Drake Digital Established during WW I Manufacturing radio

Drake Digital™ • Established during WW I • Manufacturing radio communications equipment for the military • Became famous of the best producers of amateur radio equipment. • In 1975, Entered into the market of home stereo systems.

Drake Digital™ • The most remarkable stereo system was “DR 2000” – Was a sophisticated stereo receiver • Demand for the DR-2000 was fairly constant from month. Month to month Demand January February March April 801 807 795 797

Drake Digital™ • DR-2000 – Priced tag of $765 – Connected 4 different speaker systems Loudness control Flatness control Blend control Complete digital read out – 5 separate controls that regulated 5 frequency ranges 0 -500 Hz 10000 -15000 Hz 500 -5000 Hz 5000 -10000 Hz 15000 -50000 Hz

Drake Digital™ • Modular Design Power Supply Preamplifier Phono Preamplifier AM RF AM IF Multiplexer FM Tuner FM IF Output Annual carrying cost was estimated to be 25 percent Left Amplifier Control Right Amplifier for all modules

Drake Digital™ • FM Tuner by “Collins Electronics” – Cost to place an order was estimated at $50 per order – Time to receive an order about two weeks – Offered quantity discounts on its FM tuners Quantity 0 -100 101 -500 501 and over Price $25 24 22

Drake Digital™ • FM Tuner by “Nitobitso Electronics” – Cost to place an order was estimated at $100 per order because of the additional required paperwork – Time to receive an order about two months – Offered quantity discounts on its FM tuners Quantity Price 0 -200 201 -800 801 -2, 000 2, 001 or more $25 23 22 21

Questions & Answers

What is the reorder point for Collins and Nitobitso? ROP = (Demand per day) x (Lead Time, in days)

What is the reorder point for Collins and Nitobitso? • Demand for the DR-2000 was fairly constant from month to month Month Demand January 801 February 807 March 795 April 797 Demand Units Total Demand 3200 Average Demand 800 Annual Demand 9600

What is the reorder point for Collins and Nitobitso? • Assume working day is 5 days per week or 20 days per months. • Demand per day = 9, 600 units/240 days = 40 units • Lead Time (Collins Electronics) = 10 days • Lead Time (Nitobitso Electronics) = 40 days

What is the reorder point for Collins and Nitobitso? • ROP = (Demand per day) x (Lead Time, in days) • ROP for Collins Electronics = 40 units x 10 days = 400 units • ROP for Nitobitso Electronics = 40 units x 40 days = 1, 600 units

Would you recommend that Drake get FM tuners from Nitobitso? • From EOQ Model – Total Cost = Total Ordering Cost + Total Carrying Cost + Total Purchase Cost = (D/Q*) x Co + (Q*/2) x Ch + P x D Month Demand January 801 February 807 March 795 April 797 Average Demand D: Annual demand 800 9600

Would you recommend that Drake get FM tuners from Nitobitso? • The optimal point order to “Collins” is 501 units per order with amount US$ 213, 535. 83 as the lowest cost. Total Cost = (D/Q*) x Co + (Q*/2) x Ch + P x D

Would you recommend that Drake get FM tuners from Nitobitso? • The optimal point order to “Nitobitso” is 2001 units per order with amount US$ 207, 332. 39 as the lowest cost.

Would you recommend that Drake get FM tuners from Nitobitso? • Cost analysis – It will cost US$ 207, 332. 39 to get the tuners from Nitobitso which is cheaper than to get it from Collins at US$ 213, 535. 83.

Would you recommend that Drake get FM tuners from Nitobitso? • Reorder Point – Average demand for DR-2000 is 800/month – Quantity discount from the supplier = 800 x 2 months lead time = 1600 units – Since the optimum order quantity= 2001 units, “Nitobitso” is thus able to satisfy Drake’s demand at the optimum cost.

Everything else being equal, which supplier of FM tuners would you want with a fluctuating demand? • Recommend Drake radio to choose “Collins” instead of Nitobitso’s in case Drake radio had faced with the fluctuating demand. • Because of the short lead time of the supplier will reduce the risk of stock out that may occur.

Thank you