The Johnson Cycle Company buys tires to bicycle tires to use in the process of b
ID: 448591 • Letter: T
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
SUPPLIER
SHIPPING QUANTITY PER SHIPMENT
SHIPPING COSTS
PRICE / TIRE (p)
INVENTORY HOLD COSTS (H)
LEAD TIME (DAYS)
ADMIN. COSTS
Lincoln Tire Co.
1,000
$10,000
$16
$6.50
6
$10,000
Tokyo Tire Co.
2,000
$20,000
$15
$5.35
10
$9,000
Using the Total Cost Analysis for Supplier Selection, which supplier should Johnson choose? Provide details to justify your answer.
SUPPLIER
SHIPPING QUANTITY PER SHIPMENT
SHIPPING COSTS
PRICE / TIRE (p)
INVENTORY HOLD COSTS (H)
LEAD TIME (DAYS)
ADMIN. COSTS
Lincoln Tire Co.
1,000
$10,000
$16
$6.50
6
$10,000
Tokyo Tire Co.
2,000
$20,000
$15
$5.35
10
$9,000
Explanation / Answer
Johnson would choose Tokyo Tire total cost is lower for this supplier by $19,900
Evaluation of Supplier using Total Cost Analysis Lincoln Tire Co Tokyo Tire Co Annual Demand a 20000 20000 Order Size b 1000 2000 No of orders c = a/b 20 10 Average Inventory d = b/2 500 1000 Price/tire e $16.00 $15.00 Holding Cost f $6.50 $5.35 Product Cost g = a*e $320,000.00 $300,000.00 Total Shipping Cost h $10,000.00 $9,000.00 Total Holding Cost i = d*g $3,250.00 $5,350.00 Admin Cost j $10,000.00 $9,000.00 Total Cost g+h+i+j $343,250.00 $323,350.00Related Questions
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