Two Vendors, One Deadline
Kaveri Components must supply 9,000 machined brackets within 40 days. Two vendors can make them. Vendor X charges a one-time mould fee of ₹24,000 and ₹18 per bracket; its line can start only after a 10-day setup and then produces at most 250 brackets a day. Vendor Y charges no fixed fee and ₹23 per bracket; it can start in 3 days and produces at most 200 a day. Any shortfall can be bought from a spot market at the vendor's quoted unit price plus ₹6, but spot units do not carry the vendor's warranty. The contract penalty for late delivery is ₹15,000 per day, and the buyer will reject any plan that cannot deliver all 9,000 units by day 40. Kaveri's operations head wants the lowest total cost plan that is also robust to a 15% upward demand revision. The finance team will approve only one vendor and will not fund both moulds.
1. Compute the lowest-cost feasible plan for each vendor at 9,000 units. Show capacity, shortfall and total cost.
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Vendor X: after the 10-day setup, 30 production days remain. Capacity = 30 × 250 = 7,500; shortfall = 1,500. Cost = ₹24,000 fixed + 9,000 × ₹18 + 1,500 × ₹6 spot premium = ₹24,000 + ₹1,62,000 + ₹9,000 = ₹1,95,000. Vendor Y: after 3 days, 37 production days remain. Capacity = 37 × 200 = 7,400; shortfall = 1,600. Cost = 9,000 × ₹23 + 1,600 × ₹6 = ₹2,07,000 + ₹9,600 = ₹2,16,600. Both plans meet the 9,000-unit deadline because spot purchases fill the gap. X is cheaper by ₹21,600. The comparison assumes spot units are available at the stated premium and that the ₹6 premium is paid only on shortfall units, not on all units.
2. A 15% upward revision takes demand to 10,350. Recompute both plans. Does the ranking change, and what risk does the answer expose?
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At 10,350 units, X's in-house capacity stays 7,500; shortfall = 2,850. Cost = ₹24,000 + 10,350 × ₹18 + 2,850 × ₹6 = ₹24,000 + ₹1,86,300 + ₹17,100 = ₹2,27,400. Y's capacity stays 7,400; shortfall = 2,950. Cost = 10,350 × ₹23 + 2,950 × ₹6 = ₹2,38,050 + ₹17,700 = ₹2,55,750. X remains cheaper, now by ₹28,350. The ranking does not change, but the risk is exposed: both plans depend on spot purchases for roughly 28% of demand, and spot units carry no vendor warranty. A cost-only answer hides a quality and supply-security exposure that grows with demand.
3. What two contractual safeguards should Kaveri insist on before signing with the cheaper vendor?
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First, extend the vendor's warranty to the entire delivered quantity, including spot-sourced units, or give Kaveri the right to approve the spot source and inspect those units. Otherwise the cheapest plan shifts quality risk to Kaveri. Second, put the 10-day setup behind a milestone with a remedy: if setup slips, X must expedite at its own cost or pay a delay penalty. A one-day setup slip removes 250 units of capacity and forces more spot buying. A price-lock on the ₹18 unit rate for the 40-day window would also help, but warranty and setup performance are the two safeguards that protect the cost advantage from becoming a false economy.