Use This Information for Question That Refer to the United

question 161

Multiple Choice

Use this information for question 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: $\begin{array}{c}\text{Main feature of system:} && \text{Total Cost} && \text{Distribution Service Level}\\\text{1. Airfreight} && \$ 1,000,000 && \text{95 percent}\\\text{2. Inland waterways} && \$ 300,000 && 60 \text{percent}\\\text{3. Trucks} && \$ 500,000 && 70 \text{pereent}\\\text{4. Rail and regional} && \$ 650,00 && 80 \text{percent}\\\text{warehouses} && &&\end{array}$ 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 level,even if that means some products will occasionally be out of stock,if 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.
In designing the right physical distribution system,United Tools should primarily focus on

• A) the inventory level that its current warehouse can support.
• B) the lowest cost transportation method for each of its products.
• C) where customers store their inventory.
• D) the desired customer service level.
• E) the physical characteristics of each product.

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Definitions:

Role Discrimination

The unfair treatment of individuals based on their assumed roles or positions in society rather than on individual merit.

Division of Labor

The allocation or distribution of tasks, responsibilities, or jobs among individuals or groups, often based on specialization.

Periodic Inventory System

An inventory system where inventory levels are updated and cost of goods sold is calculated at set intervals, rather than continuously.

Weighted-Average Method

An inventory costing method that assigns an average cost to each unit of inventory, calculating it based on the weighted average of the cost of goods available for sale.