Managing Operations Across the Supply Chain 1st Edition by Morgan Swink,Steven Melnyk,Bixby Cooper, Janet Hartley

Exercise 11

The table below provides shipping rates for packages using UPS next day air or ground service options.The rates vary according to both the weight of the package and the distance of the shipment (larger numbered zones are farther away).Note that the zone number also indicates the number of days required to deliver a package using ground service.For example, it would take three days and cost $7.40 to send a 10-pound package to zone 3 using ground service.
a.Suppose you have a package weighing 15 pounds that needs to be shipped to zone 5.The value of the material is $10,000 and the annual inventory holding rate is 40 percent of the product value.Which transportation mode (air or ground)minimizes the total shipping and transit inventory cost?
b.How high would the inventory holding rate have to be in order to justify next day air service?