and rail, transports all bulk mining extract. As a result, the
inbound transportation cost used for the 8 DOC to 20 DOC
scenarios is lower than the existing seven DOC scenario;
this is due to the less costly rail transport rates. However, a
once-off transport cost to increase the respective minimum
inventory level of bulk mining extract is required, which
increases the corresponding inbound transport percentage of
sales as the stock levels increase. The best financial position
will be achieved by keeping eight DOCs worth of raw
materials at the production facility; however, increasing the
DOC by only one day will not be sufficient to mitigate the
risk of not using road transport. As a result, Firm A will have
to keep more than 8 DOC to ensure that the risk of not using
road transport is minimised. By increasing the minimum
stock level to 10 DOC, the firm will have to invest in two
additional silos in order to sufficiently increase its storage
capacity. At 10 DOC, the firm will turn its inventory 14.49
times a year as opposed to the current 16.60 times. As soon
as the inventory is increased above 16 DOC the company’s
economic value add (EVA) drops to below its current level of
26 219. It will, as a result, not be in a better financial position
if it were to keep more than 16 DOCs worth of bulk mining
extract. The company’s profit margin will increase if the
company keeps 10 DOC versus 7 DOC and the company will
also increase its return on assets. At 10 DOC, the company’s
inbound transportation costs as a percentage of sales is lower
than it was at 7 DOC. Increasing its minimum inventory
levels to 10 DOC should be sufficient to minimise the risk of
any rail transport delays; however, the minimum level can
be increased to up to 16 DOC without impacting its financial
position negatively.