Question

3) You are tasked with selecting the suppler for a new part from four possible venders A, B, C, and D. You have data related to quality, price and delivery terms. Assuming each of these three aspects equally weighted by your purchasing organization, which supplier would you choose given the following information? The critical part dimension for the quality data has a specification of 2.5+0.05 cm; and daily demand of 25, with a daily standard deviation of 30 units; 365 days a year. For this part your organization prefers a service level of at l pts) east 95% (30 Vender Price/unit X, in cm o, in cm $15.00 2.504 0125 $15.45 2.497 $16.30 2.498 0110 10 $14.60 2.506 0120 20 10 Leadtime (days) 18 Leadtime Std. 5 14 Dev. (days) t4) Assume your organization focuses primarily on price, assume you are forced to use vendor D (even if D did not win your bid in #4). Using the data in the previous problem, how much should ordered, and when should be orders be placed if the fixed ordering cost is $250/order and the inventory carrying cost is 35% and what is the total cost of this policy? Suppose vender D offers a 3% discount off the price, provided the order volume is at least 5000 units, does this change vour answer regarding how much to order. and. if so. what is the new total cost? (15 Dts)

Answer 1

3)

In order to determine quality, we need to consider their Cpk values. That is done by

Cpk = min (CpU, CpL)

CpU = (USL – mean)/3σ

CpL = (mean - LSL)/3σ

Then we need to consider their costs of holding the safety stock.

The formula for safety stock with variable demand is

SS = z*σ*sqrt(L)

z = 1.64 for 95% confidence

σ = Std Dev of lead time demand

L = Lead time

Using these formulas the calculated values are

Vendor	A	B	C	D
Price/unit	15	15.45	16.3	14.6
X_bar	2.504	2.497	2.498	2.506
σ	0.0125	0.0115	0.011	0.012
Leadtime	18	14	10	20
Std Dev	5	5	3	10
USL	2.55
LSL	2.45
CpU	1.226667	1.536232	1.575758	1.222222
CpL	1.44	1.362319	1.454545	1.555556
Cpk	1.226667	1.362319	1.454545	1.222222
SS	34.89261	30.77239	15.60445	73.56009

Based on these calculation we can see that the highest Cpk and lowest Safety stock requirement is with vendor C. As a result, we will choose vendor C.