Reference no: EM132262347

Located in central France, Laurence Garreaus firm supplies a particular subassembly to the automobile industry. The subassemblies are made in three different shapes (for different car models). These subassemblies need an electric motor, and Laurence is trying to find a supplier for these motors. The specifications of the electric motor required for the three subassemblies are almost identical; however the motors need to be of slightly different shapes to fit into the subassembly. Assume that the firm works for 300 days in a year and the daily requirement of each type of motor is normally distributed with a mean of 200 units and a standard deviation of 50 units. Laurence intends to hold safety stock to meet a 99% service level. The annual holding cost of the motor is 25% of the price of the motor. Also, by convention, the French firm pays for the motors the moment they are shipped. Due to the limitations in shipping schedule, all engines are ordered and shipped jointly every Monday (no other days are possible). Laurence has received two quotations. The first is from a firm in Asia. The unit price per motor is 50. In addition, the transportation cost per unit is 5. The transit time from Asia is 25 days. The second quotation is from a company in North America. This firm offers to price the motors at 60, and a transportation cost of 7.5. It will take only 10 days to deliver the motors.

Evaluate each of the two proposals to determine which the most economical alternative is. What is your recommendation? (Be specific and show all of your calculations.)

Suppose the North American firm offers to redesign the motors in such a way that the same motor can be used in any of the three subassemblies. Should this new information have any impact on the decision? (Again, be specific and justify your answer with calculations.)