Question

Supply Chain Management

Supplier Positioning

WWA purchases a variety of products and services to manufacture its product. The table below provides insight into these purchases on an annual basis:

Category	$ per year spend	$ per item	Comments
Sheet metal	50k	50	Commodity item with multiple suppliers domestic and foreign. Due to the bulk of this material the company needs sources willing to work on a consignment basis
Final machining services	125k	100	Special equipment is required to perform these services. Additionally, the work is highly complex
Parts machined to WWA drawings	110	105	Small quantities make the parts expensive but there are a lot of local and international suppliers capable of manufacturing the parts.
Painting services	20k	15	Painting providers must be qualified by the customer
Consumables (welding rod, hardware, etc)	5k	5	Must meet industry requirements but there are a lot of suppliers.

Linear Averaging

The supply chain team has identified 4 suppliers in Low Cost Regions and evaluated them on Quality, Price, OTD, and transportation costs. The price evaluation uses an inverted scale, the lower the score the higher the price. Use Excel perform linear averaging and select the best supplier. See for the details of each supplier and their evaluation.

		Sources of Supply Ratings
Selection Criteria	Weights	Shanghai	Hong Kong	Singapore	Queretaro
Quality	0.40	50	80	90	70
Price	0.35	20	50	70	60
OTD	0.20	90	60	70	90
Transportation Costs	0.05	20	50	80	60
Your procurement team is evaluating suppliers in LCR's (low cost regions).
Use Linear Averaging to determine the best supplier (the one with the highest score)

Answer 1

The linear Averaging method is one of the most common techniques used to select the best supplier.In this technique simply weights are provided to your selection criteria according to requirement.Here in this question weights are provided among Quality, Price, OTD, and transportation costs. The addition of these weights should be 1.

Here the addition of weights = (0.4+0.35+0.25+0.5) = 1

Next suppliers are given a rating from past experiences in those criteria.To calculate the score of a particular supplier we need t multiply each criterion and the score of a supplier in that criterion and the take addition of all the values to get the final score of the supplier.The excel sheet below shows this method to find the score of each supplier.

Selection Criteria	Weights	Shanghai	Hong Kong	Singapore	Queretaro
Quality	0.4	50	80	90	70
Price	0.35	20	50	70	60
OTD	0.2	90	60	70	90
Transportation Costs	0.05	20	50	80	60
Score		46	64	78.5	70

Formula in Excel

Selection Criteria	Weights	Shanghai	Hong Kong	Singapore	Queretaro
Quality	0.4	50	80	90	70
Price	0.35	20	50	70	60
OTD	0.2	90	60	70	90
Transportation Costs	0.05	20	50	80	60
Score		=SUMPRODUCT($E$5:$E$8,F5:F8)	=SUMPRODUCT($E$5:$E$8,G5:G8)	=SUMPRODUCT($E$5:$E$8,H5:H8)	=SUMPRODUCT($E$5:$E$8,I5:I8)

According to the results, we got the Singapore supplier has the highest rating of 78.5

So, the company should think of selecting that supplier.

Any doubt, please comment