The Lycoming Electric Company

The Lycoming Electric Company, Pennsylvania, USA, is contemplating a new

generating plant along the Susquehanna River because of increased electric power

demand in that region. According to the president and manager of Lycoming Electric,

Traci Shannon, “We've had very little problem finding the appropriate location for the

plant along the river. However, since we rely on the burning of coal to produce the

electricity, and since there is no possibility of using the river flow to generate electricity

because of its current and speed, our biggest problem lies in determining the mode of

transportation to use in acquiring the needed coal.”

According to its planning department, Lycoming Electric will need 3,000 tons of coal per

year in its plant. Grenoble, logistics manager, presented to Ms Shannon the feasible

systems available to transport such a large amount of coal to the new plant (see exhibit).

According Mr. Grenoble, “The rail system will result in a lower cost, but the actual

transportation costs will be higher than in barge system because ordering in large lots will

reduce the amount of necessary orders. Administrative costs for the rail system will be

higher due to the addition of an extra manager to handle necessary paperwork and other

duties. The fixed cost for the rail system will include a rail siding, unloading equipment,

and a conveyor system to get the coal inside the plant. When comparing these two

systems to determine which is most suited to our plant facility and overall efficiency, we

must make our decision not on total cost alone but on how each system will contribute to

our overall profitability.”

The Lycoming Electric Company, Pennsylvania, USA, is contemplating a new

generating plant along the Susquehanna River because of increased electric power

demand in that region. According to the president and manager of Lycoming Electric,

Traci Shannon, “We've had very little problem finding the appropriate location for the

plant along the river. However, since we rely on the burning of coal to produce the

electricity, and since there is no possibility of using the river flow to generate electricity

because of its current and speed, our biggest problem lies in determining the mode of

transportation to use in acquiring the needed coal.”

According to its planning department, Lycoming Electric will need 3,000 tons of coal per

year in its plant. Grenoble, logistics manager, presented to Ms Shannon the feasible

systems available to transport such a large amount of coal to the new plant (see exhibit).

According Mr. Grenoble, “The rail system will result in a lower cost, but the actual

transportation costs will be higher than in barge system because ordering in large lots will

reduce the amount of necessary orders. Administrative costs for the rail system will be

higher due to the addition of an extra manager to handle necessary paperwork and other

duties. The fixed cost for the rail system will include