A company that produces consumer ovens is planning which suppliers it should choose for its requirement of a particular machine screw. The company estimates that it will require 2,350,000 such machine screws during its production year. It has approached several companies and obtained the following information:

Each supplier has a limit to the contracts they can satisfy, and in order to limit variations in their production, set minimum contract sizes before they will consider satisfying a contract. Company policy is to prefer manufacturers with production in Canada (Mouser Canada, Pacific Bolt and Strathcom Canada), and so production from these manufacturers has to be at least 60% of total orders. The company also wants to maintain good international relations with suppliers, so it wants to limit the minimum international order to 25% of total orders. The company considers that each supplier will produce identical quality, so its only other concern is to minimize supply costs.

a. Create a model to find the number of units that should be ordered from each supplier.

b. What is the total projected cost of supplying the screws? What is the cost per machine screw?

c. Suppose there is a cost of $10,000 for every yearly contract that is signed. The company wants to minimize the number of contracts it signs. Given the current order breakdown, which contracts should be signed?

d. Suppose the company does not sign the contracts suggested in part (c), what would be the savings of this new order breakdown? (Ignore contract signing costs.)

e. Suppose the policies regarding orders from Canadian manufacturers and international manufacturers was dropped. What would be the new order breakdown?

f. Leland Industries learned their bid was the highest and is interested in obtaining a contract. What is the minimum price reduction that Leland must offer for a contract to be signed?

g. A major manufacturer has exited the market and Mouser Canada and Strathcom Canada have informed the company their available supply has increased to 1,250,000 and 1,350,000 machine screws, respectively. How does this affect the companys order breakdown?

Company Fastenal Leland Industries Microm Screw Machine MISUMI Mouser Canada Noxoplas Pacific Bolt Strathcom Canada Cost per Maximum Minimum unit ($/unit) Supply Capacity Order Size 0.27 300,000 10,000 0.31 2,500,000 50,000 0.21 250,000 150,000 0.19 225,000 75,000 0.25 750,000 300,000 0.26 500,000 50,000 0.28 400,000 25,000 0.25 900,000 150,000