Use This Information for Questions That Refer to the United

question 5

Multiple Choice

Use this information for questions that refer to the United Tools case. Terry Harter is marketing manager for United Tools,and Mike O'Reilly is the firm's logistics manager.They work together to make decisions about how to get United's hand and power tools to its customers-a mix of manufacturing plants and final consumers (who buy United tools at a hardware store) .United Tools does not own its own transport facilities,and it works with wholesalers to reach its business customers.
Together,Harter and O'Reilly try to coordinate transporting,storing,and product-handling activities to minimize cost while still achieving the customer service level their customers and intermediaries want.This usually requires that United keep an inventory of most of its products on hand; but demand for its products is fairly consistent over time,so inventory is easy to manage.
Harter has identified four options for physical distribution systems she could use to reach two of her key wholesalers,Ralston Supply and Ricotta Tool Co.The total cost for each option-and the distribution service levels that can be achieved-are as follows:
$\begin{array}{c}\begin{array}{lll}\\1.\\2.\\3.\\4.\\\\\end{array}\begin{array}{lll}\text{Main feature of system:}\\Airfreight\\Inland ~waterways\\Trucks\\Rail ~and ~regional\\warehouses\\\end{array}\begin{array}{lll}\begin{array}{rc}\text { Total Cost}&\text { Distribution Service Level }\\\$ 1,000,000 & 95 \text { percent } \\\$ 300,000 & 60 \text { percent } \\\$ 500,000 & 70 \text { percent } \\\$ 650,000 & 80 \text { percent }\\\\\end{array}\end{array}\end{array}$
Ralston Supply expects a very high level (90 percent) of distribution customer service.Ricotta Tool Co.is willing to settle for a 70 percent customer service -leveleven if that means some products will occasionally be out of -stockif it gets products at a lower price.
For its large retail hardware customers (like Home Depot) ,United regularly ships smaller orders directly to individual stores or in some cases to the retail chain's warehouses.Cross-country shipments usually go by rail,while regional shipments usually go by truck.
United Tools is considering building a new private warehouse for its tools.Which of the following is a benefit of private warehouses?

• A)low unit-storage cost,if volume is high
• B)very flexible,if storage needs expand or contract in the future
• C)low fixed investment
• D)All these answers are correct.

---

Definitions:

Production Efficiency

A state in which the economy or a production process can no longer produce additional amounts of a good without lowering the production level of another product.

Long-Run Equilibrium

A state in which all factors of production can be adjusted, market supply equals demand, and economic agents have no incentive to change their behavior, leading to a steady-state market condition.

Competitive Industry

An economic sector characterized by a large number of firms that compete with each other to sell similar products or services, leading to efficiency and innovation.

Price

The cost anticipated, necessary, or paid out in return for acquiring something.