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Total Cost Analysis for Supplier Selection

5. The Burdell Wheel and Tire Company assembles tires to wheel rims for use on cars during manufacture of vehicles by the automotive industry. Burdell wants to locate a low-cost supplier for the tires he uses in his assembly operation. The supplier will be selected based on total annual cost to supply Burdell's needs. Burdell's annual requirements are for 25,000 tires, and the company operates 250 days a year. The following data are available for two suppliers being considered.
Using the Total Cost Analysis for Supplier Selection, which supplier should Burdell choose? Provide details to justify your answer.

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Solution Preview

The cost per tire for Lexington Tire is $1,000,000 (25,000 tires * $40/tires = $1,000,000). The annual shipping costs for Lexington Tire is $18,000. The annual holding cost for Lexington Tire is $200,000 (25,000 tires * $8.00/tire = $200,000). The annual Administrative cost for Lexington Tire is $14,000. Burdell needs 100 tires per day (25,000 tires / 250 days = 100 tires/day). The lead time inventory for Lexington Tire is 800 tires (8 days * 100 tires/day ...

Solution Summary

The following posting helps with problems involving total cost analysis. Calculations are given for each.