Question 1. Harley-Davidson Harley-Davidson purchases components from three suppliers

1. Harley-Davidson

Harley-Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $5 each and used at the rate of 20,000 units per year. Components purchased from Supplier B are priced at $4 each and are used at the rate of 2,500 units per year. Components purchased from Supplier C are priced at $5 each and used at the rate of 900 units per year.

Currently, Harley purchases a separate truckload from each supplier. As part of its JIT drive, Harley has decided to aggregate purchases from the three suppliers. The trucking company charges a fixed cost of $400 for the truck with an additional charge of $100 for each stop. Thus, if Harley asks for a pickup from only one supplier, the trucking company charges $500; from two suppliers, it charges $600: and from three suppliers, it charges $700.

Harley incurs a holding cost of 20 percent per year.

1. Harley-Davidson (Problem found at end of exam.)

Products with lots ordered and delivered independently. ( 15 Points )

A) Determine the order quantity for each supplier.

i. Supplier A

ii. Supplier B

iii. Supplier C

B) Determine the total cost (order cost + holding cost) for this inventory policy.

i. Supplier A

ii. Supplier B

iii. Supplier C

iv. Total

Products with lots ordered and delivered jointly. ( 15 Points)

C) Determine the combined fixed order cost per order (S*).

D) Determine the optimal order frequency (n*).

E) Determine the order quantity for each supplier.

i. Supplier A

ii. Supplier B

iii. Supplier C

F) Determine the total cost (order cost + holding cost) for this ordering policy.

2. Red Door Pharmacy

The Red Door Pharmacy has 25 retail outlets in the Chicago region. The current policy is to carry every drug in each retail outlet. Red Door is investigating the possibility of centralizing some of the drugs in one central location. Delivery charge would increase by $0.02 per unit if a drug were centralized. The increase in delivery charge comes from the additional cost of operating the shuttle from the central location to each of the other locations. At each retail outlet, Red Door has weekly replenishment (a replenishment order is placed once every seven days), and replenishment orders with suppliers must be placed three days before delivery. Red Door plans to stick to once-a-week ordering even if a drug is centralized.

Red Door uses an inventory holding cost of 20 percent and aims for a cycle service level of 99 percent. Assume that demand across stores is independent.

Consider a drug with daily demand at each store that is normally distributed, with a mean of 5 and a standard deviation of 4. The drug costs $10 per unit.

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