Question: O'Donnell & Joyce purchases components from three suppliers. Components purchased from Supplier A are priced at 7 each and used at the rate of 1

O'Donnell & Joyce purchases components from three suppliers. Components purchased from Supplier A are priced at 7 each and used at the rate of 18,000 units per month. Components purchased from Supplier B are priced at 5 each and are used at the rate of 4,500 units per month. Components pur-
chased from Supplier C are priced at 9 each and used at the rate of 1000 units per month. Currently, O'Donnell & Joyce pur- chases a separate truckload from each sup- plier. As part of its JIT drive, O'Donnell & Joyce has decided to aggregate purchases from the three suppliers. The trucking com- pany charges a fixed cost of 550 for the truck with an additional charge of 120 for each stop. Thus, if O'Donnell & Joyce asks for a pickup from only one supplier, it charges 670; from two suppliers, it charges 790; and from three suppliers, it charges 910. What replenishment strategy would you suggest for O'Donnell & Joyce to mini- mize annual costs? Assume an annual hold- ing cost of 25 percent per year. Compare the cost of your strategy from each supplier.

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