Strategic Sourcing at ASS Group

You are the supply chain analyst in ASS Group that assembles five different models of

motorbikes that is sold in several stores in Australia. The company uses the same engine for all five models. You have been asked to choose
a strategic supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you
currently order the engines in lot sizes of 1 ,000 each. Because ofthe unique characteristics ofthe engine, special tooling is needed
during the manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained quotes from two local engine
suppliers and you need to decide which one to use. The following data have been collected:

Requirements (annual forecast) 12,000
unhs
Weight per engine 22 kg
Order processing cost $125 per order
Inventory carrying cost 20% ofthe average value of inventory

per year

Note: Assume that half of lot size is in inventory on average (1 00012 = 500 units)

Two qualified suppliers have submitted the

following quotations:

Order Quantity

Supplier 1

Supplier 2

1 to 1,499 unitslorder

$510 per unit

$505 per unit

1 .500 to 2,999

unitslorder

$500 per unit

$505 per unit

3,000+ unitslorder

$490 per unit

$488 per unit

Tooling cost

$22,000 per year

$20,000 per

year

Distance

125 km

100 km

The following freight rates have been obtained from a reliable transportation provider:

Truckload (40 tonne
each load) $0.8 per tonne-km
Less than truckload $1.20 per tonne-km

Note: 1 tonne = 1,000 kg

Questions to be addressed in your

analysis:

1. Perform a total cost of ownership analysis and select a supplier.

2. lfthe warehouse size and administrative restrictions are

resolved, would it make economic sense to order in truckload quantities? Would your supplier selection change in this case? (Note: do not
round the number of orders)

3. Browse the available literature for some ofthe latest and well-adopted supplier evaluation and selection methods (other than TCO). Briefly discuss some ofthese methods and provide real world examples.