A business’ success is largely dependable on the relationship it has with its supplier. To know the role the suppliers and competitors play, the company is required to obtain performance related information about prospective suppliers and competitors that the company may require to continue business successfully. This report will discuss what kind of information a company requires. Firstly, it will provide information on elements that are factored into the supplier selection criteria. After that, it will discuss the approaches of ordering quantity and of determining the costs associated with ordering from the suppliers. This report will show a recapitulation of management systems which help promote inventory management. Selecting suppliers
To manage a business and to achieve business goals, it’s imperative to find the best possible supplier available. An introspection of the supplier cost will improve efficiency. Dealing with a customer includes cost of purchasing, holding inventory, poor quality and delivery failure. These are classified as the total costs of ownership. Activity-based costing could be used to calculate the total cost of ownership, giving a more accurate allocation of supplier costs. The three levels of supplier activities and activity costs are unit level activities, order level activities and supplier level activities. Sequentially, to calculate the total cost of ownership the company must firstly understand and analyze the activities that were influenced by suppliers, calculate the cost per unit of the activity driver and find the activity drivers itself. After the calculation of the total costs of supplier-related activities for the year, we can finally determine the total cost of ownership. Evaluating Supplier’s performance
The Supplier Performance Index (SPI) which is the ratio of total supplier activity costs against the total purchase price (Langfield-Smith 2009) is basically a measurement tool by...