4. Supplier selection Case description In 2013, the consulting company XY Ltd started an analysis to find a location in Russia for placing a new industrial cluster for producing agricultural machines and combines. At the first stage, the requirements for factory building were defined for main producers as shown in Table 1: The operations management expert at XY Ltd also estimated total area requirements according to logistics infrastructure as 1215ha (120,000150,000m). Second, the location for the new cluster had to be selected subject to supply chain networking. That is why locations close to big cities with developed supplier networks are preferable. Third, in order to take into account future developments, options for location extendibility should be considered. In addition, collaborative usage of such resources as energy, security, logistics, customs, and employee transportation were considered to be important selection criteria. Practical approach Since the first decision, the country of the new location (Russia) had already been taken, the second step included a selection from among the following regions: Region 1: St. Petersburg Automotive Cluster Region 2: Nord-West region Machinery Cluster Region 3: Moscow/Kaluga Automotive Cluster Region 4: Chernozem area Agricultural Cluster Region 5: South Russia Agricultural Cluster Region 6: Ural region Automotive Cluster Region 7: Wolga region Automotive Cluster (see Fig. 2) Figure 2: Potential location map At the third stage, evaluation criteria have to be developed. Then, a so-called Long List of possible locations has to be developed. Next, a Short List (max. three locations) is developed through a joint decision-making workshop with all cluster participants, after which the Short List locations will be visited. The alternative locations should be evaluated based on strategic, logistics, infrastructural, legal permission, construction and sustainability issues. According to the consultations with future cluster participants, regions A, B, C and D were considered to be preferable. Within these regions, strategic, logistics, infrastructural, legal permission, construction and sustainability criteria were evaluated. During the workshop with future cluster participants, the Nord-West region (Region 2) and the Chernozem area (Region 4) were selected for detailed analysis. During the detailed analysis, the locations Chekhov and Orjol were selected onto the Short List. Numerical analysis Three critical selection criteria and their importance (weights) were defined to compare locations Chekov and Orjol are Infrastructure factors, flexibility and extendibility factors, and monetary factors (see Table 2). After that, experts evaluated both locations on the scale from 0 (very low) to 10 (very high). A detailed analysis is provided in Table 2. Table 2: Factor ranking analysis Questions: a. Recommend location for a new manufacturing cluster. b. What is the score for the "Costs" factor if the following scores and weights for sub-factors are considered (see Table 3)? Table 3: Sub-factors score c. What are advantages and disadvantages of the Scoring Analysis?

Finland D B Kate Mario Cane 2 D Kalaga 6 Kasan Nabehy Chem Togliatt 4 Wororysh 5 Desen Figure 2: Potential location map Table 2: Factor ranking analysis 2 5 O 3 6.8 Main and sub-criteria Analysis result Weight Osjol Chekhov 1. Infrastructure Orjol Chekhov 30% 7.5 7.2 Closeness to motor- 200m 8km 30% 10 5 way Regional streets 3 streets 1 street 10% 10 8 Driveways The driveway should Asphaltic way 15% be built Rail 300m 1.2km 5% 7 10 Airport At a distance 40km 10% 0 10 Public transportation Available but limited Very good 10% 6 8 Social environment Average Very good 10% 6 Closeness to custom- There is an OEM in 600km There is an OEM in ers (OEM) 10% 6 400km 2. Flexibility / Exten- dibility Orjol Chekhov 30% 9.7 Qualified employees yes Very low 25% 10 Qualification of em- o universities in proximity with No majors in agricul-25% 10 ployees majors in agriculture ture Extendibility yes yes 20% 10 10 Suppliers yes Limited 20% 10 8 Joint resource usage yes yes 10% 7 7 3. Monetary factors Orjol Chekhov 40% 8.7 3.1 Land costs 3 US$/m2 45 US$/m2 30% 10 Construction costs Province level (low) Capital level Moscow 25% 8 (high) Salary level low high 20% 3 5 Energy costs low high 10% 8 Recycling costs low high 5% 7 Taxes average high 5% 9 Govermental financial "maximal 5% 0 support 8.6 5.4 no 10 Total Table 3: Sub-factors score Sub-factor Score Weights Land costs 2 30% Construction costs 2 25% Salary level 5 20% Energy costs 4 10% Recycling costs 4 5% Taxes 7 5% Govermental financial support 0 5% 100% c. What are advantages and disadvantages of the Scoring Analysis? Finland D B Kate Mario Cane 2 D Kalaga 6 Kasan Nabehy Chem Togliatt 4 Wororysh 5 Desen Figure 2: Potential location map Table 2: Factor ranking analysis 2 5 O 3 6.8 Main and sub-criteria Analysis result Weight Osjol Chekhov 1. Infrastructure Orjol Chekhov 30% 7.5 7.2 Closeness to motor- 200m 8km 30% 10 5 way Regional streets 3 streets 1 street 10% 10 8 Driveways The driveway should Asphaltic way 15% be built Rail 300m 1.2km 5% 7 10 Airport At a distance 40km 10% 0 10 Public transportation Available but limited Very good 10% 6 8 Social environment Average Very good 10% 6 Closeness to custom- There is an OEM in 600km There is an OEM in ers (OEM) 10% 6 400km 2. Flexibility / Exten- dibility Orjol Chekhov 30% 9.7 Qualified employees yes Very low 25% 10 Qualification of em- o universities in proximity with No majors in agricul-25% 10 ployees majors in agriculture ture Extendibility yes yes 20% 10 10 Suppliers yes Limited 20% 10 8 Joint resource usage yes yes 10% 7 7 3. Monetary factors Orjol Chekhov 40% 8.7 3.1 Land costs 3 US$/m2 45 US$/m2 30% 10 Construction costs Province level (low) Capital level Moscow 25% 8 (high) Salary level low high 20% 3 5 Energy costs low high 10% 8 Recycling costs low high 5% 7 Taxes average high 5% 9 Govermental financial "maximal 5% 0 support 8.6 5.4 no 10 Total Table 3: Sub-factors score Sub-factor Score Weights Land costs 2 30% Construction costs 2 25% Salary level 5 20% Energy costs 4 10% Recycling costs 4 5% Taxes 7 5% Govermental financial support 0 5% 100% c. What are advantages and disadvantages of the Scoring Analysis