OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (Mcgraw-hill Series Operations and Decision Sciences)
OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (Mcgraw-hill Series Operations and Decision Sciences)
7th Edition
ISBN: 9780077835439
Author: Roger G Schroeder, M. Johnny Rungtusanatham, Susan Meyer Goldstein
Publisher: McGraw-Hill Education
Question
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Chapter 17, Problem 4P

a)

Summary Introduction

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)

Expert Solution
Check Mark

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.

Transportation cost=825250=3.30

Compute inventory carrying cost:

The inventory cost is 20 percent carrying charge for an average of 6 months

Inventory carrying cost=83×(0.202)=8.30

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)

Summary Introduction

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)

Expert Solution
Check Mark

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:

OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (Mcgraw-hill Series Operations and Decision Sciences), Chapter 17, Problem 4P

Hence, the weighed score is 4.13 for the supplier from Country M and 4.24 for in-house production.

c)

Summary Introduction

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)

Expert Solution
Check Mark

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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