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supply chains in action the united states consumes 391 million gallons of gasoline e 5177092

Supply Chains in Action

The United States consumes 391 million gallons of gasoline each day. We will assume that people fill up their cars once per week and that could happen on any day of the week. This means that approximately 55.9 million gallons are consumed each day during normal conditions. A simplified version of the gasoline supply chain is shown in the figure below.

The customer goes to a local retail store and buys gasoline. The retail store immediately knows the demand and the gasoline is given to the customer. So, there are 0 days needed for the order to get to the retail store and 0 days needed to move the goods. It is almost instantaneous. At the end of the day the Local Retail shop calculates their daily usage and submits an order to the Regional Distribution Center who will take a day to process the order and then it will take 3 days for the order to make it to the Local Retail Store. Similarly, the Regional Distribution Centers will determine their orders submit it to the Refineries who will take 2 days to process the order and 14 days to ship the gasoline to the Regional Distribution Center.

Now let’s say that the Local Retail Stores decide that they should store more than the average daily demand. So, the Local Retailers store 150% of daily demand or 1.5*55.9. We will round this up to 84 million gallons of storage at the Local Retail Stores. Regional Distribution Centers can store up to 150 million gallons.

If gasoline costs $2.50 per gallon and the inventory holding cost is 20%:

  1. How much money are the Local Retail Stores paying each year to store the extra fuel?

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