Harley Davidson purchases components from three suppliers. Components purchased

Question

Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $ 5 each and used at the rate of 206700 units per year. Components purchased from Supplier B are priced at $ 4 each and are used at the rate of 25,000 units per year. Components purchased from Supplier C are priced at $ 5 each and used at the rate of 10,000 units per year. Currently Harley purchases a separate truckload from each supplier. As part of its JIT drive, Harley has decided to aggregate purchases from the three suppliers. The trucking company charges a fixed cost of $ 400 for the truck with an additional charge of $100 for each stop. Thus, if Harley asks for a pickup from only one supplier, the trucking company charges $ 500; from two suppliers it charges $ 600; and from three suppliers it charges $ 700. Harley incurs a holding cost of 20% (of the price) for each component. What is the minimal annual inventory cost of the new aggregate replenishment strategy ? What is the minimal annual inventory cost of the Harley’s current strategy of ordering separately from each supplier ? How much is the saving resulted ?

Explanation / Answer

Formulas: 1 Optimal order quantity (Q*) is found when annual holding cost = ordering cost 2 Number of orders = Annual Demand/Q* 3 Thus, the total annual inventory ordering and holding cost is Fo*D/Q + Fc*Q/2 Let Q be the number of items ordered per shipment, D be the annual demand for the item, Fo be the fixed costs associated with placing an order, and Fc be the cost of holding an item for one year. Then the total annual ordering cost is SO, Calculation Table: EOQ Annual Cost Differential Saving SUPPLIER A= 7188.532535 23723.3823 18505.30482 SUPPLIER B= 2000 73145 67926.92252 SUPPLIER C= 1581.13883 5218.077483 Note: Supplier C Is chosen. As per the annual cost better than the two supplier i.e. A & B In mY piont The Has something Wrong Data and it shoukd be corrected in supplier A order Size.

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