IMSE1016 Introduction to Business Logistics

Time allowed: 3 hours

Question 1
(a) City Bank has just installed an automatic teller machine (ATM) in its new branch in
Kowloon. From the bank's research analysis, the average daily withdrawal from the
ATM is $20,000, the lead time for stocking the ATM with banknotes is 2 days, the
cost of stocking the ATM is $500 each occasion and its cost of money is 5% per year.

(i) Use Economic Order Quantity model to determine the amount of money City
Bank should stock in the ATM each time and how often it should stock the
ATM.
(10 marks)
(ii) Suppose City Bank has decided to stock the ATM every Friday. Determine the
amount of money it should stock in the ATM and the sum of annual ordering
cost and holding cost. (10 marks)

(b) What is quantity discount? Use a simple graph to illustrate the impacts on per unit
logistics costs as a justification for the discount. (5 marks)

Question 2
(a) What are the six typical F.o.b. pricing arrangements? Compare these pricing
arrangements in terms of freight charges payment arrangement, goods ownership in
transit, and the party responsible for filing claims. (10 marks)

(b) What is the typical classification of products? Discuss the major factors to be
considered when formulating logistics strategies for different types of products in the
classification.
(8 marks)

(c) Discuss the typical product life cycle and its impacts on physical distribution strategy.
(7
marks)

Question 3
(a) State the major elements of customer service in pre-transaction and post-transaction
stages. (7 marks)

(b) Discuss the major components of a customer order cycle. What are the typical
customer service policies that affect the order cycle time? (10
marks)

(c) Draw a diagram to illustrate the internal and external information flow of a logistics
information system and discuss its major subsystems. (8 marks)

Question 4
1
(a) Discuss the practical guidelines for good vehicle routing and scheduling.
(10
marks)

(b) A local shipping line needs to schedule a fleet of container ships of carrying capacity
of 2000 containers each to transport containers to five ports from its hub in Hong
Kong. The voyage time in days between each pair of the ports is given in the
following table.

Hub Port 1 Port 2 Port 3 Port 4 Port 5

Hub - 10 37.5 16.5 5 15
Port 1 10 - 17.5 25 10 7.5
Port 2 37.5 17.5 - 9 29 21
Port 3 16.5 25 9 - 20 10
Port 4 5 10 29 20 - 12.5
Port 5 15 7.5 21 10 12.5 -

The number of containers to be transported from the Hong Kong hub to Ports 1 to 5
are 1100, 1000, 500, 1200, and 300 respectively. The objective of the shipping line's
scheduling problem is to minimize the total voyages times for transporting the
containers. Find the set of ports to be served by each container ship using Clark-
Wright method.
(15 marks)

Question 5
(a) A computer manufacturer sells three models of personal computers (PCs) with the
same general design. The same motherboard is used to produce the three models. The
manufacturer needs to determine the purchase plan of the motherboard for the next
several weeks to meet the demand forecasts given in the following table.

PC On hand Weekly Demand Forecast (units)

inventory 1 2 3 4 5 6 7
Model A 1600 1500 1500 2000 2000 1500 2000 2000
Model B 800 600 600 600 800 800 1000 800
Model C 2000 1000 1200 1000 800 800 600 600

The manufacturer takes a week to produce the PCs. Currently, there are 3500 units of
motherboard on hand and 4000 more to be received in week 2. The purchase lead
time of motherboards is 1 week and the minimum order size is 4000 units.

(i) Determine the production schedule for Models A, B and C using lot-for-lot
scheduling. (10 marks)
(ii) Determine the schedule of timing the release of motherboard purchase orders
using lot-for-lot scheduling. (6 marks)

(b) A retailer currently receives shipments directly from four major suppliers A, B, C and
D in quantities of 10000, 5000, 12000 and 9000 kgs, respectively. The respective
freight rates for the shipments from suppliers A, B, C and D are $2, $2.5, $1.5 and $3
per kg. The retailer is planning to change its current logistics network to the one

2
shown below.

Supplier A

$1/kg
Handling cost
Supplier B $0.8/kg of $0.5/kg
$0.5/kg
Distribution Retailer
$0.5/kg warehouse
Supplier C
$1.2/kg

Supplier D

Based on the freight rates and the warehouse handling cost given in the diagram
above, determine whether the retailer should change its logistics network. (9
marks)

3
Suggested Solutions

Question 1
(a) (i)
K = $500/stocking(order)
H = $0.05/year
D = 20000*365
EOQ = (2KD/H) = $382,100
Number of stockings per year = D/382100 = 19.1
Time between successive stockings = 365/19.1 = 19.1 days

(a) (ii)
Amount to be stocked = 7*20000 = $140,000
Annual ordering cost = 500*20000*365/140000 = $26,071
Annual holding cost = 140000*0.05/2 = $3500
Annual total cost = $29,571

Question 4
(b)
S12 = 30 S13 = 1.5 S14 = 5 S15 = 17.5
S23 = 45 S24 = 13.5 S25 = 31.5 S34 = 1.5
S35 = 21.5 S45 = 7.5
Arrange the savings in decreasing order:
S23, S25, S12, S35, S15, S24, S45, S14, S13, S34
Ship 1
Ports 2, 3 and 5
Number of containers carried = 1800

Ship 2
Port 1
Number of containers carried = 1100

Ship 3
Port 4
Number of containers carried = 1200

4
Question 5
(a)
Model A
Week 1 2 3 4 5 6 7
Requirements 1500 1500 2000 2000 1500 2000 2000
Scheduled Receipt 0 1400 2000 2000 1500 2000 2000
Quantity on hand 1600 100 0 0 0 0 0 0
Production quantity 1400 2000 2000 1500 2000 2000 0

Model B
Week 1 2 3 4 5 6 7
Requirements 600 600 600 800 800 1000 800
Scheduled Receipt 0 400 600 800 800 1000 800
Quantity on hand 800 200 0 0 0 0 0 0
Production quantity 400 600 800 800 1000 800 0

Model C
Week 1 2 3 4 5 6 7
Requirements 1000 1200 1000 800 800 600 600
Scheduled Receipt 0 200 1000 800 800 600 600
Quantity on hand 2000 1000 0 0 0 0 0 0
Production quantity 200 1000 800 800 600 600 0

Motherboard
Week 1 2 3 4 5 6 7
Requirements 2000 3600 3600 3100 3600 3400 0
Scheduled Receipt 0 4000 4000 4000 4000 0
Quantity on hand 3500 1500 1900 2300 3200 3600 200 0
Order quantity 4000 4000 4000 4000 0 0 0
(b)
Current logistics network
Supplier Shipment weight Rate ($/kg) Cost
A 10000 2 20000
B 5000 2.5 12500
C 12000 1.5 18000
D 9000 3 27000
Total $77500
With distribution warehouse
Supplier Shipment Freight Freight Warehouse Freight Freight Cost
weight rate to cost to handling rate to cost to
warehouse warehouse cost retailer retailer
($/kg) ($/kg)
A 10000 1 10000 5000 1 5000 20000
B 5000 0.8 4000 2500 1 2500 9000
C 12000 0.5 6000 6000 1 6000 18000
D 9000 1.2 10800 4500 1 4500 19800
Total $66800
Therefore, the retailer should change its logistics network.