A manufacturer of lawn mowers and snow blowers (OLAF), has historically purchased a thousand bearings per week from a local supplier who charges $1 per bearing. You, the newly-employed logistics manager of OLAF, have already identified another potential source willing to supply the bearings at $0.8 per bearing. Of course, before making a decision, you evaluate the performances of the two suppliers. The local supplier has an average lead time of 2 weeks and has agreed to deliver the bearings in batches of 2,000. Based upon past on-time performance, you estimate that the lead time has a standard deviation of one week for the local supplier. On the other hand, the new supplier has an average lead time of 6 weeks with a standard deviation of 4 weeks and requires a minimum batch size of 8,000 bearings. OLAF currently uses a continuous review policy for managing inventory and aims for a cycle service level of 95 percent. Weekly demand has a mean of 1,000 with a standard deviation of 300, and the holding cost is 20 percent of the purchase price.

Calculate the total cost of working with a) the local, b) the new supplier.

Give a decision as to which one you should go with.