Cyclone Transportation Cyclone Transportation is a medium-sized truckload carrier based in Ohio,…

Cyclone Transportation

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Cyclone Transportation is a medium-sized truckload carrier
based in Ohio, United States. You are a procurement manager of this company,
whose main responsibility is the procurement of diesel fuel for the company’s
fleet of Class 8 trucks.

You have been assigned to negotiate the fuel contract for
the Perrysburg, Ohio market. Your assistant has collected the following per
gallon information concerning the major truck stop chains (A, B, and C) around that
area. You will use this information to analyze each fuel vendor’s proposed
contract.

Your company purchases approximately 100,000 gallons of
diesel fuel each month in the Perrysburg market. Chains A, B, and C have each
sent you a contract in hopes of winning your company’s business. The contract
proposals are listed below.

As discussed in this chapter, the price of the cost-plus
method is given by the truck stop cost plus pump fee, while that of the
retail-minus method is given by the retail price (without state tax) minus
retail discount. There is also a transaction fee associated with purchasing
fuel from each of the vendors. This is a one-time cost per transaction, meaning
that your trucks must pay this cost every time they buy fuel, regardless of the
amount of fuel purchased. The average fuel purchase quantity of your drivers
(per transaction or per refueling stop) is roughly 100 gallons.

CASE QUESTIONS

1. Given the proposed contracts, what is your company’s
average cost of fuel per gallon with each of the fuel vendors?

2. Which truck stop chain should you choose if your goal is
to minimize fuel cost?

3. Chain B really wants your business and says they will do
anything to obtain it. What should their retail discount be in order to obtain
your business?

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