Exercise 2

The Donnie Co. and the Thea Co. manufacture fairly similar remote-controlled toy cars. The Tristan Co. a retailer of children's toys, expects to buy and sell 4,000 of these cars each year. Both Donnie and Thea can supply all of Tristan's needs, and Tristan prefers to use only on supplier for these cars. An electronic hookup will make ordering costs negligible for either supplier. Tristan wants 80 cars delivered 50 times each year. Tristan obtains the following additional information.

Donnie Thea

purchase price of the car. $50 $ 49

relevant incremental carrying cost of insurance,

materials handling breakage, etc. per car per year. $11 $10

Expected number of stockouts per year resulting from late 20 cars 50 cars

deliveries.

Stockout costs per car $25 $26

Expected number of cars sold that will be returned

owing to quality and other problems 40 cars 140 cars

Additional to Tristan of handling each returned car $21 $21

Inspection costs per delivery $20 $28

Required:

1. which supplier should Tristan choose? Show calculations.
2. What other factors should Tristan consider before choosing a supplier?