Honfleur Corp.
...d only for each thousand lot. Actual counting we started by stocking cost, which are the same for all distributors with certain lot. Stocking costs are simply 25 % of the value of average stock and safety stock. Then we counted for each distributor with constraint what would one haulage cost according to given pounds. Total costs include the needed amount of haulages times the cost of one haulage plus ordering costs plus stocking costs. For private trucking operation total costs also include backhaul income that we assumed to be 20% out of total capacity and also 6% risk factor. With these methods we found out that EOQ is 516 engines. Cheapest bidding would be Trans-Eastern Trucking company, with a total costs of $112 800 per year (APPENDIX 2). They had some constraints that they could not haul loads under 10 000 pounds, so minimum total cost came from minimum amount of pounds. Current operator Banner came second with total costs of $114 590 as seen in appendix 2. They were able to haul lighter loads and so their minimum came at EOQ at 5160 pounds. Private trucking operator was way more expensive than others. Minimum total cost was $165 180 and it required hauls of 38 000 pounds each. North-eastern railroad was close to Banner and Trans-Eastern Trucking Company when compared to total costs. Qualitative analysis of the distributors We considered pros & cons of every service provider. Those are presented in this chapter. Northeastern Railroad Advantages Disadvantages Possibility to operate at lowest costs (optional) Fixed price easier to evaluate the effects of changes in shipment volume No upper limits for shipments or volume seamless journey (intermodalism) door-to-door service Rail operator responsible for damages Low damage rate (about 4,5%) Environment friendly Longest delivery time due to rail transportation (several cargo handling phases and slow delivery) New partner to Honfleur difficult to evaluate service level and reliability Outsourced transportation less control over delivery Not able to deliver under 20 000 pound orders Trans-Eastern Trucking Company Advantages Disadvantages Lowest costs with present constraints Fixed price easier to evaluate the effects of changes in shipment volume No upper limits for shipments or volume Fast delivery (3 days) due to road transportation Easiness of administration door-to-door service High price New partner to Honfleur difficult to evaluate service level and reliability Outsourced transportation less control over delivery Not able to deliver under 10 000 pound orders Not environment friendly Damage rate 6% Banner Advantages Disadvantages Current partner less risk because Honfleur knows the company Willing to lower prices and stay as a partner Relatively low price No lower limit in volume Fast delivery (3 days) due to road transportation Easiness of administration door-to-door service Sliding rate basis difficult to evaluate the effects of changes in shipment volume Not able to deliver more than 40 000 pounds at a time Outsourced transportation less control over delivery Not environment friendly Damage rate 6% Private trucking operator Advantages Disadvantages Easier to control and coordinate transportation because it is part of Honfleurs own operations Opportunity to use the trucking operator to other purposes in the future No lower limit in volume Fast delivery (3 days) due to road transportation Easiness of administration door-to-door service High costs which is hard to specify High fixed costs, requires investments Difficult to get backhauls costs up Hauling is not Honfleurs core competence Not able to deliver more than 40 000 pounds at a time and not more than 50 times a year Not environment friendly Damage rate 6% Recommendation According to our mathematical analysis best service provider would be Trans-Eastern trucking company but when we considered qualitative manners, we found out that cheapest is not necessarily the best choice for Honfleur. Banner offered to lower their incremental rate on larger shipments from $4 per hundredweight to $3 and when Honfleur could decrease their shipments closer to EOQ, which is 5164 pounds, it offers the company a competitive solution. Nevertheless Trans-Eastern Trucking Company underbid Banners offer, making it the cheapest one. However Banner is only 1,59 % more expensive than Trans-Eastern or $1 790 in total annual shipping costs. As there are no reference to any major problems dealing with Honfleur and Banner customer relationship, so we assume there are none. This is why we recommend that Honfleur should not make any changes to this working relationship. New relationship may bring presumable new problems and risks, which generates unexpe...