Question

Problem 9-11 (Algorithmic)

Edwards Manufacturing Company purchases two component parts from three different suppliers. The suppliers have limited capacity, and no one supplier can meet all the company’s needs. In addition, the suppliers charge different prices for the components. Component price data (in price per unit) are as follows:

	Supplier
Component	1	2	3
1	$11	$11	$13
2	$10	$12	$10

Each supplier has a limited capacity in terms of the total number of components it can supply. However, as long as Edwards provides sufficient advance orders, each supplier can devote its capacity to component 1, component 2, or any combination of the two components, if the total number of units ordered is within its capacity. Supplier capacities are as follows:

Supplier	1	2	3
Capacity	575	1000	775

If the Edwards production plan for the next period includes 1050 units of component 1 and 775 units of component 2, what purchases do you recommend? That is, how many units of each component should be ordered from each supplier?

	Supplier
	1	2	3
Component 1
Component 2

What is the total purchase cost for the components?

$  

Answer 1

For each component, choose supplier offering the lowest price.
For component 1, choose supplier 1 or 2 because both are offering at $11
For component 2,choose supplier 1 and 3 because both are offering at $10

So lets say component 2 from supplier 3 and component 1 from supplier 1 and 2 both because not a single supplier can fulfill the entire demand. So lets say 1000 units from supplier 2 and 50 units from supplier 1


We need 1050 units of component 1.
Supplier 2 only provide us with 1000 units.
For the other 50 units, choose supplier 1(as offering at same price)

Supplier 3 will provide us with all 775 units of component 2.

The amount we will pay supplier 1 is:
$11 x 50 = $550
The amount we will pay supplier 2 is:
$11 x 1000 = $11000
The amount we will pay supplier 3 is:
$10 x 775 = $7750

Hence, the total purchase cost is:
$550 + $11000 + $7750 = $19300

	SUPPLIER
	1	2	3
COMPONENT 1	50	1000	0
COMPONENT 2	0	0	775