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Magazine Chapter 3: Q2AE (page 421)
Question:Evaluate an alternative that involves consolidating all 20-foot volumes and using only a single consolidation center in Shanghai/Ningbo. Assume that all the existing 20-foot volume and the existing consolidation center volume are sent to this single consolidation center by suppliers. This new consolidation center volume would be packed into 40-foot containers filled to 96 percent and shipped to the United States. The existing 40-foot volume would still be shipped directly from the suppliers at 85 percent capacity utilization.
Short Answer
The net savings the company can afford is $507,184.
Step by step solution
Given values
Total Current volume (CBM) =190,000
Direct shipping percentage = = 0.70
Direct shipping volume (CBM) = 133,000
Consolidation centre volume = 57,000
Calculate the shipping cost
Container centre by container type
The total shipping cost= $1,932,946
Calculate the consolidation centre operating cost
No. of centres = 1
Annual fixed cost per centre = $75,000
Total annual fixed cost = $75,000
Variable cost per CBM = $1.40
Total annual variable cost =
Total annual consolidation centre operating cost= $154800
Calculate the total cost
Total cost= Total shipping cost + Total annual consolidation centre operating cost
= 1932946+154800
= $2,087,746
The total cost involved in shipping the goods using 4 different distribution centers was $2,594,930.
Net savings= $2594930-$2087746
= 507,184
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