Supply Chain Management
ttiunb158364
Module9-6.xlsxSheet1
| Input | |
| Annual demand for Ford spare parts, D1 | 1,200 |
| Annual demand for GM parts, D2 | 1,440 |
| Cost per Ford part, C1 | $ 100 |
| Cost per GM part, C2 | $ 100 |
| Holding cost, h | 20% |
| Fixed cost per shipment, S | $ 500 |
| Ford and GM ship separately | |
| Optimal order size for Ford | 245 |
| Optimal order frequency for Ford | 4.90 |
| Cycle inventory of Ford | 122.47 |
| Annual holding cost for Ford | $ 2,449.49 |
| Annualshipping cost for Ford | $ 2,449.49 |
| Optimal order size for GM | 268 |
| Optimal order frequency for GM | 5.37 |
| Cycle inventory for GM | 134.16 |
| Annual holding cost for GM | $ 2,683.28 |
| Annual shipping cost for GM | $ 2,683.28 |
| Two products are shipped jointly | |
| Fixed cost per truck for joint shipment, S | 600 |
| Optimal order frequency, n* | 6.63 |
| Order size for Ford | 181 |
| Cycle inventory for Ford | 90.45 |
| Annual holding cost for Ford | $ 1,809.07 |
| Order size for GM | 217 |
| Cycle inventory for GM | 108.54 |
| Annual holding cost for GM | $ 2,170.88 |
| Annual combined shipping cost | $ 3,979.95 |
| Total annual cost | $ 7,959.90 |
| Annual savings through aggregation | $ 2,305.64 |
Ford and GM should accept the 3rd party's proposal because it saves them $2,305.64 in aggregate per year. There are many ways to divide the annual combined shipping cost of $3,979.95 that leaves both companies better off than they were originally. One approach is to charge each company based on the fraction that they ship on a truck. Each truck contains 181 units for Ford and 217 units for GM. Thus Ford can be charged 600×(181/398) = $273 while GM is charged $327 per shipment. With this approach, Ford pays $273*6.63 = $1,810.88 per year and GM pays $327×6.63 = $2,169.07 per year. This distribution leaves both companies better off than when they shipped separately.
