1. Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1,000. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500; Harley incurs a holding cost of 20 percent per year.

a) How many engines should Harley load onto each truck?

b) What is the cycle inventory of engines at Harley?

2. As part of its initiative to implement just-in-time (JIT) manufacturing at the motorcycle assembly plant in previous question, Harley has reduced the number of engines loaded on each truck to 100.

a) If each truck trip still costs $1,000, how does this decision affect annual inventory costs at Harley?

b) What should the cost of each truck be if a load of 100 engines is to be optimal for Harley?

3. Harley purchases components from three suppliers. Components purchased from Supplier A are priced at $5 each and used at the rate of 20,000 units per month. Components purchased from Supplier B are priced at $4 each and are used at the rate of 2,500 units per month. Components purchased from Supplier C are priced at $5 each and used at the rate of 900 units per month. 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 percent per year.

a) Suggest a replenishment strategy for Harley that minimizes annual cost.

b) Compare the cost of your strategy with Harley’s current strategy of ordering separately from each supplier.

c) What is the cycle inventory of each component at Harley?