Northcutt manufactures high-end racing bikes and is looking for a source of gear sprocket sets. Northcutt would need 1550 sets a month. Supplier A is a domestic firm, while Suppliers B and C are located overseas. Cost information for the suppliers is as follows:
¦ Supplier A-Price of $100 per set, plus packing cost of $2 per set. Total inland freight costs for all 1550 units would be $800 per month.
¦ Supplier B-Price of $96 per set, plus packing cost of $3.50 per set. International transportation costs would total $3500 per month, while total inland freight costs would be $800 per month.
¦ Supplier C-Price of $93 per set, plus packing cost of $3.00 per set. International transportation costs would total $5000 per month, while total inland freight costs would be $1000 per month.
a. Calculate total landed costs per unit and per month for the three potential suppliers. Who is the cheapest? Who is the most expensive?
b. Suppose that international and inland freight costs are fixed for volumes up to 4000 units a month. Under this assumption, which supplier would have the lowest landed cost if demand was cut in half? If demand doubled? Whose landed cost is most sensitive to volume changes?
c. What factors other than landed costs might Northcutt consider when selecting the supplier?
(Hint: Incorporate what you learned in the chapters on quality, sourcing, and purchasing.)