Eric, general manager of Sustainable Electrics (SE), was considering several recent developments in the generator market. They use 6 transformers each working day of the month and they operate 20‐day/month. For several years the generators had been produced in London. As the producer in London is located close to Liverpool, it offered free delivery (no transportation cost) to SE.
Eric has the following information about the transformers when they get from the supplier in London:

Information
Total annual usage	6
Inventory carrying cost	20% /unit/year
Weight per unit	300 kg
Cost of unloading into warehouse	10 £ per 50 kg
Purchase price per unit	2500 £
Regular cost per order	1000 £
Warehouse capacity	300 units
Additional warehouse costs	100 £/unit/year
Expediting cost per order	500£

Recently, due to pandemic, the supplier in London had financial distress. So, they needed to find a new supplier. The new supplier is in Manchester, so cannot provide free shipping, but charges the transportation cost equal to “expediting cost” of the previous supplier. Moreover, the price of a unit is not constant but depends on the order size. It is all‐units‐discount policy. For example, if the order size of SE is any number between 100 and 200, then the price of each unit is 2300 £.

Order Range	Unit Price
Q <= 100	2500
100 < Q <= 200	2300
Q > 200	2100

Now, Mr. Eric needs your help to reconsider his inventory policy. For this purpose,

1) What was the optimal order size and total cost per year when SE was working with the supplier in London?

2) Now, what should be the optimal order size and total cost per year if they decide to work with the supplier in Manchester?

3) Will SE be better off with the new supplier? Please elaborate your answer by discussing the changes in various cost types.

Answer rating: 100% (QA)

E Sustaible ELectsicity Use 6 transformer Per day in 20 daylm... View the full answer