a)
To determine: The total cost of producing in Country M.
Introduction:
Supplier selection is the process of evaluating the performance of each supplier and comparing it with in-house production to choose a capable supplier to support the output of the organization.
a)
Explanation of Solution
Given information:
It is given that Company D is considering outsourcing its door production to Country M. The price quoted by the company of Country M is $83 for 5,000 units of standard door per year. The transportation cost is $825, which holds 250 doors. In order to send engineers to prequalify plant costs, $5,000 is required and to negotiate the contract, $1,000. The inventory cost is a 20 percent carrying charge for an average of 6 months.
Company D is currently situated in Country U, where the production cost is $119. In addition to this, the following information is given:
| Criteria | Weight | Supplier from Country M | In-house | ||
| Rating | Score | Rating | Score | ||
| Quality and delivery | 16% | 3 | 4 | ||
| Price | 60% | 5 | 4 | ||
| Social responsibility | 7% | 2 | 5 | ||
| Currency risk | 17% | 3 | 5 | ||
| Total | 100% | ||||
Determine the total cost producing in Country M:
| Price of the door | ₹ 83.00 |
| Transportation cost | ₹ 3.30 |
| Pre-qualify supplier | ₹ 1.00 |
| Manage contract | ₹ 0.20 |
| Inventory carrying | ₹ 8.30 |
| Total | ₹ 95.80 |
Working note:
Price of the door, pre-quality supplier, and manager contract are given.
Compute transportation cost:
The transportation cost is $825 for one run, which holds 250 doors.
Compute inventory carrying cost:
The inventory cost is 20 percent carrying charge for an average of 6 months
Hence, the total cost of producing in Country M is $95.80 (refer to the table) per door, which is less than producing in Country U ($119).
b)
To determine: The total weighed scores for in-house production and Country M’s supplier.
Introduction:
Supplier selection is the process of evaluating the performance of each supplier and comparing it with in-house production to choose the capable supplier to support the output of the organization.
b)
Explanation of Solution
Given information:
It is given that Company D is considering outsourcing its door production to Country M. The price quoted by the company of Country M is $83 for 5,000 units of standard door per year. The transportation cost is $825, which holds 250 doors. In order to send engineers to prequalify plant costs, $5,000 is required and to negotiate the contract, $1,000. The inventory cost is a 20 percent carrying charge for an average of 6 months.
Company D is currently situated in Country U, where the production cost is $119. In addition to this, the following information is given:
| Criteria | Weight | Supplier from Country M | In-house | ||
| Rating | Score | Rating | Score | ||
| Quality and delivery | 16% | 3 | 4 | ||
| Price | 60% | 5 | 4 | ||
| Social responsibility | 7% | 2 | 5 | ||
| Currency risk | 17% | 3 | 5 | ||
| Total | 100% | ||||
Determine the total weighted score:
| Criteria | Weight | Supplier from Country M | In-house | ||
| Rating | Score | Rating | Score | ||
| Quality and delivery | 16% | 3 | 0.48 | 4 | 0.64 |
| Price | 60% | 5 | 3 | 4 | 2.4 |
| Social responsibility | 7% | 2 | 0.14 | 5 | 0.35 |
| Currency risk | 17% | 3 | 0.51 | 5 | 0.85 |
| Total | 100% | 4.13 | 4.24 | ||
Computation of total weighted score:
Hence, the weighed score is 4.13 for the supplier from Country M and 4.24 for in-house production.
c)
To determine: Whether the firm should outsource or not.
Introduction:
Supplier selection is the process of evaluating the performance of each supplier and comparing it with in-house production to choose a capable supplier to support the output of the organization.
c)
Explanation of Solution
Given information:
It is given that Company D is considering outsourcing its door production to Country M. The rice quoted by the company of Country M is $83 for 5,000 units of standard door per year. The transportation cost is $825, which holds 250 doors. In order to send engineers to prequalify plant costs, $5,000 is required and to negotiate the contract, $1,000. The inventory cost is a 20 percent carrying charge for an average of 6 months.
Company D is currently situated in Country U, where the production cost is $119. In addition to this, the following information is given:
| Criteria | Weight | Supplier from Country M | In-house | ||
| Rating | Score | Rating | Score | ||
| Quality and delivery | 16% | 3 | 4 | ||
| Price | 60% | 5 | 4 | ||
| Social responsibility | 7% | 2 | 5 | ||
| Currency risk | 17% | 3 | 5 | ||
| Total | 100% | ||||
Determine whether the firm should outsource or not:
It is better to produce the door in-house rather than outsourcing. Even though the price is less for outsourcing, the other ratings favor in-house production. The weighted score is maximum for in-house production. Hence, there is no need to outsource the production.
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Chapter 17 Solutions
OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (Mcgraw-hill Series Operations and Decision Sciences)
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