Chapter 1

Question: Logistics Company A is located in Topeka, Kansas. This company ships custom-made
ergonomic chairs from its manufacturing plan in Topeka, KS to its customers across the US. Company A
adopted the single zone pricing approach for its business. Company A charges a fixed shipping cost of
$49 for standard shipping per custom-made chair to any customers anywhere in the US. Recently, the
company calculated the actual cost of shipping per chair in three different zones (Figure on next
slide) for their customers. Table (next slide) shows the actual cost of shipping for zone A, zone B, and
zone C. The table also shows the price difference for different types of shipping methods

If a customer from Oklahoma City, Oklahoma orders 2 custom-made chairs using standard shipping
from Company A, what is the phantom cost for this customer (if any) or what is the freight
absorption cost for Company A (if any)? What would be the phantom cost for the same order, but the
customer is located in Columbus, Ohio? Is there any freight absorption cost for Company A for this new
scenario? In which zone or zones does Company A need to absorb shipping cost? It is very important to
show the calculations and make decisions based on the calculated values.

Solution

 In the first scenario, the customer is within zone A.

• Standard shipping charge: $49.00 per chair

• Actual cost when shipping to Oklahoma City: $37.25 per chair

 Customer was charged: 2 X $49.00 = $98.00 for two chairs,

While Company A had to pay: 2 X $37.25 = $74.50 for two chairs.

In this particular case, Company A charged more than the actual cost of shipping.

Hence, the customer from Oklahoma City will see a phantom cost.

So, the phantom cost in this scenario is $98.00 - $74.50 = $23.50

  In the second scenario, the customer is from Columbus, OH, which is within zone B

• Standard shipping charge: $49.00 per chair

• Actual cost incurred to ship to Columbus: $49.00 per chair

 Customer was charged :2 X $49.00 = $98.00 for two chairs,

while Company A had to pay: 2 X $49.00 = $98.00 for two chairs.

In this particular case, Company A charged same amount to the actual cost of shipping.

Hence, neither the customer from Columbus will see a phantom cost nor Company A will have to absorb
any shipping cost.

So, the phantom cost or the absorption in this scenario is $98.00 - $98.00 = $0

Chapter 3

Rate of truck load is less than rate of less than truck load (RTL< RLTL)

RLTL: hàng lẻ

RTL: hàng thùng

to calculate the weight break;

RTL*WT = RLTL*Wb

Where, RTL-Rate of truck load

WT- Minimum weight of load to rent a truck

RLTL- Rate of less than truck load

Wb- Weight break

Wb = (RTL * Min)/ RLTL

If the shipment is less than the calculated weight break LTL is used otherwise TL is used.

Question: Amazon is shipping 17000 lbs. of merchandise; it negotiated with a global freight forwarder
on the following issues.

RLTL = $0.89 per 100 lbs.

RTL = $0.62 per 100 lbs.

Minimum required load to get a TL rate = 22,000 lbs.

Maximum truck load = 40,000 lbs.

a. What is the weight break in this scenario?

b. Which rates will it chose for this shipment?

c. How much additional money it must pay if it wants to ship an additional 500 lbs. of merchandise on
top of 17000 lbs.?

d. How much money it will save if it wants to reduce its shipment by 500 lbs. from 17000 lbs.?

e. What will be the total cost if 45,000 lbs. is being shipped?

Solution

a. Wb=(0.62*22000)/0.89= 15,325.8 lbs.

Wb= 11842.7/100 Cwt = 153.26 Cwt

b. Total cost for LTL (17000 lbs. = 170 cwt) = 170*0.89 = $151.3

Total cost for TL (22000 lbs. = 220 cwt) = 220*0.62 = $136.4

TL rate is chosen since it is less expensive than LTL.

c. Total cost for LTL (17500 lbs. = 175 cwt) = 175*0.89 = $155.75

Additional cost for LTL for (17,500 lbs. = 175 cwt) = $155.75-$151.3 = $4.45

There is no additional cost for TL because it can add up to 22000lb and still pay the same price if going
for TL rate.

d. Total cost for LTL (16500 lbs. = 165 cwt) = 165*0.89 = $146.85

Money saved = $151.3-$146.85 = $4.45

There is no saving if choosing TL because it charges the same up to 22000lb.

e. Since the maximum capacity of the truck is 40,000 lbs., the extra 5,000 lbs. can be shipped through
LTL.

Cost for TL (40000 lbs. = 400 cwt) = 400*0.62 = $248

Cost for LTL (500 lbs. = 5 cwt) = 5*0.89 = $4.45

Total cost to ship 45,000 lbs. = $248+$4.45 = $252.45

Chapter 5

Assuming linear relationship, these cost functions can be mathematically modeled as T=rD+F

Where, T = Total transportation cost of a unit shipment

r = Rate $ per unit

D = Travel distance, and

F = Initial fixed cost for different modes

Question: An international supplier based in Quito, Ecuador, wants to evaluate its option to ship a
unit shipment to Santiago, Chile (See Figure on next slide). Both cities are connected by maritime,
roadways, and railways. Mode specific information (Table on next slide) is available for the manager.

What is the cost-effective mode for the manager?

If the manager selects rail transportation for faster delivery, how much would he/she be paying extra
compared to the lowest cost option? If the manager has to ship a similar shipment to Lima, Peru, what
option would be cost effective? Assume that Lima is also connected with Quito by all three modes of
transportation.

Solution

Using the total cost of unit shipment equation, following cost functions can be derived for all three
modes.

For Road, TRd = $500 + 4D

For Rail, TRl = $3500 +1.5D

For Maritime, TM = $5000 +D

To find the distance where TRd = TRl, solve $500 + 4D = $3500 +1.5D or D = 1200 miles

To find the distance where TM = TRl, solve $5000 + D = $3500 +1.5D or D = 3000 miles
Chapter 8

A loss function of the form

L = loss in $

k = a constant to be determined

y = value of the service variable

m = the target value of the service variable

TC = service penalty cost + service delivery cost

- service penalty cost = k(y-m)^2

- service delivery cost = A – B (y-m)

If m is set to 0, y is the optimal deviation allowed from target

Question: Target delivery time for an auto parts supplier is 2 hours. Parts delivered more than 15 minutes
late incur a penalty of $5 off the total bill. Delivery costs are estimated at $3 but decline at the rate of
$0.25 for each minute of deviation from target. How much variation should be allowed in the delivery
service?

No more than 5.68 minutes should be allowed from the 2-hour delivery target to minimize cost.
Chapter 9

Question 1:

Calculate the shipping volume and weight for the following shipment.

The shipment consists of nine pallets, each 150 kgs with a dimension of 122 cm x 101.5 cm x127 cm

(English Standard Measure, each 330.7 lbs and 48 in x 40 in x 50 in).

Solutions:

Shipping volume = 9 pallets x 122 cm x 101.5 cm x127 cm/1,000,000 cm3

= 14.15 m3.

Or

9 pallets x 48 in x 40 in x 50 in = inches^3/1728 = ft^3/35.314 = 14.15 m3.

The shipping weight of this shipment is

9 pallets x 150 kilos =1350 physical kilos.

For the volume of this cargo not to exceed the physical weight, the physical weight would need to
be at least 14,150 kilos. Since this is not the case, the ocean freight would be calculated based on 14.15
m3.

Question 2:

This problem was discussed in Chapter 6 as example problem 6.6 from a different perspective. In this
chapter we will look at it from a cost perspective. The problem states that Acme Block Company has
orders for 80 tons of concrete blocks at three suburban locations as follows:

● Northwood—25 tons

● Westwood—45 tons

● Eastwood—10 tons

Acme has two plants, each of which can produce up to 50 tons per week.

Delivery cost per ton from each plant to each suburban location is as follows:

Northwood Westwood Eastwood

Plant 1 $24 $30 $40
Plant 2 $30 $40 $42

a. Formulate this problem (write the objective function and constraints).

b. Find the lowest cost of shipment for Acme Block Company.

Solution:

a. Formulation is as follows (discussed in Chapter 6):

b. This problem can be solved using any optimization software. The following is the solution from
MS Excel Solver: