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Should the appliance maker add a second compressor supplier?
The prompt
The appliance maker buys 240,000 compressors a year from one supplier at INR 4,000 each. A second supplier would take 30 percent of the volume at INR 4,200 each. Qualifying (approving) and managing it costs INR 0.6 crore a year. The team estimates a 10 percent chance each year that the main supplier stops for two months. Each lost washing machine costs INR 5,000 of contribution. The plant makes 20,000 machines a month. With a second supplier, half of the lost output could be saved. The main supplier has also offered a 2 percent price cut on its remaining volume if a second supplier is added. Is dual sourcing worth it?
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