You are a purchasing manager in charge of stocking a certain type of transformer for a large electric utility . Weekly demand among your field crews for these transformers is normally distributed , with a mean of 100 and a standard deviation of 50 . Holding costs are 25 percent , and you must hold a level of inventory corresponding to a cycle service level of 95 percent . You are faced with two suppliers , Reliable Components and Value Electric , that offer the following terms . Reliable sells the transformer for $ 5,000 with a minimum order of 100 , and a lead time of 1 week with a standard deviation of 0.1 week . Value sells the transformer for $ 4,800 , has a minimum batch of 1,000 , a lead time of 5 weeks , and a lead - time standard deviation of 4 weeks . What is the annual cost of using Reliable Components as a supplier ? What is the annual cost of using Value Electric as a supplier ? Which supplier would you choose ? If you could use both suppliers , how would you structure your orders ? 2 ) , imagine that you have chosen Reliable as your supplier . Value Electric wants your business very much and offers you the choice of three mutually exclusive alternatives : reduce lead time by 1 week , reduce the minimum batch to 800 , or reduce the standard deviation of lead time to 3 weeks . What are the expected annual costs of undertaking each of these options ? What is the expected annual cost if all three could be put into effect ? Would you change your decision to go with Reliable for any of these options ?