. Baseball Card Emporium

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Baseball Card Emporium (BBE) of Lewistown, Pennsylvania, is a distributor of baseball cards to sports card retailers. Its market area encompasses most of Pennsylvania, eastern Ohio, and New Jersey. The cards are printed in Neenah, Wisconsin, and currently shipped to Lewistown via motor carrier transportation. Kenny Craig, vice president of logistics, has asked his staff to evaluate using air carrier service to ship the cards.
Nick Gingher, director of distribution, has collected the following information:
• Annual demand: 6,000 cases of cards
• Case value (price): $96 each
• Inventory carrying cost (annual): 30%
• Cost per order to replenish inventory: $75
• In-transit inventory carrying cost: 18%
• Transit time using motor carrier (parcel ground): 4 days
• Cycle time using motor carrier (parcel ground): 7 days
• Transit time using air carrier: 1 day
• Cycle time using air carrier:2 days
• Motor carrier rate: $1.20 per cwt. (100 lbs.)
• Air carrier rate: $2.50 per cwt.
• Unit weight: 50 lbs. per case

 

 

Sample Solution

Motor Carrier

  • Annual demand: 6,000 cases of cards
  • Case weight: 50 lbs. per case
  • Total weight: 6,000 * 50 = 300,000 lbs.
  • Annual carrying cost: 30% * $96/case = $28.80/case
  • Annual order cost: $75/order
  • Number of orders per year: 300,000 lbs. / 50 lbs./case / 12 cases/order = 480 orders/year
  • In-transit inventory carrying cost: 18% * $1.20/cwt. * 300,000 lbs. = $64800/year
  • Total annual cost: $28.80/case * 6,000 cases + $75/order * 480 orders + $64,800 = $385,600/year

Air Carrier

  • Annual demand: 6,000 cases of cards
  • Case weight: 50 lbs. per case
  • Total weight: 6,000 * 50 = 300,000 lbs.
  • Annual carrying cost: 30% * $96/case = $28.80/case
  • Annual order cost: $75/order
  • Number of orders per year: 300,000 lbs. / 50 lbs./case / 2 cases/order = 300 orders/year
  • In-transit inventory carrying cost: 18% * $2.50/cwt. * 300,000 lbs. = $135,000/year
  • Total annual cost: $28.80/case * 6,000 cases + $75/order * 300 orders + $135,000 = $352,800/year

Comparison

As you can see, the total annual cost of shipping the baseball cards using air carrier is $32,800 less than using motor carrier. This is because the air carrier has a shorter transit time, which means that BBE has less inventory on hand and therefore incurs lower carrying costs. Additionally, the air carrier rate is higher than the motor carrier rate, but the savings in carrying costs more than offset the higher rate.

Recommendation

I recommend that BBE switch to air carrier shipping for the baseball cards. This will save the company $32,800 per year.

In addition to the financial analysis, there are other factors that BBE should consider when making its decision. For example, air carrier shipping is typically more reliable than motor carrier shipping. This is because air carriers are less likely to experience delays due to weather or traffic conditions. Additionally, air carrier shipping can be more secure than motor carrier shipping. This is because air carriers have more stringent security measures in place.

Ultimately, the decision of whether to switch to air carrier shipping is up to BBE. However, the financial analysis and other factors I have mentioned suggest that this would be a wise decision.

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