Question

Q1. ABCD is going to purchase an auto parts component from one of two competing suppliers and it is going to base its decision, in part, on the supply chain performance of the two suppliers. The company has obtained the following data for average raw materials, work-in-process, and finished goods inventory value, as well as cost of goods sold for the suppliers. Assume each supplier operates 50 weeks per year.

	Supplier 1	Supplier 2
Cost of goods sold	$8,500,000	$14,800,000
Raw materials	255,000	870,000
Work-in-process	62,000	550,000
Finished goods	33,000	180,000

1. Determine which supplier has the best supply chain performance according to inventory turns and weeks of supply.
2. What other factors would the company likely take into account in selecting a supplier?

Answer 1

Solution:

a)

Supplier 1:

Total inventory = Raw materail + work in process + finished goods

=$255,000+$62,000+$33,000

=$350,000

Invnetory turnover = cost of goods sold / Total inventory

=$8,500,00/$350,000

=24.28 times per year.

Weeks of supply= Total inventory / cost of goods sold *52 weeks

=($350,000/$8,500,000)*52 weeks

=2.14 weeks

Supplier 2:

Total inventory = Raw materail + work in process + finished goods

=$870,000+$550,000+$180,000

=$1,600,000

Invnetory turnover = cost of goods sold / Total inventory

=$14,800,000/$1,600,000

=$9.26 times per year.

Weeks of supply= Total inventory / cost of goods sold *52 weeks

=($1,600,000/$14,800,000)*52 weeks

=5.62 weeks

Best supply chain performace is Supplier 1with inventory turns of 24.28 times per year and as per week of supply, the supplier 1 has best supply chain performance because lower the week of supply 2.14 week

b)

For selecting suppplier we has consider best supply chain performance in inventory turnover and best supply chain performance in weekly supply

In inventory turnover we have considered that high turnover per year

Where as for the week supply we will considered the lowest.

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