Supplier selection and order allocation:
Case study - Introduction:
One of the most strategic decisions facing a company in supply chain management is the purchasing strategy. In most industries, cost of raw materials and procured components consume a significant portion of the company's budget. For example, in technology firms, purchased materials and services account for up to 80% of the total product cost.
TABLE
Data for Mighty Manufacturing
|
|
Scenario A
|
Scenario B
|
|
Total sales ($000)
|
$76,537
|
$75,092
|
|
Return on assets
|
62.03%
|
57.93%
|
|
Average time through supply chain (days)
|
42.68
|
40.03
|
|
Order cycle time to customer (days)
|
4.38
|
3.42
|
|
Achieved fill rate
|
98.95%
|
97.08%
|
|
Average production capacity utilization
|
89.22%
|
82.47%
|
The average quality levels that each buyer requires from all the suppliers are given as follows:
Buyer 1: 6%
Buyer 2: 4%
TABLE:
Fixed Cost of Suppliers
Supplier Fixed Coal
1 53500
2 $3600
TABLE
Lead Time of Products in Days
|
Product
|
Buyer
|
Supplier
|
Lead Time
|
|
1
|
1
|
1
|
8 |
|
1
|
1
|
2
|
17 |
|
1
|
2
|
1
|
14 |
|
1
|
2
|
2
|
24 |
|
2
|
1
|
1
|
28 |
|
2
|
1
|
2
|
8 |
|
2
|
2
|
1
|
16 |
|
2
|
2
|
2
|
12 |
TABLE
Quality of Product (Measured by Percentage of Rejects)
Product Supplier Quality (%)
The average quality levels that each buyer requires from all the suppli¬ers are given as follows:
Buyer 1: 6%
Buyer 2: 4%
The price break points of the suppliers are given in Tables 5.25 and 5.27. Level 1 break points represent the quantity at which price discounts apply. Level 2 break points represent the maximum quantity of a par¬ticular product a supplier can provide to that buyer. For example, for product 1, Buyer 1 and Supplierl, the first 85 units will cost $180/unit and the next 65 units (i.e., 150-85) will cost $165/unit; no more than 150 units of product 1 can be purchased from Supplier 1 by Buyer 1.