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Supply Management Integration

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Supply Management Integration Questions and Answers

Questions 1

DEF, Inc. is in the ramp-up phase of a unique medical device. The device has a two-year life expectancy. The sales forecast for the ramp-up period is as follows:


Unit Sales1001502006001,4002,2004,00010,000

Demand after February is expected to remain at 10,000 units per month for several months, then decrease gradually. The units are small, and thus maintaining an inventory of up to 10,000 units is possible.

There are only three suppliers capable of providing the specialized component critical to this product. The production capacities of these suppliers are as follows:

•Supplier X has a capacity of 500 units per month at a cost of S20 per unit, representing 80% of its total business

•Supplier Y has a capacity of 2,000 units per month at a cost of S2O.5O per unit, representing 50% of its total business

•Supplier Z has a capacity of 20,000 units per month at a cost of $20.70 per unit, representing 10% of its total business

Two of these companies—Supplier X and Supplier Y—are minority businesses.

Given this situation, DEF should contract with



Supplier Z only, as it can best fulfill the forecasted demand


all three companies in a tiered system, with up to 40% from Supplier X and Y's total monthly business, and the remainder going to Supplier Z


Suppliers X and Y, and work with them to increase their production capability


all three companies in a tiered system, with up to 5,000 units from Supplier X, 20,000 units from Supplier Y, and the remainder from Supplier Z