Production and Cost Analysis Please read this article and answer the questions keeping in mind the information we have covered in the textbook: Fundamentals of Managerial Economics by Mark Hirschey (at least a good paragraph for each question) Article #1: Supersizing Hits Freight World By JENNIFER LEVITZ AUGUST 15, 2010, The Wall Street Journal When Kraft Foods Inc. packs trucks with weighty items such as jars of Miracle Whip and pouches of Capri Sun juice, 40% of the rigs must leave the loading dock partly empty to avoid exceeding federal truck weight limits. Kraft says those rules force it and others to make extra trips and spend more on fuel. Now, the Illinois food giant is part of a coalition of 150 companies lobbying Congress to allow trucks that are 20% heavier on U. S. highways. Supporters of the idea say truckers could pay an extra fee to offset road repairs. Some 19 Western governors wants Congress to allow for more giant trailers, like this "triple" tractor trailer. There is an arms race of sorts in the shipping industry—and it is prompting a backlash. Efforts are under way to supersize trucks, trains, and cargo ships as freight haulers look to move more goods in fewer trips. Driving the trend are rising fuel costs, an emphasis on reducing carbon footprints and capacity constraints created during the recession as freight movers scaled down, said Paul Bingham, managing director of transportation markets for the research firm IHS Global Insights. Road-safety officials say rigs are big enough now. "It's insane," said Deputy Chris Rizzo, a truck inspector for Loudon County, Va. , of efforts to increase the weight limits set by Congress in 1974. "I can actually feel bridges bouncing up and down" when trucks go over them, he said. The heavier the truck, the more the bridge bounces. " Earlier this year, California safety regulators were alarmed when a record-setting, 3. 4-mile train—two to three times the length of a typical freight train—rolled through Southern California. Witnesses dubbed it "the monster train" and posted videos online. It turned out to be a test by Union Pacific Corp. , which increased the length of its intermodal trains 15% in the first quarter, and was experimenting with an even longer train. Richard Clark, director of safety for the California Public Utilities Commission, said there was no otice of the experimental train, and the agency didn't realize it would be that long. "We were surprised," he said. Longer trains raise concerns about blocked rail crossings, especially when emergency vehicles need to cross tracks, and about whether trains can safely make turns, he said. A Union Pacific spokesman said the company did make required federal notifications but "in hindsight, we probably should have made the courtesy call" to state agencies also. Union Pacific said the ultra-long train was a one-time test. But in an April earnings conference call, a company official said Union Pacific believes it can increase its average train length by another 10% to 15% in an effort to reduce fuel use and emissions as well as wear and tear on its tracks. Other railroads, including CSX Corp. , and BNSF Railway Co. , have also been running longer trains to improve efficiencies, these companies said. The big rigs that cruise the nation's roadways may be getting not only heavier but longer. Separately from the companies that are pushing for higher weights, which include Kraft, Coca-Cola Co. and MillerCoors, a group of 19 Western governors are lobbying Congress to allow for more "doubles" and "triples"—multiple trailers hitched together than can span up to 120 feet—on Western highways. Currently, most interstates allow rigs no longer than 53 feet. In general, states can individually set limits on truck size and weight on state roads, but not for federal highways. The Western Governors' Association says longer trucks would make it easier to haul goods across vast distances in the West, which could benefit the region economically. Doubles and triples typically have to bypass federal roads and stick to state roads, sometimes forcing them to take longer routes to their destination. The governors' group estimates that miles traveled by heavy trucks could be cut by 25% with the use of more combos. Meanwhile, new cargo vessels as long as three football fields now ply the oceans and are expected to be frequent visitors to Eastern U. S. ports starting in 2014, with the completion of the widening of the Panama Canal, the primary shipping conduit between Asia and the East Coast. They are almost 25% longer and 35% wider than today's ships that use Eastern ports. Ports such as Savannah, Ga. , are starting to deepen channels in preparation, though residents aren't as eager. "Horrifying, really, really horrifying," Toby Bronstein, a retired advertising executive who lives in Caswell Beach, N. C. , said of the ships. "They defy the imagination in terms of their size. " Ms. Bronstein and other residents say the giant ships could change the character of coastal towns that rely on tourism. Ms. Bronstein and neighbors in coastal North Carolina recently successfully fought a megaport proposed for Southport, a city of 2,500 people. The North Carolina Ports Authority is now seeking another site for a $2 billion port big enough for the new ships. Congress this fall may considering changing the law that since 1974 has limited trucks to 80,000 pounds on interstate highways. A bill proposed by Rep. Michael Michaud (D. , Maine) would allow states to raise that limit to 97,000 pounds on interstates for trucks that have a sixth axle to compensate for the extra weight. The measure, which has an identical bill in the Senate, may be considered as part of Congress's reauthorization of the multiyear, $286. 5 billion surface transportation law whose funding ends Dec. 31. Under the higher weight limits, Kraft could load trucks more fully, reducing trucks used by 6%, saving 6. 6 million gallons of fuel and eliminating 73,000 tons of carbon dioxide emissions annually, said Harry Haney, Kraft's associate director of transportation planning. MillerCoors says it could transport 1. 31 million barrels of beer weekly on 7,420 trucks, a 25% reduction in rigs. Supporters say Canada, Mexico and countries in Europe adopted higher weight limits without ill effects. Among opponents are survivors of the 2007 Minneapolis bridge collapse, public-safety officials and some truckers. The Owner-Operator Independent Drivers Association, whose members are concerned they would be forced to buy costly new rigs, said the stability of a rig is "substantially reduced on bigger and heavier trucks. " Railroads also are working against higher weight limits since bigger trucks could take business. Sen. Frank Lautenberg (D. , N. J. ) and Rep Jim McGovern (D. Mass. ) have filed legislation to ban bigger and heavier trucks. Jane Mathis of the Truck Safety Coalition, an Arlington, Va. , group comprising truck-crash survivors and victims' families, said her son and his wife were killed by a tractor-trailer that crashed into their car. "We don't need bigger trucks; we need safer trucks," she said in a statement supporting Sen. Lautenberg's bill. Questions: QUESTIONS: 1. Describe the trends in the trucking industry. What are the factors driving these trends? 2. Companies often use large batch sizes to achieve "economies of scale". List the expenses that are reduced or removed by using large trucks. What are the expenses throughout the supply chain that are increased by using a large truck? Include expenses mentioned in the article, as well as other expenses that you suspect will be increased. 3. The article highlights the struggle between size and flexibility. Describe the trade-off between the size of a shipment and operations flexibility. Why is this important? Can this trade-off be quantified? How? 4. What impact might a large shipment have on quality? What about these large warehouses might make quality worse? Better? Why? 5. Is there a break-even point for the size of these trucks where the investment is not cost justified? Refer to the textbook, how would you set up an equation to calculate this break-even point? 6. The article provides an opportunity to discuss the waste involved in using large batch sizes. What is the waste that is introduced by having large batch size? How is this waste increased as the batch size becomes larger? What strategies might a manufacturer utilize to minimize or optimize batch sizes? Evaluate your own operation based on the business you are familiar with. What portions of your operation have grown so large that waste is inevitable? How can you reduce the waste in this portion of your operation? ***************************************************************************** In addition to these questions, please provide a 2-4 page Market Structure Analysis (http://www. oup. com/uk/orc/bin/9780199296378/01student/additional/page_11. htm) for . Remember to discuss all relevant economic issues. Please cite all sources.
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