THE PARADISE PILOT STUDY John decided to take a careful look at his distribution operations. He decided to focus on the Paradise area of the Southeast region as a pilot study. The Paradise area is supplied from a distribution centre in Heaven. A careful study of the Paradise area revealed two large customers, six medium-sized customers, and twelve small customers. The annual consumption of each type of customer is as shown in the table below. Golden currently charges $400 for each shipment from Heaven to Paradise and MoonChem's policy is to send a full truckload to each customer when replenishment of consignment inventory is needed. John checked with Golden to find out what it would take to include shipments for multiple customers on a single load. Golden informed him that they would continue to charge $350 per truck and would then add $50 for each drop-off that Golden was responsible for. Thus, if Golden carried a truck that had to make one delivery, the total charge would be $400. However, if a truck had to make four deliveries, the total charge would be $550. Table 1: Customer Profile for MoonChem in the Paradise area Customer Type Number of Customers Consumption (Kg per Month) Small 12 1000 Medium 6 5000 Large 2 12000 Each kg of chemical in consignment cost MoonChem $1 and MoonChem had a holding cost of 25 percent per annum. John wanted to analyse different options for distribution available in the Paradise area to decide on the optimal distribution policy. The detailed study of the Paradise area would provide the blueprint for the distribution strategy that MoonChem planned to roll out nationally. Questions Question1 What is the current annual cost of MoonChem's strategy of sending full truckloads to each customer in the Paradise region to replenish consignment inventory? Question 2 Consider the following delivery options and evaluate the cost of each. 1. Deliver appropriately sized loads (EOQ) separately to each customer 2. Deliver to 6 small, 3 medium, and 1 large customer on each truck 3. Deliver with varying frequencies to each segment. This is similar to strategy 3 but small customers will miss out every second delivery. Question 3 What delivery option do you recommend for MoonChem?