The Director Of Supply Management At Acme Industries
The Director Of Supply Management At Acme Industries Has Come To You
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 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!
Paper For Above instruction
Analysis of Make-or-Buy Decision for Fasteners at ACME Industries
The decision of whether to manufacture orpurchase fasteners is a critical aspect of strategic supply chain management, especially for high-volume, high-value components such as screws used in manufacturing. Based on the provided data, this essay analyzes ACME Industries’ make-or-buy decision, evaluates sourcing strategies, conducts supplier scoring, and considers LEAN philosophies.
1. Should ACME Manufacturing Be Considered?
To evaluate if ACME should produce the fasteners in-house, analyzing the total cost of internal production versus procurement costs is essential. The total production cost is given as $600,000 annually, with a maximum demand of 1,875,000 fasteners per year. Calculating the unit cost for in-house production:
Unit cost of in-house production: $600,000 / 1,875,000 = approximately $0.32 per fastener.
Compare this with the bids: Felder Company at $0.22, Grotto, Inc. at $0.25, and Helm Brothers at $0.30. Since the internal production cost ($0.32) exceeds all three bids, outsourcing would be more economical, with Felder offering the lowest price. Therefore, ACME should not consider making these fasteners internally but should opt for outsourcing from Felder Company, assuming quality and delivery standards are met.
2. Commodity Classification and Sourcing Strategy
Referring to the portfolio analysis model, this item is a Leverage commodity because it is high-value, standardized, and the supply market is competitive with multiple capable suppliers. The strategic approach should be to maximize leverage—exploiting market competition to negotiate favorable prices and terms while ensuring supply security. Hence, a competitive bidding approach with multiple suppliers is advisable, but with a primary focus on cost efficiency, leveraging supplier competition.
3. Supplier Evaluation Using Weighted Point System
Given that price and quality are equally important, each with 10% higher importance than delivery and cycle time, the importance weights are as follows:
- Price: 25%
- Quality: 25%
- Delivery: 15%
- Cycle Time: 15%
Total: 100%.
Step 1: Assign scores (1-3) based on supplier performance
- Felder Company: Price ($0.22), Quality (99.73%), Delivery (96%), Cycle Time (2 weeks)
- Grotto, Inc.: Price ($0.25), Quality (99.73%), Delivery (99%), Cycle Time (3 weeks)
- Helm Brothers: Price ($0.30), Quality (5000 errors/million), Delivery (98%), Cycle Time (24 hours)
Step 2: Transform performance metrics into scores
- Price: lower price gets higher score
- Quality: higher quality gets higher score
- Delivery: closer to 100% on-time gets higher score
- Cycle Time: shorter cycle time gets higher score
Step 3: Assign scores based on a 1-3 scale
| Supplier | Price Score | Quality Score | Delivery Score | Cycle Time Score | Weighted Total |
|---|---|---|---|---|---|
| Felder | 3 (lowest price) | 3 (95-100%) | 3 (≥95%) | 2 (2 weeks) | (0.253)+(0.253)+(0.153)+(0.152)=0.75+0.75+0.45+0.30=2.2 |
| Grotto | 2 (next lowest price) | 3 (95-100%) | 3 (≥95%) | 1 (3 weeks) | (0.252)+(0.253)+(0.153)+(0.151)=0.50+0.75+0.45+0.15=1.85 |
| Helm Bros. | 1 (highest price) | 1 (errors per million: 5000 errors, worst) | 2 (98%) | 3 (24 hours) | (0.251)+(0.251)+(0.152)+(0.153)=0.25+0.25+0.30+0.45=1.25 |
Based on this scoring, Felder Company achieves the highest weighted score of 2.2, indicating it is the most suitable supplier considering all evaluated parameters.
4. Single or Multiple Sourcing?
Given the analysis, it is advisable to adopt a single sourcing strategy from Felder Company. This choice streamlines quality management, supplier relationships, and simplifies logistics. While multiple sourcing can mitigate risks, the clear preference based on cost, quality, and performance scores supports a focused approach. Nonetheless, maintaining secondary suppliers as backups might balance risk mitigation without complicating operations significantly.
5. LEAN Philosophy and Supplier Adoption
LEAN principles emphasize waste reduction, process efficiency, and continuous improvement. The supplier showing the most promise in this regard is Felder Company, primarily due to its superior quality, delivery reliability, and cycle time. The minimal errors and quick cycle time suggest that Felder may have adopted LEAN practices such as just-in-time delivery, process standardization, and waste minimization. Helm Brothers' rapid cycle time (24 hours) also hints at LEAN practices, but the higher price and lower quality score diminish its overall suitability. Grotto, Inc., with similar quality and delivery performance but a longer cycle time, shows some LEAN elements but not as prominently as Felder.
Overall, suppliers demonstrating high consistency, low errors, and short cycle times are indicative of LEAN adoption, especially Felder and Helm Brothers, and these traits are crucial for ACME to maintain a competitive edge in quality and cost efficiency.
Conclusion
In conclusion, based on the economic, strategic, and performance analyses, ACME Industries should outsource fastener production to Felder Company. This strategy leverages cost savings, high quality, reliable delivery, and possibly LEAN practices, thereby supporting the company's overall procurement and production objectives. Adopting a single-source approach from Felder minimizes complexity, enhances supplier relationships, and provides a solid foundation for future supply chain robustness.
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