Supply Chain Logistics Management 5th Edition by Donald Bowersox Solution manual
SCLM 5th Edition
End of Book Questions Solution Set
1a. To determine if EDI will pay for itself within the first five years, we must begin by determining the annual costs associated with the current, manual system over this period:
Yr. (Order volume x cost/order) + (errors x cost/error) = Annual Cost
1 (22,000 x $2.75) = $60,500 + ((22,000 x 0.012) x $7.00) = $ 62,348
2 (25,000 x $2.75) = $68,750 + ((25,000 x 0.012) x $7.00) = $ 70,850
3 (27,000 x $2.75) = $74,250 + ((27,000 x 0.012) x $7.00) = $ 76,518
4 (32,000 x $3.25) = $104,000 + ((32,000 x 0.012) x $7.00) = $ 106,688
5 (38,000 x $3.25) = $123,500 + ((38,000 x 0.012) x $7.00) = $126,692
The cumulative total cost of the manual system is $443,096
Now calculate the cost of EDI over the same period
EDI System Costs
Yr. (Order volume x cost/order) + (errors x cost/error) + salary = Annual Cost
0 Upfront implementation cost = $125,000
1 (22,000 x $.35)+((22,000 x 0.003) x $9)+($40,000) = $ 48,294
2 (25,000 x $.35)+((25,000 x 0.003) x $9)+($41,200) = $ 50,625
3 (27,000 x $.35)+((27,000 x 0.003) x $9)+($42,436) = $ 52,615
4 (32,000 x $.35)+((32,000 x 0.003) x $9)+($43,709) = $ 55,773
5 (38,000 x $.35)+((38,000 x 0.003) x $9)+($45,020) = $ 59,346
The cumulative cost of the EDI system is: $ 391,653
By comparing the two total five-year costs, we can see that EDI would pay for itself within the specified period.
Note: This problem, like most other cost comparison problems in the textbook, does not consider the time value of money.
1b. This is a creative thinking question. Responses might include but are not limited to: improved customer service through increased productivity, higher order accuracy, and better order tracking. Mr. McNealy might also expect improved relations with all channel members through better coordination and cooperation in the order process and delivery.
2. Order placement as orders wait to be bundled for processing. However, the decision should consider customer service requirements. Batch processing better enables a supplier to allocate current inventory, yet real-time processing is more responsive.
3. This is a creative thinking question. Responses may include but are not limited to: Point-of-Sale applications can help Fast Stop track sales, reducing inventory uncertainty and the need for buffer stock, and readily provide strategic marketing information. Material handling and tracking applications provide valuable information regarding the movement, storage, shipment and receipt of product. All of these benefits may have cost and customer service implications.
4a. June’s anticipated demand at each DC is show below:
End of Book Questions Solution Set
1a. To determine if EDI will pay for itself within the first five years, we must begin by determining the annual costs associated with the current, manual system over this period:
Yr. (Order volume x cost/order) + (errors x cost/error) = Annual Cost
1 (22,000 x $2.75) = $60,500 + ((22,000 x 0.012) x $7.00) = $ 62,348
2 (25,000 x $2.75) = $68,750 + ((25,000 x 0.012) x $7.00) = $ 70,850
3 (27,000 x $2.75) = $74,250 + ((27,000 x 0.012) x $7.00) = $ 76,518
4 (32,000 x $3.25) = $104,000 + ((32,000 x 0.012) x $7.00) = $ 106,688
5 (38,000 x $3.25) = $123,500 + ((38,000 x 0.012) x $7.00) = $126,692
The cumulative total cost of the manual system is $443,096
Now calculate the cost of EDI over the same period
EDI System Costs
Yr. (Order volume x cost/order) + (errors x cost/error) + salary = Annual Cost
0 Upfront implementation cost = $125,000
1 (22,000 x $.35)+((22,000 x 0.003) x $9)+($40,000) = $ 48,294
2 (25,000 x $.35)+((25,000 x 0.003) x $9)+($41,200) = $ 50,625
3 (27,000 x $.35)+((27,000 x 0.003) x $9)+($42,436) = $ 52,615
4 (32,000 x $.35)+((32,000 x 0.003) x $9)+($43,709) = $ 55,773
5 (38,000 x $.35)+((38,000 x 0.003) x $9)+($45,020) = $ 59,346
The cumulative cost of the EDI system is: $ 391,653
By comparing the two total five-year costs, we can see that EDI would pay for itself within the specified period.
Note: This problem, like most other cost comparison problems in the textbook, does not consider the time value of money.
1b. This is a creative thinking question. Responses might include but are not limited to: improved customer service through increased productivity, higher order accuracy, and better order tracking. Mr. McNealy might also expect improved relations with all channel members through better coordination and cooperation in the order process and delivery.
2. Order placement as orders wait to be bundled for processing. However, the decision should consider customer service requirements. Batch processing better enables a supplier to allocate current inventory, yet real-time processing is more responsive.
3. This is a creative thinking question. Responses may include but are not limited to: Point-of-Sale applications can help Fast Stop track sales, reducing inventory uncertainty and the need for buffer stock, and readily provide strategic marketing information. Material handling and tracking applications provide valuable information regarding the movement, storage, shipment and receipt of product. All of these benefits may have cost and customer service implications.
4a. June’s anticipated demand at each DC is show below: