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MGMT6082 Domestic And International Sourcing
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MGMT6082 Domestic And International Sourcing
1 Download6 Pages / 1,448 Words
Course Code: MGMT6082
University: Fanshawe College
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Country: Canada
Question:
The team realized this supplier selection decision, which was one of the most critical involving the new product line, was also going to be difficult. Until the team analyzed the numbers and discussed the findings from the field visits, it was clear that no consensus existed among team members concerning which supplier(s) to select. To reach a decision, your group must do the following but not limited to:
1.Identify the immediate issue and other issues and concerns.
2.Perform a situational analysis (SWOT, PEST, Porters 5 forces etc.)
3.Perform various analysis and interpretation designed to support the supplier evaluation and selection decision. These analyses, with supporting worksheets or templates provided, include:
Financial Risk Analysis While this case assumes that the cross-functional team visited four suppliers, organizations often perform a preliminary financial risk analysis to identify the suppliers that may not warrant further consideration due to excessive financial risk.
Total Cost Analysis Unit price rarely, if ever, equals the total cost of doing business with a supplier. This analysis requires each group to identify relevant additional costs beyond unit price. This involves considering a combination of actual and estimated costs. Consider potential currency issues in your analysis.
Supplier Evaluation and Selection Analysis As organizations continue to rely on fewer suppliers, the supplier selection process takes on greater importance. The Supplier Evaluation and Selection Analysis is a robust tool used during supplier assessment.
The development of a supplier evaluation and selection analysis follows a sequence of steps:
Identify Key Supplier Evaluation Categories
Supplier evaluations must include those performance categories that are relevant to the sourcing decision under consideration. Examples of supplier evaluation categories that a team or individual may evaluate include (but are not limited to):
Management and personnel capability • Cost competitiveness
Information systems capability • Quality performance
Process and technological capability • Environmental compliance
Delivery performance • Longer-term partnership potential
Flexibility • Volume capacity
Previous history and performance • Supplier’s supply management efforts
Responsiveness to customer needs • Information system capability
While including the relevant performance categories is critical, each additional category adds a greater degree of assessment complexity.
Weight Each Relevant Evaluation Category
The performance categories included within the analysis receive a weight proportional to the relative importance of that category. With any combination of weights, the weights must sum to 100%.
Identify and Weight Subcategories
Defines the broad performance categories included within the evaluation. This step requires the user to identify performance subcategories, if they exist, within each broader performance category. Each subcategory receives a weight, the total of which equals the weight of the broader performance category. For example, assume that supplier quality performance is 20% of the total score. Within that category, a team may create subcategories related to process control systems (5%), total quality commitment (8%), and parts per million defect performance (7%). Please note that the subcategories sum to 20%.
Define Scoring System for Categories and Subcategories
This step involves defining what each score means within a performance category. A clearly defined scoring system takes criteria that may be subjective and develops a quantified scale for measurement. The scoring metrics are reliable if different individuals interpret and score similarly the same performance categories under review.
Answer:
REC does not have the in-house capacity to manufacture 300 mAH NiHM battery required for manufacturing robotic vacuum cleaners. Thus, the ambition of the company to introduce its new innovation in the market in March 2002 to capture the market is in doubt. However, with the availability of different suppliers in the market such Batteries R Us, Oynas, Sanasonic and K-Power the company can still roll outs its new innovation in the market by its initial deadline. The decision to give the order for the required number of batteries for manufacturing the vacuum cleaners robots is not as simple as there are number of elements which are to be considered for ascertaining the most suitable supplier for the objective of the company (Doz, 2017).
Alternative Generation:
Batteries R Us.
K-power.
Decision criteria:
Overall cost of purchasing the batteries.
Quality of batteries.
Lead time between orders.
Efficiency in delivering quality battery.
Quality control.
Alternative assessment:
Qualitative
+
N
–
Quantitative
+
N
–
+
N
–
+
N
–
Decision
Go
Go
No
No
No
No
Go
No
No
Preferred alternative:
Batteries R Us seems the most likely supplier that would help the company to achieve its objectives.
Action and implementation plan:
Timing: The order should be placed immediately with the Batteries R Us.
Who: REC should give the order to supply batteries to Batteries R Us.
What: 300 mAh NiHM batteries shall be purchased.
When: The batteries should be ordered immediately.
Where: The batteries shall be received in the factory premises where the manufacturing activity shall take place.
How: Economic Order Quantity (EOQ) shall be used to order optimum quantity of battery to reduce the inventory costs (Hill, 2017).
Missing information:
There was no information about the quality of batteries to be supplied by different suppliers.
Assumptions:
Following assumptions have been made:
All the suppliers are expected to provide similar quality of batteries.
There is no restriction in foreign exchange transactions.
Quantitative analysis:
The table below shows the preference orders with Batteries R Us as the first preferred choice followed by Oynas and so on. The table below contains all the relevant details showing the amount of quotations, INCO terms, lead time in delivery, defective units and other important elements to select the preferred supplier to give the order of 3000 mAH NiHM batteries required for building robots by Robots Everywhere Corporation (Hill, Jones & Schilling, 2014).
Details
Batteries R Us
Oynas
Sanasonic
K-Power
Respective price quotations
$50 Ex work
$45 per unit
$48.50 per unit
$47.50 per unit
Terms and conditions (INCO)
FOB Chinese port
Ex-works
Ex-works
Lead time in delivery
1 week
10 Weeks
3 Weeks
8 Weeks
Ensuring delivery on correct time (%)
99.50%
In respect of large customers it is 95%
97%
99%
Quality of product
7,500 defects in PPM
9500 defects in PPM
10,500 defects in PPM
4,000 defects in PPM
Cost of transportation of batteries from R Us to REC
Per unit transportation cost would be $8 due to frequent delivery of small quantities
Per unit transportation cost is $8
Per unit transportation cost is $3
Per unit transportation cost is $8
Capacity of 3000 mAH NiHM Battery
90%
97%
88%
92%
Custom duties
0
Per unit custom duties $4.75
0
Per unit custom duties $4.75
cost of insurance
Per unit insurance cost is $0.5
Per unit insurance cost is $1
Per unit insurance cost is $0.75
Per unit insurance cost is $1.75
Shipment frequency
Every day
Once in every month (monthly)
Once in every week (weekly)
Once in every month (monthly)
Cost of tooling
$ 1 million
$900,000
$1 Million
$1.4 Million
Cost of ordering, inbound and quality inspection
$0.50 per unit
$2.25 per unit
$2.75 per unit
$1.25 per unit
Time in Ramp-up
3 months
2 months
3.5 months
4 months
Currency in which contract shall be denominated
Dollars
Chinese Yuan
Dollars
Dollars
Source: Table 1: Criteria for selection of supplier for mAH NiHM batteries.
Evaluation of going concern assumption of the suppliers:
Batteries R Us
Oynas
Sanasonic
K-Power
Debt to equity ratio:
Debt funds
120.50
1,243.50
22.50
80.50
Equity shareholders fund
280.80
1,913.90
91.20
251.10
Debt to equity ratio:
0.43
0.65
0.25
0.32
Capital gearing ratio
Equity shareholders fund
280.80
1,913.90
91.20
251.10
Fixed interest bearing funds
120.50
1,243.50
22.50
80.50
Capital gearing ratio
2.33
1.54
4.05
3.12
Source: Table 2 showing long term solvency position of the suppliers.
The long term solvency position of all the suppliers are not at any risk thus, none of the suppliers are at any risk of not operating in the long run. Hence, REC can place the contract of supplying batteries to any of the suppliers on the basis of cost and quality basis. The liquidity position of suppliers has also been evaluated to assess in case there would be any issue with the quality of the batteries will the supplier be able to make good the losses to REC.
Batteries R Us
Oynas
Sanasonic
K-Power
Current ratio
Total current assets
322.30
2,165.10
82.00
199.10
Total current liabilities
253.50
1,780.60
61.30
171.50
Current ratio
1.27
1.22
1.34
1.16
Quick ratio
Total current assets less inventories
249.80
1,107.40
44.50
121.40
Total current liabilities
253.50
1,780.60
61.30
171.50
Quick ratio
0.99
0.62
0.73
0.71
Source: Table 3 showing short term liquidity position of suppliers.
Similar to the long term solvency position the liquidity position of none of the suppliers is alarming to impact the decision of REC in regards to the supplying batteries to the company. Thus, the quoted price, lead time, insurance cost, delivery on time, transportation cost, custom duties, frequency of shipment, cost of tooling, costs of placing orders, quality inspection cost and inbound cost as provided in the table 1 shall be considered for selecting the supplier to supply 300 mAH NiHM batteries.
Recommendation:
Since It is clear from the above that though Batteries R Us have higher quotation but the lack of lead time, everyday shipment, minimum cost of insurance, no custom duties on batteries purchased, minimum cost of transportation, favourable INCO terms, 99.50% accurate timing in all deliveries whether small or large and minimum quantity of defects have made it the most preferred supplier to outsource the 3000 mAH NiHM batteries for building robots. Hence, the outsource contract should be given to Batteries R Us (Hitt & Duane Ireland, 2017).
References:
Doz, Y. L. (2017). Strategic management in multinational companies. In International Business (pp. 229-248). Routledge.
Hill, T. (2017). Manufacturing strategy: the strategic management of the manufacturing function. Macmillan International Higher Education.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.
Hitt, M., & Duane Ireland, R. (2017). The intersection of entrepreneurship and strategic management research. The Blackwell handbook of entrepreneurship, 45-63.
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