case study selecting transportation modes for china imports

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Supply Chain

Selecting transportation modes for china imports.

Jackie Chen, vice president of China Imports, was look­ing to design a framework to select transportation modes for various products imported from China to the United States. His basic options were to either use air freight or ocean shipping in 20-foot containers. Air freight was faster and more reliable, but ocean shipping was much cheaper. He decided to evaluate the shipping decision for two very different product categories—consumer electronics, such as smartphones, and decorative hard­ware, such as door handles and hinges.

China Imports provided a variety of products to its customers from a warehouse near the port of Long Beach, California. The company incurred a holding cost of 25 percent on all inventory held and aimed to provide a 98 percent cycle service level on its products. The high level of service aligned with the high quality of products that the company imported.

1. Transportation Options from China

Air freight and ocean shipping were the two options available to move product from China to the United States. Air freight charged $10 per kilogram shipped and required a minimum shipment of 50 kg. Besides being fast, air freight was also quite reliable. The average lead time on air freight was one week, with a standard devia­tion of lead time of 0.2 weeks. Ocean shipping was much cheaper and cost $1,200 per 20-foot container. Given that each container could hold up to 15,000 kg, the ship­ping cost per kilo by ocean was more than a hundred times cheaper than air freight. Ocean shipping, however, took longer and was less reliable. The average lead time using ocean shipping was nine weeks, with a standard deviation of three weeks.

2. Product Characteristics

Weekly demand for smartphones averaged 1,000 and had a standard deviation of 400. Each smartphone cost $300 and weighed 0.1 kg. The typical life cycle for a smartphone was about one year; it was critical to not lose demand early in the life cycle because of a lack of prod­uct availability. Weekly demand for decorative hardware averaged 5,000, with a standard deviation of 1,000. Each unit of decorative hardware cost $20 and weighed 1 kg. Decorative hardware tended to have a long life cycle— the company was still selling door handles and hinges that were introduced more than a decade earlier.

Source: Chopra Sunil, Meindl Peter (2014), Supply Chain Management: Strategy, Planning, and Operation , Pearson; 6th edition.

15 Jun 2021

14 Jun 2021

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Question: China Imports Case Study Selecting Transportation Modes for China Imports Jackie Chen, vice president of China Imports, was looking to design a framework to select transportation modes for various products imported from China to the United States. His basic options were to either use air freight or ocean shipping in 20-foot containers. Air freight was faster

China imports case study selecting transportation modes for china imports.

Jackie Chen, vice president of China Imports, was looking to design a framework to select transportation modes for various products imported from China to the United States. His basic options were to either use air freight or ocean shipping in 20-foot containers. Air freight was faster and more reliable, but ocean shipping was much cheaper. He decided to evaluate the shipping decision for two very different product categories—consumer electronics, such as smartphones, and decorative hard-ware, such as door handles and hinges. China Imports provided a variety of products to its customers from a warehouse near the port of Long Beach, California. The company incurred a holding cost of 25 percent on all inventory held and aimed to provide a 98 percent cycle service level on its products. The high level of service aligned with the high quality of products that the company imported.

Transportation Options from China

Air freight and ocean shipping were the two options available to move product from China to the United States. Air freight charged $10 per kilogram shipped and required a minimum shipment of 50 kg. Besides being fast, air freight was also quite reliable. The average lead time on air freight was one week, with a

standard deviation of lead time of 0.2 weeks. Ocean shipping was much cheaper and cost $1,200 per 20foot container. Given that each container could hold up to 15,000 kg, the ship-ping cost per kilo by ocean was more than a hundred times cheaper than air freight. Ocean shipping, however, took longer and was less reliable. The average lead time using ocean shipping was nine weeks, with a standard deviation of three weeks.

Product Characteristics

Weekly demand for smartphones averaged 1,000 and had a standard deviation of 400. Each smartphone cost $300 and weighed 0.1 kg. The typical life cycle for a smartphone was about one year; it was critical to not lose demand early in the life cycle because of a lack of product availability. Weekly demand for decorative hardware averaged 5,000, with a standard deviation of 1,000. Each unit of decorative hardware cost $20 and weighed 1 kg. Decorative hardware tended to have a long lifecycle—the company was still selling door handles and hinges that were introduced more than a decade earlier. Study Questions

• What is the annual cost of using air freight to import smartphones?
• What is the annual cost of using ocean shipping to import smartphones?
• What is the annual cost of using air freight to import decorative hardware?
• What is the annual cost of using ocean shipping to import decorative hardware?
• What other factors should be considered in the choice of transportation mode?
• What mode would you recommend for each product?
• Suggest a general framework that Jackie can use across all product categories.

The two transportation modes are compared based on the inventory (cycle + safety + transit) and shipping costs per year.

To do this problem:

• Calculate Inventory oCycle inventory: EOQ/2

o Safety inventory: (using the safety inventory formula with demand and lead time) o Transit inventory = mean lead time x mean weekly demand

• Total inventory cost = cost/unit x holding cost% x sum of the above
• Total shipment cost = weekly demand x 52 x weight/unit (kg) x Shipping cost/kg

You will need to calculate the optimal batch size by using the EOQ formula with a fixed cost per batch. For air freight, this is based on the minimum shipping quantity. For ocean shipping, this is based on the shipping cost / container for ocean shipping.

For review, the EOQ formula is:

EOQ = 2 DS H /

D = Annual demand of the product

S = Shipping quantity x unit shipping cost

H = Holding Cost % x Cost/unit

In this case study, Jackie Chen, the vice president of China Imports, seeks to establish a framework...

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The effect of distance on cargo flows: a case study of Chinese imports and their hinterland destinations

• Original Article
• Published: 29 May 2017
• Volume 20 , pages 456–475, ( 2018 )

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• Likun Wang 1 ,
• Anne Goodchild 2 &
• Yong Wang 3  

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With the rapid development of ports in China, competition for cargo is growing. The ability of a port to attract hinterland traffic is affected by many factors, including distance to the hinterland destinations. This paper studies the effects of distance on import cargo flows from a port to its hinterland. Two major findings are reported. Through a Spatial Concentration Analysis , this study shows that cargo imported through ports with relatively low throughput is primarily delivered to local areas, with the proportion of cargo delivered to local areas from larger ports being much smaller. The present study also shows (according to a gravity model, the Gompertz function and several other methods) that cargo flows from a large port to its hinterland increase with distance below a certain threshold, while cargo flows approach a stable state once they exceed this threshold. These results can be used to inform port managers and policy makers regarding the hinterland markets for ports of different sizes.

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Acknowledgements

The authors wish thank the editor and anonymous referees for their valuable suggestions, which have helped improve this paper considerably. This study was sponsored by the Social Science Foundation, by the Ministry of Education of China (Grant No. 12YJC630205), through the Shanghai Pujiang Program (Grant No. 15PJC060), and by the Shanghai Maritime University Foundation (Grant No. 20120079).

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College of Transport and Communications, Shanghai Maritime University, Shanghai, 201306, People’s Republic of China

Department of Civil and Environmental Engineering, University of Washington, 121E More Hall, Seattle, WA, 98195, USA

Anne Goodchild

School of Economics and Management, Chongqing Jiaotong University, Chongqing, 400074, People’s Republic of China

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Correspondence to Likun Wang .

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Wang, L., Goodchild, A. & Wang, Y. The effect of distance on cargo flows: a case study of Chinese imports and their hinterland destinations. Marit Econ Logist 20 , 456–475 (2018). https://doi.org/10.1057/s41278-017-0079-3

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Published : 29 May 2017

Issue Date : September 2018

DOI : https://doi.org/10.1057/s41278-017-0079-3

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