OM (with OM Online, 1 term (6 months) Printed Access Card)
6th Edition
ISBN: 9781305664791
Author: David Alan Collier, James R. Evans
Publisher: Cengage Learning
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Chapter 12, Problem 1PA
(a)
Summary Introduction
Interpretation: Total annual logistics cost needs to be calculated based on the given data.
Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.
(a)
Expert Solution
Explanation of Solution
Given Information:
| Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
| Contract Manufacturer (Tier 1 supplier) | Price per unit @ Q = 10,000 (C) | Price per unit @ Q = 20,000 (C) | Tariff cost (Ti) per unit | Transport mode cost (Tm) per unit | Order Costs (Co) | Cost to store one unit per year (Ch) | Order Lead Time in Days |
| Xiajing Supplier | $ 1.10 | $0.92 | $0.2 | $0.35 | $ 655 | $ 1.35 | 180 |
| Boston Medical Supplier | $ 1.25 | $1.15 | $0.00 | $0.15 | $ 260 | $ 1.00 | 90 |
| Werkzeug Supplier | $ 1.35 | $1.00 | $0.10 | $0.20 | $ 350 | $ 1.05 | 120 |
Annual Demand (D) = 20,000 units
Working days − 365 days in a year
Total Annual Logistic cost can be calculated using following formula:
Total Annual Logistic Cost (TALC) = Total Procurement cost + Total Tariff cost + Total Transportation cost + Total Order Cycle inventory cost + Total Pipeline inventory cost
Where,
D = Annual Demand
Q = Order Quantity
Co = Ordering Cost
Ch= Inventory holding cost
d = Average Daily demand
L = Lead time
For Order quantity of 10,000 units
| Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
| Contract Manufacturer (Tier 1 supplier) | Total Procurement Cost | Total Tariff Cost ($) | Total Transport Cost ($) | Order Cycle Inventory Cost ($) | Pipeline Inventory Cost ($) | Total Annual Logistic Cost ($) | |
| Xiajing Supplier | 22,000 | 4,000 | 7,000 | 1,310 | 13,315.06 | 47625.06 | |
| Boston Medical Supplier | 25,000 | 0 | 3,000 | 520 | 4,931.5 | 33451.5 | |
| Werkzeug Supplier | 27,000 | 2,000 | 4,000 | 700 | 69,041.09 | 102741.09 | |
For Order quantity of 20,000 units
| Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
| Contract Manufacturer (Tier 1 supplier) | Total Procurement Cost | Total Tariff Cost ($) | Total Transport Cost ($) | Order Cycle Inventory Cost ($) | Pipeline Inventory Cost ($) | Total Annual Logistic Cost ($) | |
| Xiajing Supplier | 22,000 | 4,000 | 7,000 | $ 655 | 13,315.06 | 46970.06 | |
| Boston Medical Supplier | 25,000 | 0 | 3,000 | $ 260 | 4,931.5 | 33,191.5 | |
| Werkzeug Supplier | 27,000 | 2,000 | 4,000 | $ 350 | 69,041.09 | 102,391.09 | |
| Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
| Contract Manufacturer (Tier 1 supplier) | Total Procurement Cost | Total Tariff Cost ($) | Total Transport Cost ($) | Order Cycle Inventory Cost ($) | Pipeline Inventory Cost ($) | Total Annual Logistic Cost ($) | |
| Xiajing Supplier | 22,000 | 4,000 | 7,000 | $ 655 | 13,315.06 | 46970.06 | |
| Boston Medical Supplier | 25,000 | 0 | 3,000 | $ 260 | 4,931.5 | 33,191.5 | |
| Werkzeug Supplier | 27,000 | 2,000 | 4,000 | $ 350 | 69,041.09 | 102,391.09 | |
Total Annual Logistics Cost of each supplier at different order quantity will be
| Total Annual Logistic Cost | Order Quantity (Q) | |
| 10,000 units | 20,000 units | |
| Xiajing Supplier | $ 47,625.06 | $ 46,970.06 |
| Boston Medical Supplier | $ 33,451.5 | $ 33,191.5 |
| Werkzeug Supplier | $ 102,741.09 | $ 102,391.09 |
(b)
Summary Introduction
Interpretation: Recommendation needs to be given based on the given data.
Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.
(b)
Expert Solution
Explanation of Solution
As per the data calculated in above part,
Boston Medical Supplier should be recommended as it has low total annual logistic cost at both order quantities.
(c)
Summary Introduction
Interpretation: Recommendation needs to be given based on the given data.
Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.
(c)
Expert Solution
Explanation of Solution
Company should also look for quality parameters that will affect product sales and rate the vendors accordingly before making the final supplier decision.
Company should also consider the management oversight cost and calculate the overall supply chain cost at economic order quantity in order to make a balanced supply chain decision.
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