Concept explainers
(a)
Interpretation: Total annual logistics cost needs to be calculated based on the given data.
Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.
(a)
Explanation of Solution
Given Information:
Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
Contract Manufacturer (Tier 1 supplier) | Price per unit @ Q = 10,000 (C) | Price per unit @ Q = 20,000 (C) | Tariff cost (Ti) per unit | Transport mode cost (Tm) per unit | Order Costs (Co) | Cost to store one unit per year (Ch) | Order Lead Time in Days |
Xiajing Supplier | $ 1.10 | $0.92 | $0.2 | $0.35 | $ 655 | $ 1.35 | 180 |
Boston Medical Supplier | $ 1.25 | $1.15 | $0.00 | $0.15 | $ 260 | $ 1.00 | 90 |
Werkzeug Supplier | $ 1.35 | $1.00 | $0.10 | $0.20 | $ 350 | $ 1.05 | 120 |
Annual Demand (D) = 20,000 units
Working days − 365 days in a year
Total Annual Logistic cost can be calculated using following formula:
Total Annual Logistic Cost (TALC) = Total Procurement cost + Total Tariff cost + Total Transportation cost + Total Order Cycle inventory cost + Total Pipeline inventory cost
Where,
D = Annual Demand
Q = Order Quantity
Co = Ordering Cost
Ch= Inventory holding cost
d = Average Daily demand
L = Lead time
For Order quantity of 10,000 units
Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
Contract Manufacturer (Tier 1 supplier) | Total Procurement Cost | Total Tariff Cost ($) | Total Transport Cost ($) | Order Cycle Inventory Cost ($) | Pipeline Inventory Cost ($) | Total Annual Logistic Cost ($) | |
Xiajing Supplier | 22,000 | 4,000 | 7,000 | 1,310 | 13,315.06 | 47625.06 | |
Boston Medical Supplier | 25,000 | 0 | 3,000 | 520 | 4,931.5 | 33451.5 | |
Werkzeug Supplier | 27,000 | 2,000 | 4,000 | 700 | 69,041.09 | 102741.09 |
For Order quantity of 20,000 units
Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
Contract Manufacturer (Tier 1 supplier) | Total Procurement Cost | Total Tariff Cost ($) | Total Transport Cost ($) | Order Cycle Inventory Cost ($) | Pipeline Inventory Cost ($) | Total Annual Logistic Cost ($) | |
Xiajing Supplier | 22,000 | 4,000 | 7,000 | $ 655 | 13,315.06 | 46970.06 | |
Boston Medical Supplier | 25,000 | 0 | 3,000 | $ 260 | 4,931.5 | 33,191.5 | |
Werkzeug Supplier | 27,000 | 2,000 | 4,000 | $ 350 | 69,041.09 | 102,391.09 |
Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw | |||||||
Contract Manufacturer (Tier 1 supplier) | Total Procurement Cost | Total Tariff Cost ($) | Total Transport Cost ($) | Order Cycle Inventory Cost ($) | Pipeline Inventory Cost ($) | Total Annual Logistic Cost ($) | |
Xiajing Supplier | 22,000 | 4,000 | 7,000 | $ 655 | 13,315.06 | 46970.06 | |
Boston Medical Supplier | 25,000 | 0 | 3,000 | $ 260 | 4,931.5 | 33,191.5 | |
Werkzeug Supplier | 27,000 | 2,000 | 4,000 | $ 350 | 69,041.09 | 102,391.09 |
Total Annual Logistics Cost of each supplier at different order quantity will be
Total Annual Logistic Cost | Order Quantity (Q) | |
10,000 units | 20,000 units | |
Xiajing Supplier | $ 47,625.06 | $ 46,970.06 |
Boston Medical Supplier | $ 33,451.5 | $ 33,191.5 |
Werkzeug Supplier | $ 102,741.09 | $ 102,391.09 |
(b)
Interpretation: Recommendation needs to be given based on the given data.
Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.
(b)
Explanation of Solution
As per the data calculated in above part,
Boston Medical Supplier should be recommended as it has low total annual logistic cost at both order quantities.
(c)
Interpretation: Recommendation needs to be given based on the given data.
Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.
(c)
Explanation of Solution
Company should also look for quality parameters that will affect product sales and rate the vendors accordingly before making the final supplier decision.
Company should also consider the management oversight cost and calculate the overall supply chain cost at economic order quantity in order to make a balanced supply chain decision.
Want to see more full solutions like this?
- Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?arrow_forwardScenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?arrow_forwardOutline the importance of random supplier visits.arrow_forward
- Why was the Supplier Relationships section (Section 15) introduced in the 2013 version of ISO 27002? Share your perspective, supported by a real-world example illustrating the necessity of incorporating this section.arrow_forwardUnilever, a multinational consumer goods company, plans to expand their market. For years, they have dealt into wide range of products, one of which is related to laundry. To expand their market, they are planning to introduce their washing machines with special feature of ‘utilizing less water for laundry’. This requires unique supplier who can work on this feature. You as a Manager of this new division, is required to do ‘Five forces model’ to analyze the industry of electronics that Unilever is about to enter. Identify the forces and briefly explain the threats that can suppress the profitability of Uniliver.arrow_forwardUnilever, a multinational consumer goods company, plans to expand their market. For years, they have dealt into wide range of products, one of which is related to laundry. To expand their market, they are planning to introduce their washing machines with special feature of ‘utilizing less water for laundry’. This requires unique supplier who can work on this feature. You as a Manager of this new division, is required to do ‘Five forces model’ to analyze the industry of electronics that Unilever is about to enter. Identify the forces and briefly explain the threats that can suppress the profitability of Unilever.arrow_forward
- List and discuss potential supply chain modeling pitfalls to avoid.arrow_forwardSupply Chain Performance refers to the extended supply chain’s activities in meeting end-customer requirements, including product availability, on-time delivery, and all the necessary inventory and capacity in the supply chain to deliver that performance in a responsive manner.Supply Chain Performance crosses company boundaries since it includes basic materials, components, subassemblies and finished products, and distribution through various channels to the end customer.It also crosses traditional functional organization lines such as procurement, manufacturing, distribution, marketing & sales, and research & development.To win in the new environment, supply chains need continuous improvement. With this regard,Discuss in detail, the fundamental methodologies used to measure the supply chain performance.arrow_forwardPlease describe the goals of Electronic Data Interchange (EDI) in a made-up supply chain and provide three examples of the types of electronic documents that would be exchanged across the organizations involved. Specify how standards aid in making a number of distinct systems compatible with one another.arrow_forward
- Neverland Company, a retailer, plans to sell 15,000 units of Product X during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month?arrow_forwardWhy is it that SMF travels faster over vast distances compared to MMF?arrow_forwardSpecific individual firm measures in supply chains are the following EXCEPT Question 46 options: unit cost. supplier turnover. flexibility. on-time delivery.arrow_forward
- Purchasing and Supply Chain ManagementOperations ManagementISBN:9781285869681Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. PattersonPublisher:Cengage Learning