Problem:
Your company assmebles five different models of a motor scooter that is sold in specialty store 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 restictions, you must order the engines in lot sizes of 1,000 each. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process which you agree to reimburse the sipplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data has been collected:
Requirements (annual forecast) = 12,000 Units
Weight per engine = 22 pounds
Order processings cost = $125 per order
Inventory carry cost = 20 percent of the average value of inventory per year
Assume that half of lot size is in inventory on average (1,000/2= 500units)
Two qualified suppliers have submitted the following quatations:
Unit Price Supplier 1 Supplier 2
1 to 999 units/order $510 $505
1,000 to 2,999 500 498
3,000 + 490 488
tooling costs $22,000 $20,000
Distance 125Miles 100Miles
Your assistant has obtained the following freight rates from your carrier:
Truckload (40,000 each load): $0.80 per ton-mile
Less-Than-Truckload: $1.20 per ton-mile
Required:
Question 1) Perform a total cost of ownership analysis and select a supplier.
Question 2) If you could move the lot size up to ship in truckload quantities would your supplier selection change?
Solve the given numerical problem and illustrate step by step calculation.