1. ISyE 6203 Transportation & Supply Chain Systems
HDT Case Study
ISyE 6203 Transportation & Supply Chain Systems
John H. Vande Vate
Fall 2011
Ranjit, Anthony, Lakshmi, Lee

2. Direct Costs for Chicago
Ship Charter Cost:
2400
$ per day
* 30 days
$72000
Loading and Blocking 40
$ per truck
* 50 trucks
$2000
Rail Cost
180
$9000
Wharfage Cost 2
$ per foot
* 535 feet
$1070
Loading and Stowing Cargo
$4000
Seaway Tolls 54
$2700
Unloading Cost
$4200
Marine Insurance
210
$10500
Total Cost $105,470

3. Direct Costs for Baltimore
Load and block two trucks
on a flatcar
120
$ per pair of trucks 25
pairs of trucks
$3000
the rail rate for two on a flatcar
1792
$44800
Handling cost
200
$ per truck 50
trucks
$10000
ocean feight rate from B to Doha
1440
$72000
Insuarance Cost
150
$7500
Total Cost: $137,300

4. Cost of Borrowing Continuous Compounding Interest A = final amount
Where,
A = final amount
r = annual nominal interest rate(as a decimal)
(it should not be in percentage)
t = number of years

5. Chicago Cost of Borrowing
Since the goods are being delivered in one shipment, we need to borrow money to finance paying for the transportation.
Interest paid on $105,470 for 32 days at 12% interest:
$1,115.46

6. Baltimore Cost of Borrowing
Since we are paid as goods are delivered, we need to borrow less money. Also, shipping time is faster, so we need to borrow for a shorter period of time.
Interest calculations: next slide

8. Inventory Holding Cost
Assume COGS ~ 75% of revenue
(Approximated from other heavy machinery companies)
Inventory Holding Cost ~ 15% of COGS
For Chicago, average stock is 50/2 = 25 trucks
For Baltimore, average stock is ~ 0.8 trucks

9. Inventory Holding Cost (Cont)
Revenue of 1 truck = $172,000, so COGS = $129,000
Chicago: 25 trucks / day * 27/365 years* $129,000 * 0.15
~$36,000
Baltimore: 0.8 trucks/day * 27/365 years * $129,000 *0.15
~$1,150

10. Recommendation
Considering direct costs, interest payments, and inventory holding costs, the total costs are roughly the same.
We suggest using Baltimore, since we will receive cash payment much sooner than shipping via Chicago.

11. Labor Costs According to the internet, labor costs
~ 10% of COGS in the automobile
industry.
Since COGS ~ $6,450,000 ,
Labor costs ~ $645,000

12. Overtime Consideration
Basic idea is that you can earn interest on money that you receive sooner.
Excel Sheet

13. Overtime Comparison The total value of the revenue on May 13
for regular time production shipping via
Baltimore is ~$8,626,000
If we were to double production, the
total value of the revenue on May 13
would be ~$8,640,000
Excel Sheet

14. Conclusion
Even if we were to pay only 10% more to double production, these costs would far outweigh the added interest we could earn by receiving our money sooner. The interest accrued over such a short time span is minimal.