1. Your company assembles fi ve different models of a motor scooter that is sold in specialty
stores in the United States. The company uses the same engine for all fi ve models. You
have been given the assignment of choosing a supplier for these engines for the coming
year. Due to the size of your warehouse and other administrative restrictions, you must
order the engines in lot sizes of 1,000 each. Because of the unique characteristics of the
engine, special tooling is needed during the manufacturing process for which you agree
to reimburse the supplier. Your assistant has obtained quotes from two reliable engine
suppliers and you need to decide which to use. The following data have been collected:
Requirements (annual forecast)
Weight per engine
Order processing cost
Inventory carry cost
12,000 units
22 pounds
$125 per order
20 percent of the average value of inventory per year
Note: Assume that half of lot size is in inventory on average (1,000/2 5 500 units).
Two qualifi ed suppliers have submitted the following quotations:
Order Quantity
Supplier 1
Unit Price
Supplier 2
Unit Price
1 to 1,499 units/order
1,500 to 2,999 units/order
3,0001 units/order
Tooling costs
Distance
$510.00
500.00
490.00
$22,000
125 mi les
$505.00
$505.00
488.00
$20,000
100 mi les
Your assistant has obtained the following freight rates from your carrier:
Truckload (40,000 lbs. each load):
Less-than-truckload:
$0.80 per ton-mile
$1.20 per ton-mile
Note: Per ton-mile 5 2,000 lbs. per mile.
a. Perform a total cost of ownership analysis and select a supplier.
b. Would it make economic sense to order in truckload quantities? Would your supplier
selection change if you ordered truckload quantities?
GLOBAL SOURCING AND PROCUREMENT chapter 16 419
LO16–4

2. U.S. Airfi lter has hired you as a supply chain consultant. The company makes air fi lters
for residential heating and air-conditioning systems. These fi lters are made in a single
plant located in Louisville, Kentucky, in the United States. They are distributed to retailers
through wholesale centers in 100 locations in the United States, Canada, and Europe.
You have collected the following data relating to the value of inventory in the U.S. Airfi lter
supply chain:
Quarter 1
(January
through March)
Quarter 2
(April
through June)
Quarter 3
(July through
September)
Quarter 4
(October through
December)
Sales (total quarter):
United States
Canada
Europe
300
75
30
350
60
33
405
75
20
375
70
15
Cost of goods
sold (total quarter)
280 295 340 350
Raw materials at
the Louisville
plant (end-of-quarter)
50 40 55 60
Work-in-process
and fi nished
goods at the
Louisville plant
(end-of-quarter)
100 105 120 150
Distribution center
inventory (end-of-quarter):
United States
Canada
Europe
25
10
5
27
11
4
23
15
5
30
16
5
All amounts in millions of U.S. dollars.
a. What is the average inventory turnover for the fi rm?
b. If you were given the assignment to increase inventory turnover, what would you
focus on? Why?
c. The company reported that it used $500M worth of raw material during the year. On
average, how many weeks of supply of raw material are on hand at the factory?
Chapter 16, Questions 12, 17 Excel only separate sheets!

3. Jill’s Job Shop buys two parts (Tegdiws and Widgets) for use in its production system
from two different suppliers. The parts are needed throughout the entire 52-week year.
Tegdiws are used at a relatively constant rate and are ordered whenever the remaining
quantity drops to the reorder level. Widgets are ordered from a supplier who stops by
every three weeks. Data for both products are as follows:
Item Tegdiw Widget
Annual demand
Holding cost (% of item cost)
Setup or order cost
Lead time
Safety stock
Item cost
10,000
20%
$150.00
4 weeks
55 units
$10.00
5,000
20%
$25.00
1 week
5 units
$2.00
a. What is the inventory control system for Tegdiws? That is, what is the reorder quantity
and what is the reorder point?
b. What is the inventory control system for Widgets?

4. Item X is a standard item stocked in a company’s inventory of component parts. Each year
the fi rm, on a random basis, uses about 2,000 of item X, which costs $25 each. Storage
costs, which include insurance and cost of capital, amount to $5 per unit of average inventory.
Every time an order is placed for more of item X, it costs $10.
a. Whenever item X is ordered, what should the order size be?
b. What is the annual cost for ordering item X?
c. What is the annual cost for storing item X?

5. In the past, Taylor Industries has used a fi xed–time period inventory system that involved
taking a complete inventory count of all items each month. However, increasing labor
costs are forcing Taylor Industries to examine alternative ways to reduce the amount of
labor involved in inventory stockrooms, yet without increasing other costs, such as shortage
costs. Here is a random sample of 20 of Taylor’s items.
Item
Number
Annual
Usage
Item
Number
Annual
Usage
1
2
3
4
5
6
7
8
9
10
$ 1,500
12,000
2,200
50,000
9,600
750
2,000
11,000
800
15,000
11
12
13
14
15
16
17
18
19
20
$13,000
600
42,000
9,900
1,200
10,200
4,000
61,000
3,500
2,900
a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using an
ABC plan.)
b. Item 15 is critical to continued operations. How would you recommend it be classifi ed?