Case 2: Managing suppliers at FaastLane Ltd
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Case 2: Managing suppliers at FaastLane Ltd FaastLane Ltd manufactures motorbikes and is located in Brisbane. More than 70 per cent of the cost of the company's motorbikes consists of material and components, which are purchased from Australian suppliers. About three years ago, FaastLane introduced a comprehensive supplier evaluation system to monitor the performance of its suppliers. Each supplier was given a three ‐ year contract that guaranteed large orders as long as it performed according to FaastLane's strict requirements. Each supplier's performance was measured by considering its adherence to delivery schedules (FaastLane works on a just ‐ in ‐ time (JIT) system), accuracy of orders delivered, number of components rejected on delivery, and its achievements in reducing its production costs (and, therefore, its material and component prices) over the contract period. Performance in all of these areas will determine whether FaastLane renews the supplier's contract or offers the contract to another supplier. The suppliers are aware that there are many alternative component suppliers who would be eager to enter into a long ‐ term contract with FaastLane. After holding discussions with the purchasing manager, as part of the review process, the financial controller has conducted a study to determine the full cost of dealing with suppliers. While the company uses a series of non ‐ financial performance measures to measure most aspects of supplier performance, the financial controller believes that the calculation of the total cost of ownership will provide an additional perspective to viewing supplier performance. For the most recent year, the following supplier ‐ related activities and costs have been identified: Activity Total Cost ($) No. of Activities Order components from supplier 1,080,000 3,600 orders Receive order 5,400,000 6,000 deliveries Return reject components to supplier 23,100 33 returns Receive late deliveries 156,000 78 late deliveries Production downtime due to late delivery 1,440,000 480 hours Production downtime due to defective material 2,160,000 1,800 hours Process invoice and pay supplier 630,000 1,800 invoices Dispute invoiced amount 24,000 30 disputes Quality audit of suppliers 300,000 6 audits FaastLane obtains its exhaust systems from a four suppliers, the two most important of which are I ‐ Pot Exhausts and Chroma Manufacturers.
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Posted 18 Dec 2017 07:12 AM
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