Inventory Management Exercise:

M.P. Van Oyen Manufacturing has gone out on bid for a regulator component. Expected
demand is 700 units per month. The item can be purchased from either Allen Manufacturing
or Baker Manufacturing. Their price lists are show in the table. Ordering cost is £50, and
annual holding cost per unit is £5. Which supplier should be used? Why?

Allen Mfg. Baker Mfg

Quantity Unit Price Quantity Unit Price

1-499 £16.00 1-399 £16.10

500-999 £15.50 400-799 £15.60

1000+ £15.00 800+ £15.10

Answer:
D = 700 × 12 = 8,400, H = 5, S = 50
Suad
Baker
1–499 £16.00
1–399 £16.10
500–999 £15.50
400–799 £15.60
1,000+ £15.00
800+ £15.10

2 DS 2(8,400)50
Q= = = 409.88 → 410
H 5

Vendor: Suad
410 8, 400
at 410, TC = (5) + (50) + 8, 400(16) = £$136, 449.36
2 410
500 8, 400
at 500, TC = (5) + (50) + 8, 400(15.5) = £$132, 290
2 500
1, 000 8, 400
at 1,000, TC = (5) + (50) + 8, 400(15)
2 1, 000
£
= $128, 920 BEST

Vendor: Baker
410 8, 400
at 410, TC = (5) + (50) + 8, 400(15.60) = £$133,089.39
2 410
800 8, 400
at 800, TC = (5) + (50) + 8, 400(15.10) = £$129,365
2 800

Vendor Suad best at Q = 1,000, TC = £128,920

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