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Teaching Note: China Imports
The goal of this case is to get students to evaluate the cost of using different transportation modes for
various product categories. Air freight and ocean shipping are the two transportation modes considered.
Air freight is faster and has a lower minimum requirement, but it is more expensive than ocean shipping.
Smartphones and decorative hardware are the two product categories considered. Smartphones have
high value and low weight while decorative hardware has lower value and greater weight. Also, demand
for smartphones is more unpredictable than demand for hardware.
What is the annual cost of using air freight to import smartphones? What is the annual cost of using
ocean shipping to import smartphones?What is the annual cost of using air freight to import decorative
hardware? What is the annual cost of using ocean shipping to import decorative hardware?
All results are obtained using the spreadsheet Chapter14-China-imports. The input information related
to the two transportation modes is as shown below:
The two transportation modes are compared based on the inventory (cycle + safety + transit) and
shipping costs per year. To evaluate the optimal batch size, we use the EOQ formula with a fixed cost
In the case of smartphones using air freight, we obtain
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Given that 833 smartphones weigh 833 × 0.1 = 83.3 kg, the EOQ exceeds the minimum shipping quantity
Given that 1,290 smartphones weigh 1,290 × 0.1 = 129 kg, the EOQ is feasible because it is less than the
The safety inventory calculation must account for lead time uncertainty using each mode of transport.
For smartphones using air freight, we use Equation 12.11 to obtain
Transit inventory is calculated using the mean lead time (transit inventory = mean lead time × mean
weekly demand). Shipping cost by air freight is calculated based on the shipping cost / kg (shipping cost
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3. What other factors should be considered in the choice of transportation mode? What mode would
you recommend for each product? Suggest a general framework that Jackie can use across all product
categories.