Can all costs be determined up-front when altering a supplier relationship? Explain how altering a supplier relationship would affect each of the following areas: * Warehousing
* Quality of products or services
* Transportation costs
Is cost the most important factor to be considered when changing suppliers? Why?
Not all costs can be determined before a supplier relationship is altered. Out of the procedural, financial and relational switching costs only financial costs can be determined before the switch. Procedural costs associated with time and efforts consumed while the switching procedure is completed and relational costs caused due to discomfort experienced by the company due to a new supplier can hardly be quantified beforehand. Furthermore, Costs such as risks associated with the untimely or defected delivery of goods or service cannot be calculated up-front. emotional and psychological costs are harder to quantify. In short, all costs associated with the future performance or performance as promised by the new supplier cannot be determined beforehand. They can be determined once the new supplier relationship is already in place.
By altering a supplier relationship the issues with warehousing could be the determination of correct re-ordering level and safety stock by the new supplier. The warehousing staff would have to be trained accordingly too. The delivery needs to be timely hence the delivery staff or agents need to be trained accordingly. They need to be able to understand the company’s demand and able to make arrangements for timely delivery. The billing details may be altered as per the new contract. The credit limit and duration maybe altered and a new payment mode may be specified. The reliability is always at question since the supplier needs a trial period. The reliability can be dramatically increased if the new supplier is guided of the demand patterns. The supplies would have...
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