Ref: Supply chain logistics and supplier recommendations
The supplier recommended is Park Technologies. From the analysis, Park Technologies has been observed to have very high overall quality performance. The company also has the second highest capacity available. The company also has the highest flexibility and responsiveness of the available suppliers. Finally, the company has exhibited high delivery performance in other previous similar contracts. As a result of these reasons, Park Technologies has the highest score in the weighted scorecard and therefore it is the most suitable company to supply the products. The decision has been made to single source the contract rather than multiple sourcing for a number of reasons. First, the logistics of dealing with multiple companies in supplying the same product are complex. This is because the production technologies may be different and the pricing will differ depending on the manufacturer. The companies examined for the contract also have the capacity to deliver all the products. This makes single sourcing more attractive as the selected company has the capacity to deliver all the products while the logistics will be simpler as there will only be one supplier.
Park Technologies has the highest quality of products compared to the other suppliers. This is indicated by the cost of quality non-conformance which at $1.40 is the lowest, with the next best performer having quality non-conformance costs of $2.59 which is almost double that of Park. This means that the company exhibits the fewest defects per million units and therefore its products are generally of a very high quality. The lower cost of quality non-conformance contributes to the lower price of the products despite their high quality.
Chart 1: Chart showing the quality non-conformance costs for the different suppliers
Park Technologies has the highest available capacity of the prospective suppliers. Demand is 588,000 units in year one and the estimated demand for year 2 is 120% of year one demand which is 705,600 units. With an available capacity of 821,640 per year, the company is expected to easily handle the expected demand. Park Technologies also have a current installed capacity of 91%. This means that even if demand for the second year was in the upper range, the capacity of the supplier can be increased to deal with the additional demand. This means that using a single source is sufficient because the company can manage to provide all the required units in year one and year two of the contract.
Current Installed Capacity (CIC) % 97.5% 91.0% 95.5% 91.0%
Available Capacity (in units)` 751,060 370,879 557,481 821,640
Table 1: Table summarizing the currently installed capacity and available capacity
Park Technologies has presented the second lowest bid of all the prospective suppliers. This is at an average price of $130 per unit, which is second to Elecoms $127 per unit average price. This price is attractive when the overall weighted score is observed. The quality of the products delivered by Park Technologies has been seen to be very high as the company reports the fewest defects per million units. Although the company will pay the second lowest price, quality of the products will be assured.
Park Technologies is also technically sound and is viewed as one of the most promising and dynamic companies in the industry. This means that the company can adapt quickly to changes in the industry while maintaining quality. The company also has unutilized production capacity which can be used as demand increases.
Park Technologies has a high asset turnover and return on equity. This is an indicator that the company is able to use its assets effectively to maximize sales. The company also has a significant profit ratio of 3.8% which is high for the industry. This shows that the company is in a strong financial position and it will therefore be able to deliver on the order made.
Overall, the company consistently scores above average and in some cases excellently in the balanced score card. This results in the company having the highest score in the balanced score card at 3.82, which is above Elecom, its closest competitor which scored 3.675. The additional capacity and high quality of products coupled with a lower cost than Elecom make Park Technologies the most appropriate company for supplier.
A number of risks have been identified when selecting Park Technologies. The first of these is that the company has minimum experience dealing with North American companies. This could be a potential risk because the company might not be aware of some regulations that govern that particular market. In order to minimize this risk, it is important to go into detail with the company about specifics of the order and the market to ensure that it complies with all legal requirements of the market. Another major risk identified is the logistics of delivery. Although the company had the second lowest quote, it is located overseas. Unforeseeable circumstances can therefore lead to increase in transportation costs. Being located overseas also means that the lead time required is slightly greater than local companies. In order to minimize these risks, it is important to consult with the company early in order to ensure that orders are placed in time so as to cover for the increased lead time. Arrangements can also be made to ensure that production costs are minimized which would cover for unforeseen increase in transportation costs.
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