BUSSCM $1740$ Purchasing & Supply Management

Assignment #$2$

Supplier Performance Evaluation

Performance Criteria Non$-$Performance Costs Supplier

$($last $12$ months$)$ Vision Plus Digicam ICU Tech Clearpic

Purchase Volume $($units$)600,000500,000450,000300,000$

Unit Price $($$$)9\mathrm{.}308\mathrm{.}809\mathrm{.}8510\mathrm{.}15$

Delivery Cost $($$$/$unit$)0\mathrm{.}550\mathrm{.}800\mathrm{.}750\mathrm{.}90$

$3-$Year Price Inflation

$($annualized $\%)1\mathrm{.}0\%2\mathrm{.}0\%0\mathrm{.}5\%1\mathrm{.}5\%$

Defect Rate $($per $1,000)$ Rework $/$ replace cost $$30/$ unit $71038$

Received Damage Rate

$($per $1,000)$ Disposal $/$ credit recover cost $$12/$ unit $1115611$

Order Fill Rate $(\%)$ Every $1\%$ point below $98\%$ adds stock$-$out recovery

cost of $$0\mathrm{.}07/$unit to all units $($n$/$a if $>=98\%)94929991$

On$-$Time Delivery $(\%)$ Every $1\%$ point below $95\%$ adds expedite cost of

$$0\mathrm{.}04/$unit to all units $($n$/$a if $>=95\%)91879690$

Process Improvements

initiated by supplier $($#$)4021$

Technical Advances

initiated by supplier $($#$)5240$

$\%$ electronic purchasing

transactions $85607530$

Assignment Questions $(50$ pts$)$

$1)$ Calculate the supplier performance index $($SPI$)$ for each supplier, inclusive of delivery costs $-$ round to $3$ decimal places. $(15$ pts$)$

$2)$ Applying the SPI from question #$1,$ calculate the total delivered unit cost from each supplier, adjusted for inflation $-$

round to $2$ decimal places. $(10$ pts$)$

$3)$ Produce a weighted point system evaluation matrix for these suppliers. $(10$ pts$)$

a$)$ Use primary categories of Cost, Quality, Service, and Innovation $$ determine your own sub$-$categories.

b$)$ Determine your own weighting and scoring criteria

$4)$ If your goal is to rationalize and consolidate your purchasing volume with $2$ suppliers, which $2$ would you recommend

keeping? Why? Based on your adjusted $($for SPI and inflation$)$ pricing, what will be your annualized savings $($split the full

volume $60/40$ between your selected $2$ remaining suppliers$)?(10$ pts$)$

$5)$ For the $2$ suppliers that you choose, identify and explain at least $2$ areas in which you can challenge them for further

savings and$/$or continued performance improvement? $(5$ pts$)$As Purchasing Manager for a leading manufacturer of high end wireless security monitoring systems,

you$$ve been challenged by VP of Supply Chain to improve the cost and reliability of supply for the core

digital camera device for your company$$s security systems. Recent complaints from your top customer

has escalated supplier performance as a key strategy for the coming fiscal year. Coming out of a recent

off$-$site strategy meeting, the executive team believes that a key step in the supplier improvement process

will be to more fully evaluate and potentially rationalize the number of suppliers currently supplying the

camera device.

You currently purchase camera devices from four $(4)$ suppliers to ensure competitive pricing. However,

despite the success you$$ve realized in minimizing inflation for these devices and recognition you$$ve

received from your manager, in your last performance review you acknowledged to your manager that the

number of complaints you$$ve been receiving $($formal and informal$)$ has increased notably over the last $6$

months. At the conclusion of your performance review, you and your manager agree that a more robust

evaluation system is needed to more completely evaluate supplier performance and ultimately the true

cost of doing business with them.

Your company has been tracking supplier performance measures for years in the categories of cost$,$

quality, service, and innovation $$ the last $12$ months$$ data for the $4$ suppliers of digital cameras is in the

table below. With the increased emphasis on total performance, you know the traditional metrics aren$$t

going to be good enough to make a fully informed assessment of the suppliers$$ performance. With the

help of one of your peers in the Cost Accounting group, you were able to calculate costs of non$-$

performance as well.