ISyE 3103B – Fall 2001
Supply Chain Modeling: Logistics
Prof. John Vande Vate
Solutions to Practice Final Exam
1.
(December 6, 2001)
Answer TRUE or FALSE for each of the following questions. Provide a brief explanation
a) It is generally impractical to solve large routing problems by using integer programming. True
b) It is always more profitable for a buyer to negotiate “D-class” INCOTERMS with a supplier. False
c) While doing 2-opt or 3-opt, it is worthwhile to accept worse solutions every once in a while. True
and False. If you have the time and the quality of the solution is important, this can be
helpful.
d) The largest customer of ocean freight in terms of volume is petroleum products. True
e) The minimum spanning tree heuristic provides a guarantee on the quality of the tour it produces,
and hence it is better than all other heuristics like Nearest Insertion, Clark-Wright savings, etc.
False. The spanning tree heuristic does provide a guarantee, but it doesn't necessarily
produce better solutions.
f) Sport Obermeyer was using forecasts generated by members in the “Buying Committee”. Let’s
assume they were generated “unscientifically”. Their forecasts would have greatly improved if
they had uniformly used the triple exponential smoothing method (forecast with level, trend and
seasonality) to forecast demand. True and False. I would argue False for two reasons: It is not
clear that last years fashion trends say much about this years fashion trends. This is
amplified by the fact that we have to forecast so far in advance.
g) Only the product design and manufacturing process need to be changed in order to implement the
idea of product postponement. False. Postponement generally changes the distribution
strategy/process as well.
2.
Consider a large US-based sports goods manufacturer who has a manufacturing plant in Jiangmen,
China. The company wishes to ship goods to a big distributor in Toulouse, France. The distributor will
ultimately sell to many wholesalers and retailers across Europe.
The transaction is for 3,000 items, which will be a single shipment. The manufacturing and packaging
cost is $42.00 per item. There are two options the manufacturer can choose from – the first is to ship
to Dover, England and then get the goods “inland” to Toulouse (assume there are no additional duties
and tariffs for going from England to France). The second option is to ship to Bordeaux, France, and
then take the goods inland to Toulouse.
Additional information :
Insurance : 1.5% based on FOB cost
Ocean freight : $24,700 per shipment (to Bordeaux) if the manufacturer is responsible
$23,400 per shipment (to Dover) if the manufacturer is responsible
$22,000 per shipment to Bordeaux if the distributor is responsible
France inland freight :
$12,500 per shipment (from Bordeaux) if the manufacturer is responsible
$21,500 per shipment (from Dover) if the manufacturer is responsible
$9,300 per shipment if the distributor is responsible
Duty rate :
4% ad valorem CIF price in England, 9% in France
China inland freight :
$0.11 per item if the manufacturer is responsible
$0.29 per item if the wholesaler is responsible
Calculate the total transaction cost to the wholesaler for each option (EXW Jiangmen, CIF
Bordeaux and DDP Toulouse)
EXW Jiangmen :
Purchase cost :
3000 * 42 =
$126,000
-------------------------------------------------------------------------------------China inland freight :
3000 * 0.29 =
$
870
Insurance :
0.015 * 126870 =
$ 1,903.05
Ocean freight :
$ 22,000
Duties :
0.09 * 150773.05 = $ 13,569.57
France inland freight :
$ 9,300
TOTAL :
$173,642.62
CIF Bordeaux :
Purchase cost :
3000 * 42 =
$126,000
China inland freight :
3000 * 0.11 =
$
330
Insurance :
0.015 * 126330 =
$ 1,894.95
Ocean freight :
$ 24,700
------------------------------------------------------------------------------------Duties :
0.09 * 152924.95 = $ 13,763.25
France inland freight :
$ 9,300
TOTAL :
$175,988.20
DDP Toulouse (via Dover) :
Purchase cost :
3000 * 42 =
$126,000
China inland freight :
3000 * 0.11 =
$
330
Insurance :
0.015 * 126330 =
$ 1,894.95
Ocean freight :
$ 23,400
Duties :
0.04 * 151624.95 = $ 6,065
France inland freight :
$ 21,500
------------------------------------------------------------------------------------TOTAL :
$179,189.95
DDP Toulouse (via Bordeaux) :
Purchase cost :
3000 * 42 =
$126,000
China inland freight :
3000 * 0.11 =
$
330
Insurance :
0.015 * 126330 =
$ 1,894.95
Ocean freight :
$ 24,700
Duties :
0.09 * 152924.95 = $ 13,763.25
France inland freight :
$ 12,500
------------------------------------------------------------------------------------TOTAL :
$179,188.20
NOTE : The line shows where the distributor takes over responsibility for the goods.
3.
The Gilbert Air-Conditioning Company is considering the purchase of a special shipment of portable
air conditioners. Each unit will cost Gilbert $80, and it will be sold for $125. Gilbert does not want to
carry surplus air conditioners over until the following year. Thus, all surplus air conditioners will be
sold to a wholesaler for $50 per unit. Assume that the air conditioner demand follows a normal
probability distribution with mean = 20 and standard deviation = 8.
What is the probability that Gilbert will sell all units it orders ?
Suppose we order Q and let F denote the cumulative probability dist.
We want the value of the last item we order to equal the risk it exposes us to.
The value of the last item is ($125-$80)*(1-F(Q)). Note that (1-F(Q)) is the probability demand
exceeds Q.
The risk the last item exposes us to is ($80 -$50)*F(Q).
So, we want F(Q) = 45/75 = .6
That means we want the likelihood that we stock out to be 0.4
4.
Discuss the issues involved in developing an appropriate routing technology for each of the following
applications. Your answer should address topics of data availability and quality, what computational
resources are available and appropriate, how valuable improvements in the solution are, issues specific
to the setting that complicate the problem, etc. You may even wish to suggest appropriate routing
techniques.
The SDI initiative has proposed a space-based system for shooting down intercontinental ballistic
missiles in mid flight. The system is designed to face several targets simultaneously, but because of the
speed at which the missiles travel, will only have a few seconds available to intercept them. It must
choose a next target, aim and destroy it before moving on to the next target.




We want the algorithm to be fast.
We only care that the solution is "good enough". It doesn't have to be optimal.
It is expensive to carry computing equipment into space and complex equipment is more
likely to fail so we want the algorithm to have limited computing and data storage
requirements.
One "implementation" used space-filling curves for this problem.