The Strategic Sourcing Recommendation Paper is designed to assess your understanding and application of a number of procurement strategic tools and frameworks explored in this subject. You will be allocated a case study and will be required to assume the role of Procurement Manager. Drawing upon what you have learnt in the subject, you are required to critically analyse the case study, generate options and provide a series of well justified strategic recommendations, which are supported by data and the application of various procurement frameworks and tools.
The case study requires that each person prepare a response on his or her own. While there are no right or wrong answers, there are good and bad answers, answers that are not supported by diagnostics as well as hasty and impractical recommendations. This assessment highlights the process of arriving at your own conclusions and recommendations, rewarding those that marshal evidence in the case analysis and carefully interpret the data to support their recommendations.
Overall Strategic Direction
NashTech is recognized as a medium-sized high technology company situated in Australia. The company decided to enter the wireless mobile in 2014 with Nixel. The report aims to discuss on the relevant sourcing strategy, supplier analysis, risk and cost analysis. The appendix of the report will further include Gantt Chart, Supplier Financial Analysis, Supplier Evaluation and Selection and Inventory Management Analysis.
The main processes considered for evaluating the timeframe is depicted with Overall Strategic Direction, Sourcing Strategy – single versus multiple, Sourcing Strategy – domestic versus international, Market Analysis, Supplier Financial Analysis, Supplier Financial Analysis, Capacity Analysis and Supplier Evaluation and Selection (Christopher 2016).
Interpretations and conclusions
The Gantt chart has been prepared in such a manner that it is able to depict the relevant sourcing strategy, supplier analysis, risk and cost analysis. It can be seen that the maximum time needed for the activity is market analysis with 9 days. The second highest time taking activity is seen with the inventory management analysis with 8 days. The total duration of the project is seen as 66 days.
Strategic items (High profit impact and high supply risk)
The SK Hynix is identified as the highest ranked supplier with more than 12% global market. The risks associated to this supplier is depicted with 8000 defects ppm. The services provided by the company is observed with high profit impact and high risk of supply.
Bottleneck items (Low profit impact and high supply risk)
The monster designs are identified as a fairly large and reputable manufacturer however the office manager has also described that that the payments having a strong association with the local not-for-profit social enterprise. These are further considered with the employed intellectually made for the disabled people for supporting them in undertaking viable paid employment.
Leverage items (High profit impact and low supply risk)
The Hi-P is seen as small proprietary limited manufacturer therefore the risk is identified to be the relatively low. However, the success of the supplier is largely based on commitment of developing new technology especially which will be able to enhance the overall reliability. Therefore, such a supplier is recognized with high profit impact and low risk of supply.
Non-critical items (Low profit impact and low supply risk)
The Cerrano Cell can be inferred with one third of the total market, which are comparatively lower than other markets. In addition to this, the ramp up time is also the highest. Therefore, in the supply position matrix these strategies are considered to be having Low profit impact and low supply risk.
|
Benefits |
Risks |
|
|
Single Sourcing |
· Better Accountability · Channel Visibility · Cost Savings · Quicker Delivery (Monczka et al. 2015) |
· Limited to the compliance pertaining to acquired goods or services as prescribed in the purchasing agreement · The organizations are bound to track and review and provide justification at least annually to avoid incidence of any such risk (Hugos 2018) |
|
Multiple Sourcing |
· More options of procurement channels for goods and services · Fosters competition thereby driving down prices · Provides access to a different network (Boonjing, Chanvarasuth and Lertwongsatien 2015) |
· Increased burden of keeping track of channel visibility · Increase in the procurement cost (Brandenburg, Govindan, Sarkis and Seuring 2014) |
Interpretations and conclusions
It can be inferred that multiple sourcing options will be appropriate for a large corporate whearas the single sourcing will be more apt for the medium sized organizations and small entities.
|
Benefits |
Risks |
|
|
Domestic Sourcing |
· More Flexibility · Reduced SC Costs · Greater Flexibility · Better control of the operations · More revenue to the community/home country (Fredendall and Hill 2016) |
· More chance of resistance to change · Close Staff relationships may interfere with ethical supplier selection · Too much dependency on the buyers thereby by creating complacency (Fahimnia, Sarkis and Davarzani 2015) |
|
International Sourcing |
· More access to specialized intellectual capital, design and fresh research · Better access to new technology and capacity · Scope of superior quality of products · Focus on core processes and having more capital to invest (Wang and Cullinane 2015) |
· Time zone differences · Quality expectations · Production scheduling · Compliance issues · Fluctuations in International exchange rates · High transaction costs and intricacies in the documentation (Wisner et al. 2014) |
Interpretations and conclusions
Despite of the significant risk International Sourcing is seen as most suitable option and higher scope of growth.
The competitive industry of the suppliers is seen with the presence of suppliers such as SK Hynix, Hi-P, Cerrano and Monster Designs.
Sourcing Strategy – single versus multiple
The Hi-P is considered as the most suitable supplier for development stage. Even with the limited size and located in a small warehouse. The scope of development for such a supplier is considered with exclusive designing of data projector devices.
Core
The SK Hynix is identified as the core supplier with more than 12% global market. The risks associated to this supplier is depicted with 8000 defects ppm. The services provided by the company is observed with a highly responsive service.
Nuisance
The Cerrano Cell can be inferred with one third of the total market, which are comparatively lower than other markets. In addition to this, the ramp up time is also the highest. It needs to be further depicted that such a supplier is more susceptible to be losing customers.
Exploitable
The monster designs are identified as a fairly large and reputable manufacturer. There is a significant scope of improvements in terms of manufacturing digital data projector equipment. Moreover, the location of the warehouse is situated in less than 10 kilometers of NashTech’s Facilities (Pathak et al. 2015).
It needs to be seen that as per the asset utilization ratios Asset Turnover Ratio of Hi-P is seen to be maximum. Similarly, Inventory Turnover Ratio and Receivables Days is also favorable for Hi-P. In terms of Capitalization ratio Hi-P is most preferable as per the Quick Ratio, ROE and Interest coverage ratio.
|
Capacity Analysis |
||||
|
|
SK Hynix |
Hi-P |
Cerrano |
Monster Designs |
|
|
(Units) |
(Units) |
(Units) |
(Units) |
|
Line Capacity |
12000000 |
4000000 |
41000000 |
9000000 |
|
Installed Capacity Percentage |
95% |
83% |
84% |
92% |
|
Capacity Utilised |
11400000 |
3320000 |
34440000 |
8280000 |
|
Total Remaining Capacity |
600000 |
680000 |
6560000 |
720000 |
|
Remaining Capacity Percentage |
5% |
17% |
16% |
8% |
Interpretations and conclusions
The supplier evaluation shows that the highest score is allocated to Si-P supplier in terms of specifications, manufacturing and CSR. This is seen with a total score of 684.
As per the inventory Management analysis the total holding cost as on May 2019 is inferred as $ 5,29,247 for SK Hynix, $ 6,03,229 for Hi-P, $ 5,32,416 for Cerrano Cell and $ 7,37,949 for Monster Designs.
|
Initial Costs |
SK Hynix |
Hi-P |
Cerrano Cell |
Monster Designs |
|
Tooling Costs |
1100000 |
1655000 |
2000000 |
1800000 |
|
Purchase Price Costs |
||||
|
Total Purchasing Price |
134 |
142 |
122 |
148 |
|
Acquisition Costs |
||||
|
Ordering Cost |
750 |
160 |
750 |
1800 |
|
Sea Transport |
3.85 |
0 |
4.4 |
0 |
|
Land Transport |
0.7 |
2600 |
2.8 |
|
|
Duties, Customs, Tariffs |
3.1 |
0.68 |
2.8 |
0 |
|
Insurance |
1.98 |
0.14 |
1.82 |
0 |
|
Financing Cost |
3 |
1 |
3 |
0 |
|
Receival Cost |
550 |
160 |
1100 |
200 |
|
Quality Costs |
||||
|
Quality Defect Inspections |
8000 |
13000 |
12000 |
9500 |
|
Quality Defect Cost |
1072000 |
1846000 |
1464000 |
1406000 |
|
Holding Costs |
||||
|
Total Holding Cost |
61386 |
165586 |
42389 |
37436557 |
|
Total Costs (over two years) in Million |
21814 |
14068 |
69560 |
32176 |
|
Total Costs (average per unit) |
2242832 |
3682650 |
3520376 |
40654205 |
Interpretations and conclusions
The average cost per unit is identified as a highest for Monster Designs with the total average cost of $ 40654205 per unit.
Sourcing Risk Management Plan Worksheet
|
Potential Concern Area |
Potential Risk |
Risk Reduction Plan |
|
Quality & Specification
|
The main risk associated to quality is seen with the decreasing amount of On-time delivery record. In addition to this, the quality aspect of the suppliers is also seen with increasing defects ppm (Touboulic and Walker 2015). |
There should be more emphasis given on reducing the total defects ppm. Additionally, the suppliers need to ensure that there is more focus given on On-time delivery record. In addition to this, similar to the process of Hi-P data the maximum on any initial orders, and any other issue needs to be attributed to tooling aspects that would be worked out within the first month during pilot testing, dropping to well less of this ongoing (Hazen et al. 2014). |
|
Manufacturing & Capacity
|
There may be several problems such as lesser amount of free capacity available to match with the line capacity for the individual suppliers. The installed capacity may not be able to match with the total required capacity. The manufacturing process may not meet the estimated date of arrival and there may be a considerable amount of discrepancy in the Duties, customs and tariffs (Govindan et al. 2014). |
The plan for the reduction of the risk needs to be identified as per the various types of the initiatives which are related to the inventory management as per the lead time of the individual orders. Typically, the suppliers need to keep a lead time of lead time of weeks to ensure that they never run out of capacity. |
|
Pricing & Commercials
|
The quoted price may not be competitive enough to match with the other suppliers. This may cause several amounts of problems in the estimation of the revenue generated from retainer contracts. The tooling cost may be also very highly process which will not be preferred by the customers. There may be considerable number of issues in the procurement which may be an impact of the commercial. |
The improvement process of discrepancies of the pricing and commercial needs to be resolved by maintaining a low quoted price of services. The suppliers need to look forward to downsize the budget and minimize the tooling cost (Mylan et al. 2015). |
|
Logistics
|
There may be significant loss of due to improper loading and unloading of the items. Additionally, the supplier may face risk of increased taxes and duties which are needed to be paid at the time of delivery. |
The logistical issues need to be resolved by ensuring storage of the storage of the goods are done in an appropriate manner in the truck. Moreover, there may be several types of measures taken to use the appropriate container for the transportation of a particular type of goods. There should be a goods insurance company maintained by the suppliers for compensating the losses. |
|
Organizational Alignment
|
The organization alignment needs to be considered with the various types of risks which are seen with the issues with the organizational policies |
Such risks need to be resolved by taking the appropriate measures which relates to maintaining a stable corporate governance policy. |
|
Corporate Responsibility
|
The CSR risks are associated to the problems with the financial requirement needed to aid the different programs for the welfare of the stakeholders. The CSR needs to be also depicted as per various risks pertaining to difficulties in adhering to the CSR practices. |
The reduction of the risk needs to be based on the various types of measures which are associated with the complying with the GRI guidelines while addressing the sustainability issues. |
|
Management Capability
|
The total installed capacity may deplete in case of significant issue with increase in total demand. |
The management needs to ensure a competitive quoted price is maintained with the orders which will be able to ensure that there is no instance depletion of the line capacity. |
|
Other Issues
|
There may be significant difference between the Estimated day of arrival and frequency of shipment. |
These issues needs to be addressed by maintaining a pre-forecast of the orders to be delivered. |
As per the overall depictions of inventory management analysis, total cost analysis and risk assessment it is most feasible to select Hi-P is the preferred supplier.
Conclusion
The discussions of the report has discerned that SK Hynix is identified as the highest ranked supplier with more than 12% global market. The risks associated to this supplier is depicted with 8000 defects ppm. However, the success of the supplier is largely based on commitment of develoing new technology especially which will be able to enhance the overall reliability. Therefore such a supplier is recognized with high profit impact and low risk of supply.
References
Boonjing, V., Chanvarasuth, P. and Lertwongsatien, C., 2015. An Impact of Supply Chain Management Components on Firm Performance. In Proceedings of the 6th International Conference on Engineering, Project and Production Management (pp. 555-565).
Brandenburg, M., Govindan, K., Sarkis, J. and Seuring, S., 2014. Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research, 233(2), pp.299-312.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Fahimnia, B., Sarkis, J. and Davarzani, H., 2015. Green supply chain management: A review and bibliometric analysis. International Journal of Production Economics, 162, pp.101-114.
Fredendall, L.D. and Hill, E., 2016. Basics of supply chain management. CRC Press.
Govindan, K., Kaliyan, M., Kannan, D. and Haq, A.N., 2014. Barriers analysis for green supply chain management implementation in Indian industries using analytic hierarchy process. International Journal of Production Economics, 147, pp.555-568.
Hazen, B.T., Boone, C.A., Ezell, J.D. and Jones-Farmer, L.A., 2014. Data quality for data science, predictive analytics, and big data in supply chain management: An introduction to the problem and suggestions for research and applications. International Journal of Production Economics, 154, pp.72-80.
Hugos, M.H., 2018. Essentials of supply chain management. John Wiley & Sons.
Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., 2015. Purchasing and supply chain management. Cengage Learning.
Mylan, J., Geels, F.W., Gee, S., McMeekin, A. and Foster, C., 2015. Eco-innovation and retailers in milk, beef and bread chains: enriching environmental supply chain management with insights from innovation studies. Journal of Cleaner Production, 107, pp.20-30.
Pathak, V.K., Hazarika, B. and Pandey, K.M., 2015, August. A Study of Supply Chain Management in Some Selected Cement Companies of North-East India. In Conference Proceedings of 6th International Conference on Recent trends in Applied Physical, Chemical Sciences, Mathematical/Statistical and Environmental Dynamics (PCME-2015), Krishi Sanskriti Publications, JNU, New Delhi (pp. 89-94).
Touboulic, A. and Walker, H., 2015. Theories in sustainable supply chain management: a structured literature review. International Journal of Physical Distribution & Logistics Management, 45(1/2), pp.16-42.
Wang, T. and Cullinane, K., 2015. The efficiency of European container terminals and implications for supply chain management. In Port management (pp. 253-272). Palgrave Macmillan, London.
Wisner, J.D., Tan, K.C. and Leong, G.K., 2014. Principles of supply chain management: A balanced approach. Cengage Learning.
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