Introduction
Production cost is the key consideration factor in any production enterprise; in which the management of such organizations pursues at attaining the maximum production at the lowest cost possible. In this regard, therefore, the management groups in production plants needs to rigorously calculate the cost of the possible production paths; and choose the one with the least cost factor combination. More specifically, mangers and other senior entities in any production enterprise need to strategically design for the best input combination which would see the business into high levels of performance in terms of cost-effectiveness and efficiency. More importantly, the product quality and distribution problems must be addressed so as to ensure that, the business facility experiences steady growth through the attraction of many customers as well as maintaining them. This paper would present the least costly solution for shipping resin pellets from the production facilities of Hawthorne’s Plastic Division to their warehouses (Scheffer, 2002).
Perhaps, the Hawthorne’s Plastic Division plant is one of the largest companies in the United States located at its west which operates twelve facilities. The company’s major product is resin pellets produced at three production locations. In addition, there are two transfer facilities and four warehouses, where all the customer orders are shipped from the warehouse locations. In this regard, therefore, there arises the need to compute for the various cost combinations of shipments from one point to another so as to ensure the least costly route is chosen (Stenzel & Stenzel, 2002).
The Costs of various routes followed in the shipment of resin pellets
The following are the various costs incurred while shipping the resin pellets in the Hawthorne’s Plastic Division plant using various.
- Ship 80 truck loads from P1 to W1 (80 x $452 = $36,160)
- Ship 65 truck loads from P1 to W2 (65 x $505 = $32,825)
- Ship 85 truck loads from P1 to W4 (85 x $871 = $74,035)
- Ship 80 truck loads from P2 to W1 (80 x $355 = $28,400)
- Ship 65 truck loads from P2 to W2 (65 x $407 = $26,455)
- Ship 70 truck loads from P2 to W3 (70 x $688 = $48,160)
- Ship 85 truck loads from P2 to W4 (85 x $784 = $66,640)
- Ship 65 truck loads from P3 to W2 (65 x $685 = $44,525)
- Ship 70 truck loads from P3 to W3 (70 x $359 = $25,130)
- Ship 85 truck loads from P3 to W4 (85 x $673 = $57,205)
As it can be seen from the data above, the least costly solution for shipping the resin pellets from the production facilities to the warehouses is using route P3 to W3. This is because using that route, the lowest cost is incurred and this would save the company of unnecessary expenditure. More so, it can be observed that; using route P3 to W3 the shipment cost incurred as compared to the number of truckloads shipped is the most economical compared to the other routes within the production facilities. Most importantly, the cost of shipping the resins should be properly checked as is observed to be having a very high impact on the level of performance in many production enterprises (Stenzel & Stenzel, 2002).
The significance of using the route of least cost combination
As it is in all business enterprises, striving for the best performance is the main motive and aim of all business managers and other stakeholders. In this regard, therefore, Hawthorne’s Plastic Division plant should pursue the shipping route that would incur the least cost; while at the same time yielding the maximum returns. This is on the basis that, choosing route P3 to W3 is the least costly route that would enable the company to achieve the highest returns at the minimum cost possible. As it could be seen, the total shipment cost of $25,130 incurred using route P3 to W3 is very low compared to the cost of shipment from any other production point within the production facilities. Meanwhile, the transfer facility using this route is also very low which further enhances its effectiveness and efficiency leading to a very good performance position of the company (Scheffer, 2002).
Further, the position of the company would be propelled higher in terms of its production efficiency and customer retention as there would be fewer delays in the shipping of the commodities using transfer facility T2 whose cost is 293. This cost is a bit lower as compared to the cost of using transfer facility T1 which is 464. Perhaps, the use of transfer facility T2 in channel P3 to W3 is the best combination for the company whose cost is the lowest enhancing the bets business performance in this case. More specifically, the Hawthorne’s Plastic Division plant should pursue shipping the resin pellets using route P3 to W3 using transfer facility T2 which gives the least costly combination for the company (Scheffer, 2002).
Justification for the use of transfer points
The use of transfer points in the company is of crucial significance in the company as it would lead to a solution to a couple of problems previously incurred. In this case, the transfer points for the Hawthorne’s Plastic Division plant are two where there are T1 and T2. Based on the cost factor, the use of transfer points is of great importance as the transfer point that would cost the least in terms of shipment would be the most appropriate for the company. For instance, the cost of shipment from warehouse W1 to transfer point T1 is $307 which is a bit lower than from warehouse W1 to transfer facility T2. In this regard, therefore, the company should pursue using the transfer facility T2 which is the least costly in the shipment of resin pellets (Scheffer, 2002).
On the other hand, the use of transfer points would be necessary in solving customers’ inconveniences of moving from one point to another. In order to reduce queues and waiting lines of customers wanting to buy the company’s products, the transfer points would be of importance in ensuring little inconveniences among the customers. Generally, the transfer points would serve to reduce the movement of customers from one point of the company to another in search of the desired commodities; as the customers would have all the commodities at a common point (Stenzel & Stenzel, 2002).
Conclusion
Generally, the cost factor is a very crucial consideration in any production plant in which the managers should pursue the least cost combination so as to enhance better performance of the company. As it was observed in Hawthorne’s Plastic Division plant, the management of the company should pursue route P3 to W3 in shipping its products as it is the least costly route.
References
Stenzel, C. & Stenzel, J. (2002). Essentials of Cost Management. New York: Wiley Publishers.
Scheffer, A. (2002). Essentials of Cash Flow. New York: Willey Publishers.