Chapter 11 – MoonChem Case Study
1. What is the annual cost of MoonChem’s strategy of sending full truckloads to
each customer in the Peoria region to replenish consignment inventory?
MoonChem’s customer profile appears in Table 11-4 and is reproduced below:
2. Consider different delivery options and evaluate the cost of each. What delivery
option do you recommend for MoonChem?
MoonChem has the option of scheduling multiple deliveries on a single truck with
a base charge of $350 for the truck and $50 for each delivery the truck makes;
Alternative 1: The Supergroup
The analysis for this option is presented in worksheet Alternative 1—All Together.
Alternative 2: The analysis for this option is presented in worksheet Alternative
2—L, M, S. Separate groups for the Small, Medium, and Large customers.
*1*
2
144,000($1)(25%)
k
ii
i
Small
D hC
nS
=
=
2($650)
8.32
=
*1*
2
288,000($1)(25%)
2($450)
8.94
k
ii
i
Large
D hC
nS
=
=
=
=
The optimal number of shipments for the Medium customers requires a capacity
The actual order sizes for each class and the resultant holding and ordering costs
are shown in the table:
Class
Number of
Orders / Year
Order Size
Holding Cost
Ordering Cost
Small
4.35
33,082
$4,135
$4,135
Medium
9.00
40,000
$5,000
$5,850
Large
8.94
32,199
$4,025
$4,025
The total plan cost is $27,170
Alternative 3: The analysis for this option is presented in worksheet Alternative
table:
Class
Order Size
Holding Cost
Ordering Cost
Small
7,273
$909
Medium
18,182
$2,273
$16,830
Large
14,545
$1,818
The total plan cost is $26,830.
Alternative 4: The analysis for this option is presented in worksheet Alternative
4—Tailored. The weakness of Alternative 3 is that Small customers are visited as
frequently as Large customers. This results in a large delivery cost for small
3. How does your recommendation impact consignment inventory for MoonChem?
The consignment inventory drops significantly from its initial levels when using
any of the alternatives proposed. The current system, with each customer ordering