Harley Davidson purchases components from three suppliers. Components purchased

Question

Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $ 5 each and used at the rate of 200,000 units per year. Components purchased from Supplier B are priced at $ 4 each and are used at the rate of 50,000 units per year. Components purchased from Supplier C are priced at $5 each and used at the rate of 22,800 units per year. 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. Harley incurs a holding cost of 20% (of the price) for each component.

Explanation / Answer

1) The minimal annual inventory cost of the new aggregate replenishment strategy is $19281.

2) The minimal annual inventory cost of the Harly's current strategy of ordering separately from each supplier is $25242.

3) The resultant savings $6060.

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