Supply Wk 4 All rights are reserved. The material contained herein is the copyright property of Embry-Riddle Aeronautical University, Daytona Beach, Flori

Supply Wk 4 All rights are reserved. The material contained herein is the copyright property of Embry-Riddle Aeronautical University, Daytona Beach, Flori

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Principles of Supply Chain Management LGMT 444

Problem Set 3

1. Given the following information:

Costs

Buy Option

Make Option

Variable Cost

$12

9$

Fixed Cost

$7,500

$105,000

a. Find the break-even quantity and the total cost at the break-even point.

b. If the requirement is 45,000 units, is it more cost-effective for the firm to buy or make the components? What is the cost savings for choosing the cheaper option?

2. Redmart is looking to open up a new fulfillment center as part of their expanding network to meet faster delivery needed for their customers in Southeast Asia. Information regarding three candidate sites are shown below:

Factors

Factor Weight

Location A

Scores (1-100)

Location B

Scores (1-100)

Location C

Scores (1-100)

Transportation

0.20

90

85

95

Proximity to market

0.23

85

80

90

Supplier base

0.18

70

75

70

Taxes

0.09

75

80

70

Utilities

0.11

80

85

75

Labor Availability

0.19

80

90

85

Which site would be ideal for Redmart to open its new fulfillment center?

3. Paragon Electric needs to select a supplier for its manufacturing plant. Tables below show the annual requirements and the proposals submitted by two suppliers:

Requirements (annual forecast)

60,000 units

Inventory carrying rate

20% per year

Transportation cost

$0.02 per unit-mile

Order Processing Cost

$100 per order

Supplier 1

Supplier 2

Unit Price

$10

$12

Supplier Fixed Lot Size (units)

6000

5000

Distance (miles)

200

120

Supplier Quality Rating (defects)

0.8%

1.0%

Determine which supplier is more cost effective using total cost of ownership concept. (Hint: you need to calculate the total cost including total unit cost, transportation cost, inventory holding/carrying cost, ordering cost, and quality cost for each supplier.)

2

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