4. The CDE Company buys 200 different capacitors from 25 suppliers, with most of the capacitors purchased with an individual purchase order.

An analysis indicates that the annual number of purchase orders placed for capacitors is roughly 2,000, and a cost analysis estimates the cost to place an order as $30. Additional annual cost estimates for these items include:

One of the suppliers has offered to provide all capacitors, in a racking system, which will be replenished weekly, where each week CDE only pays for what it has used. There will be no orders at all. The supplier offers to provide this service for $25,000 per year, plus the standard cost per item. What are the potential cost savings to CDE in this proposal?

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Obsolescence Maintaining multiple vendors Extra shipping costs Expediting/shortages $ 20,000 10,000 5,000 5,000