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SCM 301

Sourcing Exercise

The director of supply management at ACME Industries has come to you about choosing a source for a screw fastener that is used in many of your company’s products.  ACME considers these screws to have high value potential due to the amount of money spent to purchase them.  ACME could easily make this item, but there are also very many suppliers in the market, all of which have the capability to produce the fastener – it is not a unique item.  You have received three different bids in response to your Request for Proposal.  After some investigation into each company, you discover each supplier’s performance across four key performance parameters are as follows:

Provide your answers to the following.  Remember to show how you came up with your answer!

  Felder Company Grotto, Inc. Helm Brothers, LLC
Price/unit $0.22 $0.25 $0.30
Quality Level      99.37% 98.73% 500 errors per million producedSix Sigma
Delivery on-time 96% on-time 99% on-time 98% on-time
Order cycle time 2 weeks 3 weeks 24   hours



(1)    You estimate that the total cost for ACME to produce the fastener would be $600,000 annually.   You know maximum annual production need would be 1,875,000 fasteners.  Should ACME consider making this?




(2)     Given the information above and referring back to the portfolio analysis model (text pp. 203-205), what type of commodity is this, and what type of sourcing strategy should you employ?  What sort of tactics and actions?




(3)    Assume that you judge the Price/unit and On-time Delivery criteria to be equally important and that these are about 10% more important than Quality Level and Order cycle time.  Quality Level and Order cycle time have the same importance weight.  Using a weighted point evaluation system (text pp. 206-208) and scoring on a 1-3 scale, (3 being best, one being the worst) which supplier would you rate the best?  (Showing your work here is important!).



(4)    Based on the data and your answer above, would you choose a single source or multiple sources?  Maybe cross-sourcing or dual sourcing?  Why?  If multiple sourcing, how much business would you give each supplier?  Be specific!



(5)    Given our previous discussion of LEAN, would you suspect any of the above suppliers to have adopted LEAN philosophies?   If so, choose the one you think is the most LEAN.  What leads you to that conclusion?




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