Jacaranda builders is taking an analysis of supplier costs in order to evaluate the relative costs and performance of each supplier. They have isolated a range of activities that are consumed by suppliers, identified activity drivers and estimated the cost per unit of activity driver for the last year

Activity cost per unit

Downtime due to poor quality material $450 per unit reworked

Order material $500 per order

Receive order $360 per delivery

Inspect order $600 per delivery

Return material to supplier $440 per return

Pay supplier $380 per invoice

Disputed invoice amount $1120 per dispute

The 3 major suppliers to the company consumed the following number of activities

Activity Possum timber Wombat plumbing Emu Insulation

Units reworked 10 0 2

Order material 40 48 30

Receive order 40 60 38

Inspect order 40 60 38

Return material to supplier 5 4 15

Pay supplier 12 48 12

Disputed invoice amount 2 0 13

In addition, a supplier relationships manager (salary $90, 000) was employed. It is estimated that 60% of his time was spent serving Wombat Plumbing and 40% for the other 2 suppliers.

The cost of material purchased from each supplier was as follows:

Possum Timber $240,000

Wombat Plumbing $300,000

Emu Insulation $148, 000

Required:

1. Calculate the total cost of ownership for each of the 3 suppliers

2. Determine the supplier performance index for each supplier

3. Discuss the relative performance of each supplier

4. Do you have any recommendation on supplier selection for the management of Jacaranda Builders?