Module 11: Critical Thinking - MGT 530

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Business Finance

Description

Al Baik (Fast Food Chain in Saudi Arabia) must ship replacement parts for their ovens, and the supply chain manager must choose between two shipping alternatives: two-day freight, and five-day freight. Using five-day freight saves 750 Riyal (SAR), but the primary consideration is holding cost, which is 38 Riyal per unit per year. Al Baik must ship 2000 units. In a 4-page paper, which alternative would you recommend to the supply chain manager and why?

Be sure to use at least three current, scholarly references beyond any required course readings. Current sources are those published within the most recent five-year period, and scholarly sources are those from peer-reviewed journals.

Make certain for each listed reference that you have at least one supporting citation in the body of your content. Your reference page is always the last page of the submission where all individual references get listed.

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Explanation & Answer

Attached.

Running head: TWO-DAY FREIGHT AND FIVE-DAY FREIGHT

Choosing between two-day freight and five-day freight subject to holding costs
Name
Institutional affiliation

1

TWO-DAY FREIGHT AND FIVE-DAY FREIGHT

2

Introducing
Al Baik is in business to make profits because that is the primary goal why the company
is in business in the first place. Maximising profits calls for the business to maximise its
revenues while minimising the costs or expenses. If the costs or expenses are more than the
revenue collected, it means that the business is up to making losses. Every decision made,
therefore, should reflect the components of profits. When choosing between two-day freight and
five-day freight for oven replacement parts, Al Baik should factor in the revenues that each plan
will bring in to the business verses the costs it will have on the business. If the revenue exceeds
the costs, it means that it is a good idea which should be implemented immediately. In this case
Al baik should consider the the five-day freight because it will save costs and increase profits
and even maintain sales. The following is an analysis of the two freight optiosn and their cost
and revenue implications to the organization.
Revenue and cost implications of the two-day freight
Al Baik has noticed that some parts of its ovens should be replaced to avoid future
shortage cost (risk of sufficing customer orders as a result of low inventory) due to the
unexpected breakdown of the ove...


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