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A power plant in California uses coal at the rate of 100 000 lbs. each day. It also uses MRO (maintenance, repair and operations) material at the...
A power plant in California uses coal at the rate of 100 000 lbs. each day. It also usesMRO (maintenance, repair and operations) material at the rate of 1 000 lbs. each day.The coal comes from Wyoming and the MRO material comes from Chicago. Coalcosts $0.01 per lb. whereas MRO material costs $10 per lb., on average. Holding costsat the power plant are 25%. Transportation choices available are as follows.TrainLead time = 15 daysCarload (100 000 lbs.) at $400 per carloadFull train (70 cars) at $15 000 per trainTruckLead time = 4 daysMinimum cost = $100Up to 10 000 lbs. at $0.08/lb.Between 10 000 and 20 000 lbs. at $0.07/lb. for entire loadBetween 20 000 and 40 000 lbs. at $0.06/lb. for entire loadSmall TL (40 000 lbs.) for $2 000Large TL (60 000 lbs.) for $2 600Safety inventory of coal and MRO materials is kept at twice the consumption duringthe lead time of supply.What mode of transportation do you recommend for each of the two products? Why?
