The Johnson Cycle Company buys tires to bicycle tires to use in the process of b

Question

The Johnson Cycle Company buys tires to bicycle tires to use in the process of building their bicycles.   Johnson cycle wants to find a low-cost supplier for the tires. The criteria for selection will be based on total cost. and The supplier will be selected based on total annual cost to supply all of Johnson’s needs. Johnson's annual requirements are for 20,000 tires, and the company operates 250 days a year. The following data are from 2 suppliers:

Using the Total Cost Analysis for Supplier Selection, which supplier should Johnson choose?

Supplier Shipping Quantity per Shipment Shipping Cost Price/Tire (p) Inventory Hold Costs (H) Lead Time (Days) Admin. Costs Lincoln Tire Co. 1,000 $10,000 $16 $6.50 6 $10,000 Tokyo Tire Co. 2,000 $20,000 $15 $5.35 10 $9,000

Explanation / Answer

Johnson should go for Tokyo Tire Co. as overall cost is less by $19,900

Evaluation of Supplier using Total Cost Analysis Lincoln Tire Co Tokyo Tire Co Annual Demand a 20000 20000 Order Size b 1000 2000 No of orders c = a/b 20 10 Average Inventory d = b/2 500 1000 Price/tire e $16.00 $15.00 Holding Cost f $6.50 $5.35 Product Cost g = a*e $320,000.00 $300,000.00 Total Shipping Cost h $10,000.00 $9,000.00 Total Holding Cost i = d*g $3,250.00 $5,350.00 Admin Cost j $10,000.00 $9,000.00 Total Cost g+h+i+j $343,250.00 $323,350.00

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