Problem 13-12

Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,160 units. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data have been collected:

Requirements (annual forecast)		13,920	units
Weight per engine		25	pounds
Order processing cost	$	120	per order
Inventory carry cost		20	percent of the average value of inventory per year

Note: Assume that half of lot size is in inventory on average (1,160/2 = 580 units).

Two qualified suppliers have submitted the following quotations:

ORDER QUANTITY	SUPPLIER 1 UNIT PRICE			SUPPLIER 2 UNIT PRICE
1 to 1,499 units/order	$	537		$	536
1,500 to 2,999 units/order		535			536
3,000 + units/order		534			530
Tooling costs	$	32,860		$	29,200
Distance		135 miles			100 miles

Your assistant has obtained the following freight rates from your carrier:

Truckload (48,000 lbs. each load):	$0.80 per ton-mile
Less-than-truckload:	$1.20 per ton-mile

Note: Per ton-mile = 2,000 lbs. per mile.

a-1. Calculate the total cost for each supplier. (Round your answers to the nearest whole number.)

b-1. If you could move the lot size up to ship in truckload quantities, calculate the total cost for each supplier. (Do not round intermediate calculations. Round "Required lot size for truckload" and final answers to the nearest whole number.)

HINT: Use (full) truckload cost rates and the lowest (feasible) unit cost for all calculations. For example, if there are 8.3 orders per year, dont split the 8.3 orders into 8 full truckloads and 0.3 less-than-truckloads - use the full truckload rate for all 8.3 orders. For annual purchase cost, dont use two different unit costs for the 8 complete orders and the 0.3 partial orders use the lowest (feasible) unit cost for all 8.3 purchase orders based on the lot size needed for a full truckload.

	Supplier 1	Supplier 2
Total cost	$	$

b-2. Would your supplier selection change?

	Yes
	No