Question

GoGo Furniture needs to purchase glass panes to make glass top coffee tables. Last year GoGo Furniture has two suppliers, BolBol and TolTol. Based on last year's expernece with these two suppliers, GoGo provides you with the following supplier related information:

Supplier related activities	Cost driver	Cost per driver unit	BoIBoI	ToIToI
Returning poor quality glass panes	No. of glass panes returned	$120	25	10
Processing purchase orders	No. of purchase orders	$20	15	30
Receiving and inspecting deliveries	No. of deliveries	$50	15	15
Supplier audit	No. of audits	$1000	5	2
Rework due to poor quality glass	No. of glass top tables reworked	$100	60	15
Purchase price per glass pane			$100	$150
No. of glass panes purchased			500	800

Required:

1. Measure the total cost of ownership for BolBol and TotTol.
2. Discuss which supplier is performing more satisfactorily.
3. What could be done to improve the performance of each supplier?
4. What other performance measures could be used to compare the performance of BolBol and TolTol.

Answer 1

Ans.

Sol1.

Total cost of ownership takes into account all the activities carried out by a Company to manage a supply relationship. It therefore considers not just the purchase price of a service or good, but also all the other tasks required to do business with that supplier.

2.

Supplier performance is measured based on three metrics mainly:

1. Price based

2. Cost based

3. Quantity based

Total cost per glass pane is less for Bolbol. So its performing better in monetary terms but not overall.

3. Performance can be measured based by following below:

a. Bolbol can be instructed to improve glass quality to reduce rework costs. This will also increase confidence on supplier and help in reducing audit costs.

b. Bolbol can increase lot size of delivery to reduce no of deliveries and the associated costs.

4. Other performance measures for comparisions:

a. Timeliness- how promtly orders are delivered after purchase order is raised

b. Completeness- If orders are delivered in full as per commitment.

c. Continuous Improvement- If the supplier improves based on suggestions.

d. Follows regulatory framework and maintains customer relationship