You have recently been appointed as the Procurement lead role on the cross functional team at Alset conducting market research to source a new miniature data projector - a component in a new line of Alset multimedia device branded SPARKi's. The SPARKi combines the two functions of tablet PC and smartphone. As the Procurement lead, you are now responsible for determining the final supplier selection and document your proposed sourcing strategy.

Below are the detail analysis of the 4 suppliers (Taegeuk Nangja, FernFuel, Nadeshiko Tech, Mateldas).

Taegeuk Nangja

Relevant Taegeuk Nangja data from their tender response include: FOB quoted price = $134 AUD, however quoted as currency in South Korean Won Ramp up time = 13 weeks Delivery lead time = 5 weeks (from time to order to day received) Line capacity = 12,000,000 units Current installed capacity for data projector production = 95% On-time delivery record = 98% on-time (for current customers) Quality = 8,000 defects ppm Minimum batch size = 10,000 units for mini container Currency denomination = South Korean Won Price basis = FOB = Free On Board Tooling cost = $1.1 million plus any extras deemed required on final contract Payment Terms - payment on Bill Of Lading (prior to departure of ship) - approx 4 weeks prior to delivery

Relevant Alset data specific to Taegeuk Nangja include: Frequency of Shipment = four weekly Estimated day of arrival = Every Fourth Monday Ordering cost per order = $750 due to needing all paperwork and individual orders prior to shipment Receiving cost per delivery = $550 for unloading container and inspection Sea transport (ship) = $38,500 per batch in mini container Land transport (truck) = $7,000 per batch in mini container including load / unload and transport from Sydney to Wollongong Duties / customs / tariffs = $31,000 per batch in mini container Insurance = $19,800 per batch in mini container Financing Cost = Total Cost of Units X 4 weeks / 52 weeks X 4% since Alset will pay for the items 4 weeks prior to receipt in store

FernFuel

Relevant FernFuel data from their tender response include: DAT quoted price = $143 per unit Ramp up time = conservatively 3 months Delivery lead time = 2 weeks (from time of order to day received) Current utilised capacity = 83% Current installed capacity = 4 million On-time delivery record = 93.5% on-time (but measured as DIFOTIS) Quality = from experience 13,000 defects ppm as a maximum on any initial orders, with any issues usually attributed to tooling aspects that would be worked out within the first month during pilot testing, dropping to well less of this ongoing Minimum batch size = 4,000 units for optimizing transport options on a purpose designed pallet, which could be recycled and reused Price basis = DAT = Delivered at Terminal to Sydney (Port Botany), with customs and duties payable, expected to be low Tooling cost = $1,655,000 as a maximum, downside to budget maximum to Alset through an open book arrangement

Relevant Alset data specific to FernFuel include: Frequency of Shipment = Fortnightly Estimated day of arrival = Every second Thursday Ordering cost per order = $160 due to individual purchase orders fortnightly Receiving cost per delivery = $160 for unloading container and inspection Land transport (truck Sydney to Wollongong direct) = $2,600 each pallet including load /unload and return transport of the pallets Insurance = $0.14 per unit while in transit, including the pallets Duties / customs / tariffs = $0.68 per unit - due to the lower tariffs paid on New Zealand goods and lower customs clearance due to the pallet design

Nadeshiko Tech

Relevant Nadeshiko Tech data from the tender response include: FAS quoted price = 11,586.34Yen. Today conversion rate is 94.97JPY to 1AUD Ramp up time = 15 weeks Delivery lead time = 6 weeks (from time of order to day received) Current installed capacity for data projector production = 84% Market Share = 32.82% Plant Installed Capacity = 41,000,000 units On-time delivery record = 95.5% on-time (for large customers, somewhat less for smaller customers) Quality = 12,000 defects ppm Minimum batch size = 20,000 units for container Currency denomination = Yen Price basis = FAS = Free alongside ship Payment Terms - payment on Bill Of Lading (prior to departure of ship) - approx 4 weeks prior to delivery Tooling cost = $2,000,000 Australian dollars equivalent, however could incur lost production costs additional to this

Relevant Alset data specific to Nadeshiko Tech include: Frequency of Shipment = monthly Estimated day of arrival = first working day of month Ordering cost per order = $750 due to needing all paperwork and individual orders prior to shipment Receiving cost per delivery = $1,100 for unloading container and inspection Sea transport (ship) = $88,000 per container (includes labour to pack and load ship with the dunnage provided) Land transport (truck) = $16,000 per container including load / unload and transport from Sydney to Wollongong Duties / customs / tariffs = $56,000 per container Insurance = $1.82 per unit Financing Cost = Total Cost of Units X 4 weeks / 52 weeks X 4% since Alset will pay for the items 4 weeks prior to receipt in store

Matildas

Relevant Matildas data from their tender response include: FIS quoted price = $149 per unit Ramp up time = 8 weeks Delivery lead time = 1 weeks (for initial order, then on a weekly rolling forecast but could delivery with a days notice where required). They explained that much of the tooling time and ramp up time was reduced allowing more testing during the first week Frequency of Shipment = daily Estimated day of arrival = Any weekday, 9am - 10am Plant capacity = 9 million units per annum Current operating capacity = 92% On-time delivery record = 99.95% on-time Quality = recent performance 9,500 defects ppm as a historical high Minimum batch size = 1 unit - due to being so close and having their own courier system, they could deliver any number per day Price basis = FIS = Free In-store - unloaded Tooling cost = $1,800,000 Payment terms = monthly - pay on the last day of the month for all deliveries that month

Relevant Alset data specific to Matildas include: Ordering cost = $1,800 as a total for the two years as a blanket order and monthly invoicing Receiving cost per delivery = $200 per month for inspection (25 months of deliveries) Financing cost = not required as payment would be after receipt of the items during the month

QUESTION:

This template requires the team to quantify costs that are in addition to the quoted unit price. Using cost information provided in the case for each supplier, calculate the estimated total cost over the two years and total costs as an average per unit for each of the 4 suppliers to determine the total cost to the business.

Total Cost Analysis Worksheet

Initial Costs

Tooling Costs

Purchase Price Costs

Total Purchasing Price

Acquisition Costs

Ordering Cost

Sea Transport

Land Transport

Duties, Customs, Tariffs

Insurance

Financing Cost

Receival Cost

Quality Costs

Quality Defect Inspections

Quality Defect Cost

Holding Costs

Total Holding Cost

Total Costs (over two years)

Total Costs (average per unit)

Notes:

• Enter all costs as a total over the two years
• Tooling costs are a one-off cost only
• Quality Defects Inspections is only required if more than one supplier
• Quality defects costs = PPM defects / 1,000,000 X number of units purchased X $400
• Financing cost is only applicable for prepayment prior to receival. Financing costs are 4% and are defined with the formula per supplier.

Total Holding Costs is from the Inventory Management Analysis Spreadsheet