Example 1 Given the following information, use total cost analysis to determine which supplier is more cost-effective. The buyer needs to receive the product within 25 days from when they place the order. Monthly usage Order Frequency Order Processing Cost Inventory Carrying Cost 1 $ Weight per Unit Volume per unit Cost of working capital Purchase Cost-Volume Dependent Cost 5 s Freight Company "USF Freigh Distance Freight Costs Air Freight-Cost per Pound $ Truck Freight-Cost per Cubi $ If more than this many up to this many units per order units per order 1 to 500 miles 3000 units every 0 1 Transportation leadtime (da 1 to 500 miles 2 Truck Mode Air Mode 95 dollars. 30% annually 40 pounds 8 cubic feet 10% annually 1 2500 5000 9000 + 0.320 $ 0011 $ 52 30 Based on the information given in the problem: What is the TCO for each supplier? 2 Which supplier should they choose? 2 2 months Supplier A Supplier B 200 $ 200 190 $ 187 185 S 183 183 $ 180 2499 $ 4999 $ 8499 $ is is $ Distance 500 miles to 1000 miles 0.290 0.010 500 miles to 1000 miles 8 3 =4 5 Other Supplier information: se Production Leadtime (assume they can start manufacturing the day after er Special Equipment Cost for this customer $ Distance from buyer manufacturing facility 21 14 8,000 $9,000 550 480 miles

Example 1 Given the following information, use total cost analysis to determine which supplier is more cost-effective. The buyer needs to receive the product with in 25 days from when they place the order