Part A. The shoe department buyer at Feets has determined that Feets should buy 98,000 pairs of athletic shoes from their vendor, Adidke. The shoes are shipped and packed 10 pairs to a shipping box. Each shipping box has a value of $517. The buyer estimates that about $59 is spent on the ordering and sourcing decisions per shipping box. The annual percentage holding cost is 35%. Does that forecast pass the reasonability test? Include with your answer:
What is the optimal number of boxes to order each time an order is placed?
What is the total annual ordering cost?
Part B. The shoe department buyer at Feets must now choose between shipping vendors from the port of entry (Oakland, CA) to the warehouse in Sacramento, CA. There are two viable alternatives from two different vendors: 2-day freight and 5-day flat rate freight. The rates for 2-day freight are $13.562 per shipping box; and for 5-day freight, there is a flat $1,500 per order for any size order up to 123 boxes. The annual percentage holding cost is 35%.
Which alternative would you recommend, and why?