Inventory Case

Case Study: Inventory

Drake Radio got its start during World War I by manufacturing radio communications equipment for the military. By the start of World War II, Drake was one of the largest suppliers of military communications equipment. Using its technology and experience gained from manufacturing military communications equipment, Drake became known as one of the best producers of amateur radio equipment. Drake especially excelled with its single sideband radios and its two-meter radios for amateur use. Although these radios were expensive, they were of the finest quality and always in demand. In developing their DR-2000 CB radios, however, Drake decided to mass produce cheap units that would have a wide appeal and a low price. The demand for the DR-2000 was fairly constant from month to month, with demands of 801, 807, 795, and 797 units in January, February, March, and April, respectively (approximately 800 per month for all 12 months of the year).

All of the components, except the FM tuner, were manufactured by Drake and stored until they were needed. Annual carrying cost was estimated to be 25 percent for all modules. The FM tuner modules were supplied by Collins Electronics, which also adjusted and sealed them. The cost to place an order was estimated at $50 per order, and the time to receive an order from Collins was approximately two weeks. Collins also offered quantity discounts on its FM tuners, as shown in Table 1.

Nitobitso Electronics also manufactured FM tuners that are compatible for the DR-2000. Because of its location in Japan, the time to receive an order was about two months, and the ordering cost was $100 because of the additional required paperwork. The quantity discounts offered by Nitobitso is shown in Table 2.

1) What is the optimal order quantity if ordering tuners from Collins?

2) What is the optimal order quantity if ordering tuners from Nitobitso?

3) Based on the cost figures, who would you recommend that Drake get...