uses the EOQ approach to determine theorder size and based on this the 3PL company hasprovided the following transport rates:EOQ Order 100 unitsTransport rate (Rand/unit) 3.50 3.10Transit time (days)31The logistics manager has obtained the followinginformation:Annual demand (units)Product value (Rand/unit)Inventory carrying costOrder costIn-transit inventory carrying costWhich option would you recommend that GP use?(Hint: Assume 360 days/annum. Comparison of thepossible options should be based on TAC)1 000R65020%R3512%

TAC is the total annual cost that includes both transportation and inventory carrying costs.Evaluate…

Answered: Joburg Logistics (JL), a distributor of…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter6: Optimization Models With Integer Variables

Section: Chapter Questions

Problem 2C

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