A manufacturer purchases 6000 cases of a certain component for $100 per case from two suppliers: Supplier A and Supplier B.

 

Supplier A is currently responsible for 1/2 of the total demand.  The two suppliers currently pay $2 per case for transportation and achieve the same average delivery time of 10 days. However, for each day that a supplier can reduce in the average delivery time, the manufacturer is willing to shift 5% of its total purchase to the supplier offering the premium service. A supplier earns a margin of 25% of the selling price on each case before transportation cost kicks in.

 

  1. a) How much profit does Supplier A make currently? Please provide at least one step of calculation and the correct answer for full credit. (4 points)

 

  1. b) Suppose Supplier A is willing to reduce its average delivery time by 3 days and the transportation rate increases by $0.5 per case for each dayreducedin the average delivery time. How much profit can Supplier A make by offering the premium transportation service? Assume that Supplier B take no action. Please provide the new sales number, at least one step of calculation, and the correct answer for full credit. (6 points)

 

The Wagner Company supplies electric motors to Electronic Distributors, Inc. on a delivered-price basis. Wagner has the responsibility for providing transportation. The logistics manager has three transportation service choices for delivery – Rail, piggyback, and truck. He has complied the following information:

Transport Mode Transit time, Days Rate, $/Unit Shipment size, Units
Rail 14 20.00 10,000
Piggyback 10 40.00 8,000
Truck 4 60.00 6,000

 

 

 

 

 

 

Electronic Distributors purchases 50,000 units per year at a delivered contract price of $100 per unit. Inventory-carrying cost is 20% of the unit inventory value per year. Wagner manages two stocking points, one within its plant and one close to the headquarters of Electronic Distributors. Assume that the average inventory levels at both locations are always half of the shipment size. (Note that this assumption is different from the assumption we used in the example problem.)

 

What is the annual inventory-holding cost at the plant under each transport mode? Please include the formula, at least one step of calculation and the correct answer in each transport situation for full credit. (14 points)

 

What is the annual inventory-holding cost at the warehouse that is close to the headquarters of Electronic Distributors under each transport mode? For full credit, please include the formula, at least one step of calculation, and the correct answer in each transport situation. (14 points)

 

What is the in-transit inventory-holding cost under each transport mode? For full credit, please include the formula at least one step of calculation, and the correct answer in each transport situation. (14 points)

 

Wagner wishes to select the transport mode that will minimize the total cost. Based on this criterion, which transport mode do you recommend Wagner to use? Please provide the total costs of each transport mode for full credit. That is, the recommendation should be made based on the comparison of the total costs of the three transportation modes. (10 points)

 

A distributor has heard that one of the major manufacturers from which it buys is considering going direct to its consumers. What can the distributor do about this? What advantages can it offer the manufacturer that the manufacturer is unlikely to be able to reproduce? Please have a discussion of at least 150 words and list at least 4 advantages for full credit. (10 points)