Parts Mayes Steel Fabricators B&L Manufacturing Costs 

T-67 $14.60 $17.92

T-75 $21.10 $17.92

T-69 $18.50 $45.20

T-77 $13.00 $10.37

T-70 $41.00 $58.69

total $108.20 $150.10

B&L Case Study

Case Review

B& L manufacturers trailers- they manufacture approx. 40 trailers per year. They have 3 divisions that are integrated in in manufacturing this product. They produce 2/3 of their volume from November to April. (5 months)

The Bracket1

The bracket T-178 is an accessory to holds oversized containers and each trailer has a total of 20.

The bracket is sub assembled with T-67, T-75, T-69, T-77 and T-70 parts they have 8 stations but is operation only one station.

Manufacturing lead time for is 2 weeks.Inventory levels kept to a minimum.B&L's holding costs is 20%.

Outsourcing?

3 quotes were obtained with the least one given by Mayes Steel Fabricators, a current supplier to B&L or other components, the cost 108.20 FOB B&L.

Maye's breakdown: based on estimates of our costs this year's budget.Looking at material, labor, and overhead costs, I would estimate the fixed cost for this part are in the area of about 20%. Order cost is $75. Internal cost breakdown provided.As for B& L Extra space would have to be arranged if the outsourcing was decided upon.Mayes has a delivery lead time of 4 weeks.

Calculations.

Annual demand=40 trailers Total usage per part = 40*20units/part = 800

800 sets of 5parts/year*150.10= 120,080

Total Purchasing Related Costs:

D=800 sets of 5parts/yr

S = $75 per order

P= 108.20

H= .20 * 108.2= 21.64 per set of 5parts/yr

Calculating EOQ:

Qo = 74.46 =74 sets

Determine the total cost when placing Q = 74 sets of the five parts

Total Cost = Annual Holding cost + Annual Ordering Cost + Annual Purchase Cost

TC= Q/2H + D/QS + PD = 74/2(21.64) + 800/79(75) +(800) (108.2) =

779.04+759.49+86,560 =88,098.53

Annual Savings from purchasing Q=74 sets of five parts = 120,080- 88,098.53=31981.47

It would make sense that Brian Wilson places order in multiples of 20 since each trailer requires 20 brackets.

To Determine total cost when for an order of 80 sets of 5 parts.

Q=80

TC= Q/2H + D/QS + PD = 80/2 (21.64) + 800/80(75) +(800) (108.20) =

865.6 + 750 + 86,560 = 88,175.60

Annual savings from purchasing in Q=80 sets of five parts =120080-88175.60=31,904.40

Recommendations:

According to the breakdown of numbers in Exhibit 1 the best price is Mayes Steel Fabricators.There are situations that B&L- Brian needs to look into their operation process before deciding, like using more than 1 stations from their assembly stations. Bryan might give manufacturing the opportunity to look at their process and its costs before deciding to commit to a long -term decision of outsourcing.

give me feedback Please.

Please review my calculations and advice on my recommendation