Compare the cost of your strategy with smith

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Reference no: EM133448971

Question: Smith Company 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. Smith incurs a holding cost of 20 percent per year. Currently, Smith purchases a separate truckload from each supplier. As part of JIT drive, Smith 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 Smith asks for a pickup from only one supplier, it charges$500; from two suppliers, it charges $600, and
from three suppliers, it charges $700. Suggest a replenishment strategy for Smith that minimizes annual cost. Compare the cost of your strategy with Smith's current strategy of ordering separately from each supplier.

Reference no: EM133448971

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