Principles of Supply Chain Management LGMT 444
Problem Set 3
1. Given the following information:
Costs Buy Option Make Option
Variable Cost $12 9$
Fixed Cost $7,500 $105,000
a. Find the break-even quantity and the total cost at the break-even point.
b. If the requirement is 45,000 units, is it more cost-effective for the firm to buy or make the components? What is the cost savings for choosing the cheaper option?
2. Redmart is looking to open up a new fulfillment center as part of their expanding network to meet faster delivery needed for their customers in Southeast Asia. Information regarding three candidate sites are shown below:
Factors Factor Weight Location A
Scores (1-100) Location B
Scores (1-100) Location C
Scores (1-100)
Transportation 0.20 90 85 95
Proximity to market 0.23 85 80 90
Supplier base 0.18 70 75 70
Taxes 0.09 75 80 70
Utilities 0.11 80 85 75
Labor Availability 0.19 80 90 85
Which site would be ideal for Redmart to open its new fulfillment center?
3. Paragon Electric needs to select a supplier for its manufacturing plant. Tables below show the annual requirements and the proposals submitted by two suppliers:
Requirements (annual forecast) 60,000 units
Inventory carrying rate 20% per year
Transportation cost $0.02 per unit-mile
Order Processing Cost $100 per order
Supplier 1 Supplier 2
Unit Price $10 $12
Supplier Fixed Lot Size (units) 6000 5000
Distance (miles) 200 120
Supplier Quality Rating (defects) 0.8% 1.0%
Determine which supplier is more cost effective using total cost of ownership concept. (Hint: you need to calculate the total cost including total unit cost, transportation cost, inventory holding/carrying cost, ordering cost, and quality cost for each supplier.)
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LGMT 444 Principles of Supply Chain Management
Set 3 of Problems
1. Given the given facts:
Costs Purchase Option Create Option
Variable Cost: $12.90
Fixed Cost $7,500 $105,000
a. Determine the break-even amount and total cost at the break-even point.
b. Is it more cost-effective for the firm to acquire or create the components if the requirement is 45,000 units? What is the cost savings for selecting the less expensive option?
2. Redmart is looking to open a new fulfillment center as part of their expanding network in order to address the needs of their Southeast Asian clients for speedier delivery. The following information is provided for three potential sites:
Factors Factor Weight Location A
Location B Scores (1-100)
Scores (1-100) Location C
Scores (1-100)
Transportation 0.20 90
