Excercise 12-10:
Inputs
Average demand per unit time, D = 1,000
Lead time from Chinese supplier, L = 8
SD of demand per unit time, σD = 1000
Holding cost, h = 25%
Target cycle service level 0.99
Distribution of Demand during Lead Time
Mean demand during lead time, DL = 8000
SD of demand during lead time, σL = 2,828
Safety Inventory and Costs with Chinese Supplier
Safety inventory, ss = 6,580
Reorder point, ROP = 14,580
Cost per motor 20000
Annual holding cost 32,899,527
Annual cost of motors 1,040,000,000
Total annual cost with Chinese supplier 1,072,899,527
Lead time of local supplier 1
Cost per motor from local supplier 20,400
Required safety inventory 2,326
Annual holding cost 11,864,374
Annual cost of motors from local supplier 1,060,800,000
Annual cost with local supplier 1,072,664,374
Savings from using local supplier 235,153