Harley purchases components from three suppliers. Components purchased from Supplier A are priced at $5 each and used at the rate of 20,000 units per month. Components purchased from Supplier B are priced at $4 each and are used at the rate of 2,500 units per month. Components purchased from Supplier C are priced at $5 each and used at the rate of 900 units per month. Currently, Harley purchases a separate truckload from each supplier. As part of its JIT drive, Harley has decided to aggregate purchases from the three suppliers. The trucking company charges a fixed cost of $400 for the truck with an additional charge of $100 for each stop. Thus, if Harley asks for a pickup from only one supplier, the trucking company charges $500; from two suppliers, it charges $600; and from three suppliers, it charges $700. Suggest a replenishment strategy for Harley that minimizes annual cost. Assume a holding cost of 20 percent per year.
(a) Compare the cost of your strategy with Harley's current strategy of ordering separately from each supplier.
(b) What is the cycle inventory of each component at Harley?