Drake Radio
Drake Radio got its start during World War I by manufacturing radio communications equipment for the military. By the start of World War II, Drake was one of the largest suppliers of military communications equipment. After World War II, Drake diversified into the following three market areas:
- Military communications equipment
- Amateur radio equipment
- CB radios and equipment
Using its technology and experience gained from manufacturing military communications equipment, Drake became known as one of the best producers of amateur radio equipment. Drake especially excelled with its single sideband radios and its two-meter radios for amateur use. Although these radios were expensive, they were of the finest quality and always in demand.
In developing CB radios, however, Drake decided to mass produce cheap units that would have a wide appeal and a low price.
To help protect its good name in military communications equipment and amateur (ham) radios, these inexpensive CB radios were marketed under the brand name of Hustler.
In 1975, George Populas, the president of Drake Electronics, decided to investigate the possibilities of entering into the market of home stereo systems. These stereo systems would be high quality, highly priced, and marketed with the Drake name.
The most remarkable stereo system that Drake manufactured was the DR-2000, which was a sophisticated stereo receiver. The demand for the DR-2000 was fairly constant from month to month. (See Figure 1.)
The DR-2000 had all the features of a stereo receiver that carried a price tag of $765. Some of these features included the ability to connect four different speaker systems, loudness control, flatness control, blend control, and complete digital read out. Of course, it could be connected to one or more receivers, tape units, turntables, and so on. Instead of having a bass control to regulate the low frequencies and a treble control to regulate the high frequencies, the DR-2000 had five separate controls that regulated five frequency ranges. One control regulated frequencies from 0 to 500 Hz; another control regulated frequencies from 500 to 5,000 Hz; a third regulated the frequencies between 5,000 to 10,000 Hz; a fourth regulated frequencies between 10,000 to 15,000 Hz; and a fifth, the frequencies between 15,000 and 50,000 Hz.
One of the biggest selling features of the DR-2000 was its ability to use the DR-2000 RC, the remote control device for the stereo receiver. Because all of the switching and components were solid state, the engineers of Drake Electronics were able to develop a complete remote control station that was no bigger than a cigarette pack. The basic idea for the remote control device was borrowed from that of television, and Drake engineers were able to control all functions by the DR-2000 RC. Each remote control box cost $75, and many people purchased more than one unit. The ability to control the stereo system from literally anywhere in a house was one of the system’s biggest selling features, but it also caused some problems in homes with children. As a result, Drake developed a master control unit that parents could keep and that would override all other remote control units and the controls on the stereo receiver.
Another outstanding feature of the DR-2000 was its completely modular design, shown in Figure 2. Each module was contained in a completely separate, color coded box. By unlatching four hidden slides, the top of the cabinet could be removed, giving access to all of the modules.
The control module contained a microprocessor chip that monitored the operations of all of the other modules. If one of the modules stopped functioning correctly, the control module would activate a warning light on the front panel that indicated which module was not working properly. The owner could pull out the appropriate module and replace it with a new module from a nearby Drake dealership. If a Drake dealership was not close, Drake promised two-day, COD delivery. The malfunctioning module could even be sent to Drake or given to a Drake dealership to be repaired or for a refund.
All of the modules, except the FM tuner, were manufactured by Drake and stored until they were needed. Annual carrying cost was estimated to be 25 percent for all modules. The FM tuner modules were supplied by Collins Electronics, which also adjusted and sealed them. The cost to place an order was estimated at $50 per order, and the time to receive an order from Collins was approximately two weeks. Collins also offered quantity discounts on its FM tuners. (See Table 1).
| TABLE 1 Quantity discount from Collins on FM tuners | |
| Quantity | Price |
| 0-100 | $25 |
| 101-500 | 24 |
| 501 and over | 22 |
Figure 1
Nitobitso Electronics also manufactured FM tuners compatible with the DR-2000. Because of its location in Japan, the time to receive an order was about two months, and the ordering cost was $100 because of the additional required paperwork. (See Table 2.)
| TABLE 2 Quantity discount from Nitobistso on FM tuners | |
| Quantity | Price |
| 0-200 | $25 |
| 201-800 | 23 |
| 801-2,000 | 22 |
| 2,001 or more | 21 |
Figure 2
1. What is the reorder point for Collins and Nitobitso? In order to figure out the reorder points for the two suppliers, daily demand for the FM tuner must be derived. Since one FM tuner is required for each DR-2000 (stereo system), demand for tuners is equal to 1 X (demand for DR-2000).
Demand for DR-2000’s appears to be fairly constant and stable, based on the figures from Figure 1. An average monthly demand can be calculated as follows:
(Demand for Jan. + Demand for Feb. + Demand for Mar. + Demand for Apr.)/4
= (801 + 807 + 795 + 797)/4 = 800 per month
Assuming that there are 20 working days per month, daily demand can be estimated as follows:
Avg. Monthly Demand + # days/months = Avg. daily demand 800 + 20 = 40 units
The reorder point is equal to daily demand times the lead time.
ROP = dL
For Collins, lead item is 2 weeks which (following the previous assumption about working days per month) is equal to 10 days. Therefore, ROP = 40 units/day X 10 days = 400 units, meaning that if Drake Radio is being supplied by Collins, the firm should reorder stock when inventory reaches a level of 400 units.
For Nitobitso, the lead time is 2 months or 40 days. Therefore, ROP = 40 units/day X 40 days = 1,600 units, meaning that if Drake Radio is being supplied by Nitobitso, the firm should reorder stock when the inventory falls to a level of 1,600 units.
2. Would you recommend that Drake get FM tuners from Nitobitso? Explain your answer. To make a sound recommendation, total inventory costs for both Collins and Nitobitso must be determined. Both companies have quantity discounts.
Annual demand is estimated to be 9,600 units (800 units/month X 12 months/yr.).
The first step in determining inventory costs is to determine what the economic order is; then total costs can be derived.
Collins:
The particular price multiplied times carrying cost percentage was chosen based on trial and error. Whatever the EOQ turned out to be, the price per unit was adjusted accordingly.
Using total costs, an evaluation of the price breaks due to the quantity discount can be done:
TCQ* = (9,600/400)(50) + (400/2)6 + 24(9,600) = $232,800
TCP3 = (9,600/501)(50) + (501/2)(5.5) + 22(9,600)
= $213,535.83
The lowest total inventory cost for Collins is $213,535.83 with EOQ of 501 units.
Nitobitso:
TCQ* = (96,00/577.85)(100) + (577.85/2)(5.75) + 23(9,600)
= $224,122.65
TCP3 = (9,600/801)(100) + (801/2)(5.5) + 22(9,600)
= $214,601.25
3. Everything else being equal, which supplier of FM tuners would you want with a fluctuating demand?Everything else being equal, Collins would be the best sup- plier of FM tuners in the event of fluctuating demand. Collins’ lead time is substantially less than Nitobitso’s. Should high demand occur during the time when a shipment is expected, stock- outs could occur. With a short lead time, lost sales are kept to a minimum. Thus, a supplier with a shorter lead time is less of a risk to a purchaser whose product demand fluctuates a great deal.
