Question - Putnam Enterprises currently purchases a total of 50,000 sensors annually from Utah Electronics at $80 per unit. The firm places 25 purchase orders during the year at an average cost of $10 per order. Putnam's management is contemplating a switch to a just-in-time purchasing system that would require an increase in orders to 200.
Required:
A. Compute the average order size under both the current system and the proposed just-in-time system. Also, calculate the change in annual purchase-order processing cost.
B. Explain why the number of orders will increase under a just-in-time system.
C. What benefits might Putnam experience to help offset the increase in purchase-order processing cost?
D. What might Utah do to the $80 price, given the company's need to process an additional 175 orders?