Question: 5 . You have a continuous replenishment ( Q / r Type system ) and your current needs for a procured product from a Supplier

5. You have a continuous replenishment (Q/r Type system) and your current needs for a procured product from a Supplier 1 are as follows: Supplier 1 Current Forecasted Demand 1000 units/ per day Demand uncertainty 100 units per day Lead time fixed 4 days Ordering (shipping and handling) costs $10,000 per order Backorder policy None Min Order quantity 10000 units Required CSL 95% Holding costs $20 per unit per year (350 days) A. What is your implied fill rate for this policy? What is (should be) your ordering policy in this case to minimize costs? What is the total inventory management cost of this one item? B. The particular business is out for RFP (Request for proposal) with an alternative supplier (Supplier 2) who promises to supply the same product with reduced lead time, increased service, and improvement to total costs. Their proposal has the following terms: Supplier 2 Proposed Lead time average 2 days of lead time =1 day 1 day Ordering (shipping and handling) costs $9,000 per order Backorder policy None Min Order quantity 10000 units Required CSL 95% Holding costs $18.75 per unit per year (350 days) What is (should be) your ordering policy in this case to minimize costs? What is the total inventory management cost of this one item under these terms, and should you accept the new proposal from Supplier 2? Excel analysis is required to justify this decision.

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