Beruflich Dokumente
Kultur Dokumente
Possum Timber
No. of
activities
Wombat Plumbing
Emu Insulation
No. of
activities
No. of
activities
Unit level
Downtime: poor material
400
10
4 000
800
Order material
500
40
20 000
48
24 000
30
15 000
Receive order
360
40
14 400
60
21 600
38
13 680
Inspect order
600
40
24 000
60
36 000
38
22 800
Return material
440
2 200
1 760
15
6 600
Pay supplier
380
12
4 560
48
18 240
12
4 560
1 120
2 240
13
14 560
$90 000
0.20
18 000
0.60
54 000
0.20
18 000
Order level
$89 400
$155 600
$96 000
Purchase cost
240 000
300 000
148 000
$329 400
$455 600
$244 000
0.3725
0.5187
0.6486
Wombat Plumbing is the most expensive supplier to deal with in absolute terms, as it has the highest
supplier activity costs, but proportional to the value of orders Emu Insulation is a poorer performer as it
has the highest supplier performance index.
The high costs of Wombat Plumbing are mainly due to the high number of orders, inspections and
payments to suppliers and the large number of orders and receipts. Sixty per cent of the supplier
relationship manager's time was spent working with Wombat Plumbing and this is the largest component
of supplier activity costs. This may be due to Wombat being a much larger supplier to Jacaranda, or it
may be due to the need to solve more relationship problems between Wombat and Jacaranda. However,
relative to purchase cost, Wombats supplier activity costs are not as poor as those of Emu Insulation.
Emu Insulations high supplier performance index seems to be driven by a large number of disputed
invoices and orders returned to the supplier. Also, with purchases from Emu costing less than half the cost
of purchases from Wombat, there are more than half as many deliveries (38 compared with 60 deliveries
for 49.3% material cost).
The most cost-effective supplier is Possum Timber, due to the small number of orders and deliveries
relative to the value of their material, and the low number of payments given the number of deliveries.
In selecting its suppliers, Jacaranda Builders should assess the ability of the suppliers to deliver on time,
at the required level of quality and at the right price. For new suppliers, it can be difficult to assess
whether suppliers have the capability to meet these requirements. However, if any of the three existing
suppliers contracts are due for renegotiation, then Jacaranda has performance data that can be used to
assist in the decision.
On the basis of the above data Jacaranda may decide not to renew the contract of Wombat or Emu
Insulation unless there are changes that can reduce the number of supplier activities. In practice, firms
often discuss these data with the supplier to find ways to improve their performance.
PROBLEM 15.35 (25 minutes) Economic order quantity: equation approach; effects of
JIT purchasing: manufacturer
(2)(4 800)($300)
$8
360 000
= 600
Using the formula given for requirement
1:
Total annual cost of ordering and
storing XL-20
4 800
600
$300
$8
600
2
$4800
Note that this cost does not include the actual cost of XL-20 purchases (i.e. the quantity purchased multiplied
by the price).
annual requiremen t
order quantity
4 800
600
EOQ
(b)
(2)(4 800)($60)
$40
14 400
= 120
annual requiremen t
order quantity
4 800
120
40
$360 000
54 000
1 800 000
(120 000)
50 000
Salary savings*
150 000
(140 000)
$2 154 000
* Note: The cost of the two transferred employees is excluded because Pacific Player will continue to have
these individuals on the payroll.
$240 000
54 000
1 800 000
(150 000)
50 000
150 000
(140 000)
$2 004 000
* Note: The cost of the two transferred employees is excluded because Pacific Player will continue to have
these individuals on the payroll.
Long-term contracts under a JIT purchasing system can include tight standards with respect to the quality
of materials purchased and delivered. This may reduce the need for incoming inspections of materials
from the suppliers.