Joe's Electronics has problems with its best-selling TV—the3DView. Joe, the owner, tells you that he always seems to have toomany or too few of the 3DView. He has hired you to help determinehow much and when to order. At the same time, the company isconsidering quotes from 2 different suppliers, and you will helpcompare suppliers. You estimated the following information from thedetailed records that Joe kept on the TV. You calculated thestandard deviation of daily demand to be able to estimate thevariation of demand during lead time—useful for calculating theamount of extra TVs to have on hand to minimize stockouts thatplagued Joe. Joe wanted to have the 3DView available no less than95% 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 thissupporting data in the total cost calculations. For instance, usenumber of orders (rounded) to calculate order cost. Roundall 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 |
