Managing Supply Chain and Operations 1st Edition by Thomas Foster ,Scott Sampson,Cynthia Wallin,Scott Webb

Exercise 27

A supplier has offered your company a reduced price per unit for a component part you purchase if you will increase your purchase quantity from 20,000 to 40,000 units. Currently, you pay $30 per unit. The supplier has offered to reduce this cost to $28 per unit if you pur-chase the higher quantity. You purchase approximately 200,000 of the units annually. The cost to place an order is estimated to be $200 per order regardless of the order size. Transportation costs are estimated to be $0-20 per unit. Your cost to hold a component part in inventory is estimated at 20% annually based on the cost of the purchased item. Should you continue with your current policy, or should you take the incentive offered by the supplier?