Hubbard Industries is undertaking an analysis of supplier costs to evaluate each supplier's relative costs and performance. Currently, they are focusing attention on the two suppliers of door handles. The suppliers are SafePlus Ltd and BrushFinish Ltd. Hubbard has been dealing with these suppliers for several years. Most orders are placed with SafePlus Ltd since it charges only $7.20 per handle, whereas BrushFinish Ltd charges $6.80 per handle. In the past year, Hubbard purchased 30,000 handles from SafePlus Ltd and 15000 handles from BrushFinish Ltd. For the most recent year, the following supplier-related activities and costs were lidentified:

Activity

Place purchase order : total cost is $25000 on 100 orders

Receive and inspect deliveries: total cost is $84000 on 400 deliveries

Store inventory: total cost is $8000 on 200 units stored per year

Rework product due to poor quality material: total cost is $25000 on 500 units reworked

Production downtime due to poor quality material: total cost is $5000 on 100 hours downtime

Receive and inspect late deliveries: total cost is $17500 on 50 late deliveries

An analysis revealed that last year the following activities related to the two suppliers:

Activity

Place purchase order: SafePlus Ltd 20 orders and Brush Finish Ltd 10 orders

Receive and inspect deliveries: SafePlus Ltd 200 deliveries and Brush Finish Ltd 50 deliveries

Store inventory: SafePlus Ltd 70 units per year and Brush Finish Ltd 16 units per year

Rework product due to poor quality material: SafePlus Ltd 200 units and Brush Finish Ltd 10 units

Production downtime due to poor quality material: SafePlus Ltd 48 hours and Brush Finish Ltd 4 hours

Receive and inspect late deliveries: SafePlus Ltd 40 late deliveries and Brush Finish Ltd 5 late deliveries

Required:

1. Calculate the following:

a. Unit and total supplier related activity costs for each supplier. b. Unit and total cost of ownership for each supplies. c. The supplier performance index for each supplier.

2. Based on your calculations, discuss the relative performance of each supplier.

3. What changes would you recommend to minimise supplier-related costs.