Two Suppliers, Two Landed Costs, Two Lead Times
You need 300 units of a filter to cover the next five weeks. You have 40 on hand and sell about 60 per week. Supplier A quotes $12.40 each, gives 5% off any order over $2,500, and ships prepaid on orders over $2,000 (otherwise $185 freight); lead time is 2 business days. Supplier B quotes $11.75 each with a 100-unit minimum, adds freight at 6% of the invoice, and offers 2% 10, net 30; lead time is 5 business days. Your operating line costs 9% annual interest. Store policy is to hold at least 10 days of cover on this item at all times, and this filter has no acceptable substitute in the catalogue.
1. Calculate the landed cost per unit from each supplier and recommend one.
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Supplier A
- Goods: 300 × $12.40 = $3,720.00
- 5% volume discount (order > $2,500): −$186.00 → $3,534.00
- Freight: prepaid (order > $2,000) → $0
- Landed: $3,534.00 = $11.78/unit
Supplier B
- Goods: 300 × $11.75 = $3,525.00
- Freight 6%: +$211.50 → $3,736.50
- Landed without discount: $3,736.50 = $12.46/unit
- With 2% 10-net-30: discount $70.50 → $3,666.00 = $12.22/unit
Cost of taking the 2%: you pay about 20 days early on $3,525, costing 3,525 × 0.09 × 20/365 ≈ $17.38. Net benefit ≈ $53, so effective landed ≈ $3,683 = $12.28/unit.
Recommendation: Supplier A. It is cheaper landed even after B's cash discount ($11.78 vs $12.28) and it does not require you to fund the invoice early. Note that B's headline unit price is lower - the freight percentage is what reverses the comparison, which is exactly why landed cost, not quoted price, decides.
2. Do the lead times change the decision? Support your answer with the stock position.
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Yes - they make the decision easier.
Demand rate: 60/week ÷ 7 ≈ 8.6 units/day.
Supplier A, 2-day lead: 40 on hand − ~17 sold = ~23 units left when the order lands. No exposure.
Supplier B, 5-day lead: 40 − (8.6 × 5 ≈ 43) = −3 units - you stock out before the truck arrives. With no acceptable substitute in the catalogue, that is lost sales plus a contractor who now sources elsewhere.
Policy check: 10 days of cover = ~86 units. You are already at 40, well below the minimum, so the replenishment is overdue regardless of supplier.
A stock-out on a no-substitute item costs more than the $0.50/unit price gap. Even if B were marginally cheaper, the 5-day lead time would need either a safety-stock build (tying up cash) or an expedited freight charge, both of which erase any advantage.
Action: order 300 from A today. In parallel, ask B for a counter-quote with freight included at a 600-unit annual volume - if B will absorb freight, the comparison is worth re-running for the next replenishment.
3. What non-price factors belong in the supplier file before you commit long term to A?
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Price and lead time are only two columns. Before consolidating volume with A, confirm:
- Fill rate and past performance - what percentage of your last 12 orders shipped complete and on time? A 2-day promise with a 70% fill rate is a 6-day lead time in disguise.
- Quality and warranty - defect rate, who pays return freight on warranty claims, and whether credit is issued at cost or at sell price.
- Return policy - restocking charges, return window, and whether special orders are returnable at all.
- Terms - A offers no early-pay discount; B's 2/10 net 30 is worth roughly 37% annualised and is a real cost if you decline it.
- Single-source risk - A would now be the only source for a no-substitute item. Keep B as a qualified secondary even at a higher unit cost; the premium is insurance.
- Data quality - who maintains the catalogue records, supersessions, and price updates.
Recommendation: award the volume to A, but qualify B as a backup with a small annual order to keep the account active, and set a review trigger if A's fill rate drops below 95%.