JIT purchasing, choosing suppliers.
Grano BV and Henco BV manufacture fairly similar remote-controlled toy cars. Sido BV, a retailer of children's toys, expects to buy and sell 4000 of these cars each year. Both Grano and Henco can supply all of Sido's needs and Sido prefers to use only one supplier for these cars. An electronic link will make ordering costs negligible for either supplier. Sido wants 80 cars delivered 50 times each year. Sido obtains the following additional information.
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Grano
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Henco
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Purchase price of the car
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€50
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€49
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Relevant incremental carrying costs of insurance, materials handling, breakage, etc., per car per year
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€11
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€10
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Expected number of stockouts per year resulting from late deliveries
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20 cars
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150 cars
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Stockout costs per car
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€25
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€26
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Expected number of cars sold that will be returned owing to quality and other problems
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40 cars
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140 cars
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Additional costs to Sido of handling each returned car
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€21
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€21
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Inspection costs per delivery
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€20
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€28
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Sido requires a rate of return of 15% per year on investments in stock.
Required
1. Which supplier should Sido choose? Show all calculations.
2. What other factors should Sido consider before choosing a supplier?