Harley Davidson purchases components from three suppliers. Components purchased
ID: 2474483 • Letter: H
Question
Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $ 5 each and used at the rate of 206700 units per year. Components purchased from Supplier B are priced at $ 4 each and are used at the rate of 25,000 units per year. Components purchased from Supplier C are priced at $ 5 each and used at the rate of 10,000 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. What is the minimal annual inventory cost of the new aggregate replenishment strategy ? What is the minimal annual inventory cost of the Harley’s current strategy of ordering separately from each supplier ? How much is the saving resulted ?
Explanation / Answer
Minimum Annual inventory Cost under new policy Ans 1 Supplier A Supplier B Supplier C Total Total Demand 206700 25,000 10,000 241700 Price Per Unit 5 4 5 Value 1033500 100000 50000 1183500 Weighted Average Price 4.89656599 Transportation Cost Per Order 700 Holding Cost per unit Per Annum 0.98 Economic Order Quantity SQRT(2*241700*700/.98) 18582 Minimum Cost under new policy Transpotation Cost No of trips required 13.01 Cost Per trip 700.00 Cost of transportation 9,105.0 Inventory Holding cost Holding Cost per unit Per Annum 0.98 EOQ 18582 Total Inventory Holding cost 18,197.60 Net Cost 27,302.65 Minimum Annual inventory Cost under Old policy Ans 2 Supplier A Supplier B Supplier C Total Total Demand 206700 25,000 10,000 241700 Price Per Unit 5 4 5 Value 1033500 100000 50000 1183500 Weighted Average Price 4.89656599 Transportation Cost Per Order 400 Holding Cost per unit Per Annum 0.98 Economic Order Quantity SQRT(2*241700*400/.98) 14047 Minimum Cost under new policy Transpotation Cost No of trips required 17.21 Cost Per trip 400.00 Cost of transportation 6,882.6 Inventory Holding cost Holding Cost per unit Per Annum 0.98 EOQ 14047 Total Inventory Holding cost 13,756.41 Net Cost 20,639.02 Ans 3 Net savings(Loss) -6,663.62
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