Question
In: Operations Management
Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $...
Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $ 5 each and used at the rate of 240,000 units per year. Components purchased from Supplier B are priced at $ 4 each and are used at the rate of 30,000 units per year. Components purchased from Supplier C are priced at $ 5 each and used at the rate of 10,800 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.
1.) What is the minimal annual inventory cost of the new aggregate replenishment strategy ?
2.) What is the minimal annual inventory cost of the Harley’s current strategy of ordering separately from each supplier ?
3.) How much is the saving resulted ?
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Solutions
Expert Solution
| Formulae used | Supplier A | Supplier B | Supplier C | Separate total | Aggregate | ||
| D | Demand Total | 240000 | 30000 | 10800 | 280800 | ||
| p | Purchase cost | 5.00 | 4.00 | 5.00 | 4.89 | ||
| K | Ordering cost | 500 | 500 | 500 | 700 | ||
| h | Holding cost | 1 | 0.8 | 1 | 0.9786 | ||
| Working days | 52 | 52 | 52 | 52 | |||
| EOQ | (Sqrt(2*k*D/h) | 15491.93 | 6123.72 | 3286.34 | 20042.54 | ||
| 15492 | 6124 | 3286 | 20043 | ||||
| AI | Average inventory | 7746 | 3062 | 1643 | 10021 | ||
| (AI*h) | Holding cost | 7745.97 | 2449.49 | 1643.17 | 9807.14 | ||
| (p*AI) | Purchasing cost for 410 items | 38729.83 | 12247.45 | 8215.84 | 49035.70 | ||
| No of orders | 15.49 | 4.90 | 3.29 | 14.01 | |||
| D*K/EOQ | Toc | Total ordering cost annualy | 7745.97 | 2449.49 | 1643.17 | 11838.62 | 9807.14 |
| EOQ*h/2 | Thc | Annual Holding cost | 7745.97 | 2449.49 | 1643.17 | 11838.62 | 9807.14 |
| Toc+Thc | THOC | Total Inv cost | 15491.93 | 4898.98 | 3286.34 | 23677.25 | 19614.28 |
| D*P | Tpc | Purchasing cost annual | 1200000 | 120000 | 54000 | 1374000.00 | 1374000 |
| Toc+Thc+Tpc | TC | Total cost | 1215492 | 124899 | 57286 | 1397677.25 | 1393614 |
| Length of order cycle | 3.36 | 10.61 | 15.82 | 3.71 |
1. As calculated above
New Aggregate strategy:
| Total Inv cost = |
| 19614.28 |
2.
Using the separate strategy
Total Inv cost =
| 23677.25 |
3.
The resulted saving:
2-1 =
| 23677.25 - | 19614.28 | = 4062.97 |
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