10 Case Study - MoonChem

Questions
1. What is the current annual cost of MoonChem's strategy of sending full truck loads to each customer in the Peoria region to replenish
consignment inventory?
2. Consider different delivery options and evaluate the cost of each. What delivery option do you recommend for MoonChem?

Inputs
Number of Small Customers 12 Truck capacity** 40,000 pounds per load
Number of Medium Customers 6
Number of Large Customers 2

Demand for Small Customer, RS = 12,000 pounds per year Product specific ordering cost, SA = $50.00
Demand for Medium Customer, RM = 60,000 pounds per year Product specific ordering cost, SB = $50.00
Demand for Large Customer, RL = 144,000 pounds per year Product specific ordering cost, SC = $50.00

Unit Cost, CA = $1.00

Unit Cost, CB = $1.00 Common order cost, S = $350.00
Unit Cost, CC = $1.00 Holding cost, h = 25%

Outputs

Supply each customer full truckloads

Type # orders/year Order Size** Order Cost Holding Cost Total cost*
Small 0.30 40,000 $120 $5,000 $61,440
Medium 1.50 40,000 $600 $5,000 $33,600
Large 3.60 40,000 $1,440 $5,000 $12,880
$107,920

Supply each customer independently

Type # orders/year Order Size** Order Cost Holding Cost Total cost*
Small 1.94 6,197 $775 $775 $18,590
Medium 4.33 13,856 $1,732 $1,732 $20,785
Large 6.71 21,466 $2,683 $2,683 $10,733
$50,108

Supply each customer type simultaneously

Type # orders/year Order Size** Order Cost Holding Cost Total cost
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Medium 9.90 6,061 $495 $758 $1,253
Medium 9.90 6,061 $495 $758 $1,253
Medium 9.90 6,061 $495 $758 $1,253
Large 9.90 14,545 $3,960 $1,818 $5,778
Lower than capacity constraint** 40,000 Total cost per set of customers $13,415

Total Cost per Region $26,830

Supply selected subsets in delivery

Type Frequ. multiple # orders/year Order Size** Order Cost Holding Cost Total cost
Small 0 4.95 2,424 $248 $303 $551
Small 1 4.95 2,424 $248 $303 $551
Small 1 4.95 2,424 $248 $303 $551
Small 1 4.95 2,424 $248 $303 $551
Small 1 4.95 2,424 $248 $303 $551
Small 1 4.95 2,424 $248 $303 $551
Medium 2 9.90 6,061 $495 $758 $1,253
Medium 2 9.90 6,061 $495 $758 $1,253
Medium 2 9.90 6,061 $495 $758 $1,253
Large 2 9.90 14,545 $3,960 $1,818 $5,778
Has to be equal or lower than capacity constraint** 40,000 $12,839

Total Cost per Region $25,678

*) Total costs across all firms (sum of costs per customer type times number of firms per type)
**) Order size has to consider truck load constraint

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Case Study - MoonChem

Questions
1. What is the current annual cost of MoonChem's strategy of sending full truck loads to each customer in the Peoria region to replenish consignment
inventory?
2. Consider different delivery options and evaluate the cost of each. What delivery option do you recommend for MoonChem?

Number of Small Customers 12 Truck capacity** 40,000 pounds per load

Number of Medium Customers 6
Number of Large Customers 2

Demand for Small Customer, RS = 12,000 pounds per year Product specific ordering cost, SA = $50.00
Demand for Medium Customer, RM = 60,000 pounds per year Product specific ordering cost, SB = $50.00
Demand for Large Customer, RL = 144,000 pounds per year Product specific ordering cost, SC = $50.00

Unit Cost, CA = $1.00

Unit Cost, CB = $1.00 Common order cost, S = $350.00
Unit Cost, CC = $1.00 Holding cost, h = 25%

Supply each customer independently

Type # orders/year Order Size** Order Cost Holding Cost Total cost*
Small 1.94 6,197 $775 $775 $18,590
Medium 4.33 13,856 $1,732 $1,732 $20,785
Large 6.71 21,466 $2,683 $2,683 $10,733
$50,108

Supply each customer type simultaneously

Type # orders/year Order Size** Order Cost Holding Cost Total cost
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Small 9.90 1,212 $495 $152 $647
Medium 9.90 6,061 $495 $758 $1,253
Medium 9.90 6,061 $495 $758 $1,253
Medium 9.90 6,061 $495 $758 $1,253
Large 9.90 14,545 $3,960 $1,818 $5,778
Has to be equal or lower than capacity constraint** 40,000 Total cost per set of customers $13,415

Total Cost per Region $40,245

Supply selected subsets in delivery

Type Frequ. multiple # orders/year Order Size** Order Cost Holding Cost Total cost
Small 5.85 2,051 $292 $256 $549
Small 1 5.85 2,051 $292 $256 $549
Small 1 5.85 2,051 $292 $256 $549
Small 1 5.85 2,051 $292 $256 $549
Small 1 5.85 2,051 $292 $256 $549
Small 1 5.85 2,051 $292 $256 $549
Medium 2 11.70 5,128 $585 $641 $1,226
Medium 2 11.70 5,128 $585 $641 $1,226
Medium 2 11.70 5,128 $585 $641 $1,226
Large 2 11.70 12,308 $4,680 $1,538 $6,218
Has to be equal or lower than capacity constraint** 40,000 $13,190

Total Cost per Reg $39,570

*) Total costs across all firms (sum of costs per customer type times number of firms per type)
**) Order size has to consider truck load constraint

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