CheapJet Airlines is a "low cost" leader airlines in the industry. Over the years, CheapJet has implemented a variety of tactics to keep fares cheap....

CheapJet Airlines is a "low cost" leader airlines in the industry. Over the years, CheapJet has implemented a variety of tactics to keep fares cheap. These include cutting weight from seats in airplanes, cutting the turnaround time between flights and purchasing jet fuel on the futures market to lock in prices when they thought prices would rise. They also fly just one model plane - the SuperJet 888 - which reduces their maintenance costs because they can standardize on parts and mechanic training. Related to spare parts, the company strives to keep their inventory costs as low as possible. For example, consider tires for their airplanes which according to historical data the company needs 40,000 a year. Because of the tire quality requirements, these tires are expensive, costing CheapJet in the range of $2,250 each. CheapJet uses a 30% holding cost factor for parts inventory. When CheapJet places an order, they go out to the tire producers with a "reverse auction" where they specify the tire characteristics, number of tires desired, and delivery timing requirements. Tire companies then submit bids to try to win the business. CheapJet supply chain managers like this process for getting tires but it is expensive costing the company about $80,000 each time it goes through this process to place an order.

1. Assuming that the lowest bid for tires will be $2,250, what is the number of tires that CheapJet should order each time it places an order? Based on this answer, how many orders per year will the company need to make per year if the demand for tires remains at 40,000?
2. Referring to the above answers, what is the total inventory cost (i.e., setup cost + holding cost) for the inventory plan you have calculated?
3. Assuming that demand for tires is steady throughout the 365-day year, and if lead time on getting tires is 11 days, at what inventory level should CheapJet place an order?
4. Suppose CheapJet could find a quality tire supplier who would deliver tires at $2,300 each in a Just-in-Time manner so that they deliver the exact number of tires needed each day so that Cheapjet would not need to carry any inventory. If this could happen, CheapJet believes its cost of receiving the tires each day would be $1,000. Would this be an option CheapJet should consider? Discuss both the financial and non-financial aspects of this.