A manufacturing organization has been consuming a certain item in large quantities and is currently procuring the item from Supplier A. The price offered by the supplier is `400 per piece. The ordering cost is `2,800 per order and the carrying cost is `350. The annual demand for the item is 10,000. The supplier is currently not offering any discount. However, another supplier, Supplier B, is willing to offer the following discount structure: Up to an order size of 999 = No discount For an order size of 1,000 –1,999 = 2 per cent discount in price For an order size of 2,000 and above = 5 per cent discount in price Switching over to this supplier means incurring an initial cost of `15,000. This cost is primarily to set-up new communication systems with the new supplier. What should the company do in the light of the new offer?
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