### What is the total annual cost

Assignment Help Supply Chain Management
##### Reference no: EM132052

Question: Looking at the table below for the Johnson Company, what is the total annual cost of maintaining the components inventory under the present systems versus the total annual costs of maintaining the components inventory under the JIT system (assuming no safety stock)? What are the advantages and disadvantages of the Johnsons using a JIT system?

Johnson's inventory carrying costs are 20% per year on the average investment in inventory on hand including acquisition and transportation costs.  Second, under the current system, the number of units of each type of component kept in stock is calculated as follows: For those items purchased from the vendors more than 400 miles away, a safety stock representing four weeks of use is maintained. For items from vendors between 100 and 400 miles away, a safety stock representing two weeks of use is maintained. For items from closer sources, a safety stock representing one week of use is maintained. In addition to safety stocks, the average inventory of any item is the current lot size purchased, divided by 2.

 Using JIT Current System Item Unit Cost JIT Lot Size Avg. freight cost per Unit surface Current lot  size purchased Average freight cost per unit Distance from vendor (in miles) Number of units used each week Unit cost Wheels \$110 20 \$24 400 \$80 2,000 20 \$240 Copper 105 10 20 120 \$20 800 40 \$60 Cables 20 8 4 125 \$3 36 56 \$16 Motor (large) 112 6 25 120 \$16 20 12 \$110 Motor (small) 85 2 12 15 \$15 44 7 \$95 Dampers 10 75 2 2,000 \$2 490 675 \$8 Batteries (type D) 120 4 30 48 \$11 1,800 18 \$136 Cushions 5 70 0 1,400 None 3 824 \$4 Screws 10 80 2 2,600 \$1 48 540 \$6 Protective Glass 7 50 3 1,060 \$1 114 570 \$14