An e-commerce company located in Alabama is considering two options for delivery of customerorders. The first option is to ship the goods directly to customers in the USA using trucks. Thesecond option is to ship the goods to a 3PL in Atlanta via rail and have the 3PL ship the goods tocustomers using the best mode of transportation. Given the data below for 200,000 units, what isthe "equivalence point" for the two options in units?Option 1- Ship Directly toOption 2 - Ship from Alabamato 3PL and then from 3PL toCustomers from AlabamaCustomersCost of transportation via rail$0$50,000Cost of transportation via truck$650,000$530,000Material handling cost at the e-commerce company'swarehouse$150,000Order fulfillment fee charged by3PL company$0$20,000Fixed cost$10,000$50,000TOTAL COST:$810,000$650,000

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Answered: An e-commerce company located in…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 46P

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Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?
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