Supply Management Exercise: Light Bulbs a The sourcing manager of a regional convenience store chain has hired your team on a consulting project. You are tasked with evaluating potential energy savings in switching the chain's 1,500 locations to LED bulbs. Lighting is a major expense for this business, representing about a third of total energy usage. Your team is to provide economic analysis of the sourcing decision that the sourcing manager can present at the next Board of Director's meeting to provide direction on this matter and receive approval for budgetary changes needed to implement the change if justified. Your initial task in this project is to evaluate the overhead lights in the parking lots surrounding stores. There are 10 overhead lights (luminaires) on average in their parking lots. Parking lots are lit 12 hours/day for 365 days/year. Electricity rate is $0.11 per kWh (you are charged $0.11 for each hour a 1,000 watt bulb is on). Current technology in use is pulse-start metal halide (PMH). Relevant data for PMH VS. LED are: PMH: Each bulb uses 1kW (1,000 watts) of electricity. Bulbs cost $10 each and have a 2-year life. Changing bulbs requires a bucket truck and electrician, 1/2 hours to change each bulb, at $150/hr. Due to this expense all bulbs are changed on a 2 year rotation prior to failure. LED: Each bulb uses 500 watts of electricity, costs $200 each, and has a 10-year life. New luminaires will need to be installed at a cost of $1,000 per unit. 1. Compare the cost of purchasing bulbs for each option over a 10 year planning horizon (traditional sourcing analysis). 2. | 2. Compare electricity cost over the 10 year horizon for each option. 3. Develop a 10 year TCO model for each option (ignore time discounting for this example). Sensitivity analysis 4. Suppose that LED bulbs last only 5 years. What is the change in TCO for the LED option? Does this change the decision? 5. Electricity rates vary by location. At what rate are the two options equal? How does this affect the decision? 6. What other factors should be considered when making this decision