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Harley Davidson purchases components from three suppliers. The components purchased from Supplier A are priced at $ 5 each and used at the rate of 240,000 units per year. The components purchased from Supplier B are priced at $ 4 each and are used at the rate of 30,000 units per year. The components purchased from Supplier C are priced at $ 5 each and used at the rate of 10,800 units per year. Presently 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 extra charge of $100 for each stop. Therefore, 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 earns a holding cost of 20% (of the price) for each component.

a) Find out the minimal annual inventory cost of the new aggregate replenishment strategy?

b) Find out the minimal annual inventory cost of the Harley's present strategy of ordering separately from each supplier?

c) How much is the saving resulted?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92826

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