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Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $...

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General Management

Harley Davidson purchases components from three suppliers.Components purchased from Supplier A are priced at $ 5 each andused at the rate of 240,000 units per year. Components purchasedfrom Supplier B are priced at $ 4 each and are used at the rate of30,000 units per year. Components purchased from Supplier C arepriced 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 purchasesfrom the three suppliers. The trucking company charges a fixed costof $ 400 for the truck with an additional charge of $100 for eachstop. Thus, if Harley asks for a pickup from only one supplier, thetrucking company charges $ 500; from two suppliers it charges $600; and from three suppliers it charges $ 700. Harley incurs aholding cost of 20% (of the price) for each component.

1.) What is the minimal annual inventory cost of the newaggregate replenishment strategy ?

2.) What is the minimal annual inventory cost of the Harley’scurrent strategy of ordering separately from each supplier ?

3.) How much is the saving resulted ?

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Answer & Explanation Solved by verified expert
4.4 Ratings (916 Votes)

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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