The Johnson Cycle Company buys tires to bicycle tires to use in the process of b

Question

The Johnson Cycle Company buys tires to bicycle tires to use in the process of building their bicycles. Johnson cycle wants to find a low-cost supplier for the tires. The criteria for selection will be based on total cost, and The supplier will be selected based on total annual cost to supply all of Johnson's needs. Johnson's annual requirements are for 20,000 tires, and the company operates 250 days a year. The following data are from 2 suppliers Using the Total Cost Analysis for Supplier Selection, which supplier should Johnson choose? Provide details to justify your answer.

Explanation / Answer

Annual requirement, D 20,000 tires no of working days/year 250 days/year average daily demand, d 80 tires/day Supplier Ship Qty/shipment, Q shipping costs price/tire (p) inventory holding cost (H) Lead time, L (days) No of Shipments Total tire cost Annual holding cost Admin Costs Total cost Lincoln Tirec co         1,000 $ 10,000 $ 16 $ 6.50 6     20 $ 3,20,000.00 $ 6,370.00 $ 10,000.00 $ 3,46,370.00 tokyo tire co         2,000 $ 20,000 $   15 $ 5.35 10     10 $ 3,00,000.00 $ 9,630.00 $ 9,000.00 $ 3,38,630.00 Formulas USed: No fo shipments = D/ Q Material Cost = Total tire cost = p*D Inventory Costs = Annual holding Cost = ((Q/2)+(d*L))*H Total Cost = Material cost + Shiping Cost + Inventory Cost + Admin Cost Hence, supplier 2, Tokyo Tire Co. should be selected based on the total cost analysis for supplier selection

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