JetFuel is thinking about serving several other municipal airports in the Puget Sound region, and one of their considerations is whether or not to build their own holding facility. The demand at municipal airports is more variable, because these airports serve private jets and recreational flyers rather than commercial airlines. The average and variance of demand is shown in the table below.
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Renton Municipal Airport
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Boeing Field
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Vashon Municipal Airport
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Ephrata Municipal Airport
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Sea-Tac
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Average daily demand
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10,000 gallons
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25,000 gallons
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5,000 gallons
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5,000 gallons
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54,286 gallons
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Variance in daily demand
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5,000 gallons
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5,000 gallons
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2,000 gallons
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1,000 gallons
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0 gallons
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a) By how much would the inventory held be reduced if a central holding facility was used rather than holding the fuel at each airport? Assume the airports hold 5 standard deviations, in addition to two days demand, and that you would hold the 5 standard deviations plus two days demand for the group at the holding facility. You can ignore any in-transit inventory between the holding facility and the airports.
b) Assume inventory held at the refinery is owned by the refinery, inventory in transit (between the refinery and the airports) is owned by JetFuel, and inventory at the airports is owned by the airports. Would you advise JetFuel to use a holding facility? Why or why not?
c) To design a network structure for a delivery route, what would be the most important pieces of information to consider (assuming your priority was to minimize cost)?
d) How would your decision process be different if you were delivering milk instead of jet fuel?
e) Which market (SeaTac versus municipal airports) do you think could be served at a lower logistics cost per gallon? Why?