Your company assembles fi ve different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all fi ve 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 1,000 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)

Weight per engine Order processing cost Inventory carry cost 12,000 units 22 pounds

$125 per order 20 percent of the average value of inventory per year Note: Assume that half of lot size is in inventory on average (1,000/2 500 units).

Two qualifi ed suppliers have submitted the following quotations:

UNIT PRICE SUPPLIER 1 SUPPLIER 2 1 to 999 units/order 1,000 to 2,999 units/order 3,000 units/order Tooling costs Distance

$ 510.00 500.00 490.00

$22,000 125 miles

$505.00 498.00 488.00

$20,000 100 miles Your assistant has obtained the following freight rates from your carrier:
Truckload (40,000 each load):
Less-than-truckload:
$0.80 per ton-mile $1.20 per ton-mile Note: Per ton-mile 2,000 lbs. per mile

a. Perform a total cost of ownership analysis and select a supplier.

b. If you could move the lot size up to ship in truckload quantities would your supplier selection change?