Lean Principles

To make its bulb products, Bright Night requires $36,000$ pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows:

Central Glass Company: $$30,00$ per pound of glass. Delivery schedule: $36,000(400$ lbs$.90$ days$)$ pounds at the beginning of July to last for $3$ months.

Ithaca Glass Company: $$30\mathrm{.}20$ per pound of glass. Delivery schedule: $400$ pounds per working day $(90$ days in the quarter$).$

Bright Night accepted Central Glass Company's bid because it was the low$-$cost bid.

Required:

a$.$ Yes

b$.$ No

Reason:

a$.$ The policy is effective as it lowers the cost of purchase.

b$.$ The policy considers the quoted price and the quality of the product is ignored.

c$.$ The policy of the company is not practically viable as it is not building long$-$term relationships with its suppliers. The reputation of the company may be affected.

d$.$ Supplier relationships are not required as the products are purchased for the quarter alone.

c

a$.$ Yes

b$.$ No

Reason:

a$.$ The cost of storage, obsolescence, material management and wastages are ignored in this concept.

b$.$ The cost of storage, obsolescence, material management and wastages are included in the purchase cost computation.

c$.$ The cost related to quality can be compensated as the price of the material is low.

d$.$ The responsibility of the manager is to get the lowest bid for the product and all other information is irrelevant.