Question

Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,100 each. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data have been collected:
Requirements (annual forecast) 13,200 units
Weight per engine 25 pounds
Order processing cost $230 per order
Inventory carry cost 20 percent of the average value of inventory per year
Note: Assume that half of lot size is in inventory on average (1,100/2 = 550 units).
Two qualified suppliers have submitted the following quotations:
ORDER QUANTITY SUPPLIER 1 SUPPLIER 2
UNIT PRICE UNIT PRICE
1 to 1,499 units/order $ 553 $ 552
1,500 to 2,999 units/order 551 552
3,000 + units/order 543 542
Tooling costs $ 28,300 $ 24,400
Distance 120 miles 100 miles
Your assistant has obtained the following freight rates from your carrier:
Truckload (42,000 lbs. each load): $0.80 per ton-mile
Less-than-truckload: $1.20 per ton-mile
Note: Per ton-mile = 2,000 lbs. per mile.
a-1.Calculate the total cost for each supplier. (Round your answers to the nearest whole number.)
a-2. Which supplier would you select?
b. If you could move the lot size up to ship in truckload quantities, calculate the total cost for each supplier.

Answer 1

Answer:

A)

Sup 1  $7,415,250

Sup 2 $7,394,080

I will pick supplier 2 as their total cost is lower.

With the assumption of point b:

Supplier 1 $  7,412,612

Supplier 2 $ 7,419,296

Explanation:

We must use the values for 1 to 1,499 units as we are constrained to a maximum of 1,100 lot size.

Weight of the lot:

1,100 x 25 pounds = 27,500 we do not achieve truckload

So we use the 1.20 per ton-mile

27,500 / 2,000 = 13.75 tons

13.75 tons x $1.20 each x 100 miles x 12 per year =  $23,760

13.75 tons x $1.20 each x 120 miles x 12 per year = $19,800

Order cost $230 x 12 per year = $ 2,760

$\left[\begin{array}{cccc}& Supplier 1& Supplier 2& Differential\\ Demand&13200&13200&0\\ Unit Cost&553&552&-1\\ Goods cost&7299600&7286400&-13200\\ Tooling Cost&28300&24400&-3900\\ Truckload&23760&19800&-3960\\ Order Cost&2760&2760&0\\ Holding Cost&60830&60720&-110\\ Total Inventory Cost&7415250&7394080&-21170\\\end{array}\right]$

Truckload: 42,000 / 25 = 1,680 units

new logistic cost:

13,200 / 1,680 = 7.85

This will mean 7 full travels and then another travel with less than full-load with As we cannot send "0.85" of a full load truck

13,200 - 1,680 x 7 = 1,440 units

Logistic cost:

42,000 / 2,000 x $0.80 each x 100 miles x 7 travels

+ 1,440 x 25 / 2000 x $1.20 each x 100 miles =  13920

42,000 / 2,000 x $0.80 each x 120 miles x 7 travels

+ 1,440 x 25 / 2000 x $1.20 each x 120 miles = 16,704

Order Cost: 8 orders x 230 = $1,840

Holding Cost: 1,680 untis / 2  x $551 or $552 x 20%

$\left[\begin{array}{cccc}&Supplier 1&Supplier 2&Differential\\ Demand&13200&13200&0\\ Unit Cost&551&552&1\\ Goods cost&7273200&7286400&13200\\ Tooling Cost&28300&24400&-3900\\ logistic cost&16704&13920&-2784\\ Order Cost&1840&1840&0\\ Holding Cost&92568&92736&168\\ Total Inventory Cost&7412612&7419296&6684\\\end{array}\right]$