Your company assembles five different models of a motor scooter that is sold in specialty stores 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 restrictions, you must order the engines in lot sizes of 1,500 each. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process which you agree to reimburse the supplier. 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) |
18,000 units |
| Weight per engine |
25 pounds |
| Order processing cost |
$120 per order |
| Inventory carry cost |
25 percent of the average value of inventory per year |
Note:Assume that half of lot size is in inventory on average (1,500/2 = 750 units).
Two qualified suppliers have submitted the following quotations:
| Unit Price |
Supplier 1 |
Supplier 2 |
| 1 to 999 units/order |
$ |
513.00 |
$ |
529.00 |
| 1,000 to 2,999 units/order |
|
503.00 |
|
514.00 |
| 3,000 + units/order |
|
491.00 |
|
507.00 |
| Tooling costs |
$ |
23,000 |
$ |
20,000 |
| Distance |
130 miles |
95 miles |
Your assistant has obtained the following freight rates from your carrier:
| Truckload (55,000 each load): |
$0.90 per ton-mile |
| Less-than-truckload: |
$1.20 per ton-mile |