Virginia Valley Smoked Hams Transportation MeansVirginia valley is company that is involved in food processing and California is its major target market. This company specializes in smoked hams which are of a high quality and of affordable prices. This firm has been growing at a very high rate and by 2009; she had four hundred franchisees and 250 retail outlets. The company banks on smoked honey ham though it produces a variety of products made from ham. For instance, income earned from this product in 2009 indicated a fifteen percent increase from the income earned in the previous year.
The price for Smoked Honey Ham was $4.00 in 2009 and expected to be the same price in 2010. A 30% increase on sales is expected this year due to planned improvements on advertising and promotions. With proper refrigeration, smoked hams can last 21 days, 14 in refrigeration and 7 days without refrigeration. However, the refrigeration costs are high and would result to increased product cost. As a result, this should be avoided and the main goal should be to ensure that products are supplied and sold shortly after production.
Virginia Valley transports her hams via ships packed in orders of 600 cases. All functions in the distribution centre are well managed and the products are then sold to the franchisees and retail outlets from the distribution centre or on the FOB (free-on-board). In 2008, 40% sales revenue was basically acquired from direct variable costs. 60% of this is the estimated cost of the hams and these percentages are likely to be maintained in the near future. Transporting smoked hams from Virginia Valley to California, Los Angeles where the distribution centre is located via refrigerated railroad cars takes about 8 days.
The distance between these two places is 2, 620 miles. The transported products are later transported to the franchises and retail outlets by the commercial vans. Each van carries a maximum of 50 cases of hams and covers 150 miles. The total cost for each of this journey is estimated to be $250. The processing cost for each order of Tender Honey is estimated to be $25 and is shipped in a size of 25 pounds case pack.
When expressed as the percentage cost of hams, the cost of carrying the inventory attributes to 20% per annum. In every 100 pounds shipped, Virginia Valley pays $8 during transportation in the refrigerated railcars. The cost of transportation has been found to be high and the management seeks for an alternative means of transport this year. There are three alternatives for the company to explore. One of them is the use of the private trucks owned by the company and hence discontinuing the use of refrigerated railroad cars which currently transport the hams from Virginia Valley to Los Angeles.
The second alternative is the use of services provided by the air carrier that would ensure direct delivery of the products to the franchisees and retail outlets. An air Cargo Company has offered Virginia Valley attractive transportation rates but the company needs to evaluate if this is the best as per the cost of transportation. This company offers to charge $1 in each case transported for the first fifteen pounds and each extra pound from the 15 pounds will be charged five cents.
The option of using the company-owned trucks is to cost a total of $1, 975 per every trip covered. Each truck packed carries a maximum of 1, 290 cases. If this is to be applied, the journey will take 4 days for every trip leg. The third alternative is the use of refrigerated trailer.