Reference no: EM131192169

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 (%)

1	1	3
1	2	9
2	1	6
2	2	2

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.