Question

Joe's Electronics has problems with its best-selling TV—the 3DView. Joe, the owner, tells you that he always seems to have too many or too few of the 3DView. He has hired you to help determine how much and when to order. At the same time, the company is considering quotes from 2 different suppliers, and you will help compare suppliers. You estimated the following information from the detailed records that Joe kept on the TV. You calculated the standard deviation of daily demand to be able to estimate the variation of demand during lead time—useful for calculating the amount of extra TVs to have on hand to minimize stockouts that plagued Joe. Joe wanted to have the 3DView available no less than 95% of the time.

Requirements (annual forecast)	3,000	units
Average daily demand	8.22	units (365 days)
Standard deviation of daily demand	0.21
Order processing cost	510	per order
Annual inventory holding cost factor	34%	per year

Description	Supplier 1	Supplier 2
Per unit price of TV	400	350
Average lead time in days	4.00	3.00
Standard deviation of lead time days	0.75	1.13

Note, do the interim calculations first and then use this supporting data in the total cost calculations. For instance, use number of orders (rounded) to calculate order cost. Round all answers to the nearest whole number.

Interim calculations	Supplier 1	Supplier 2
EOQ	150
Number of orders	20
Number of units for safety stock	10
Reorder point with safety stock	43
Total Cost Calculations	Supplier 1	Supplier 2
Total purchasing cost	$ 1,200,000	$
Ordering cost	10,200
1st year cost of safety stock	4,000
Holding cost of safety stock	1,360
Holding cost of cycle stock	10,200
TOTAL COST	$ 1,225,760	$ 1,076,245

Answer 1