A Supply Chain Management Farmco Study Case

Supplier – ID supplier reliability total deliveries per year 3002 3003 3006 3011 3012 3016 3017 3019 3020 3021 3022 3023 3024 3026 3027 3030 3031 3032 3033 3034 3035 3036 3037 3038 3039 3041 3042 3043 3044 3045 3047 3048 3050 3051 3056 3058 3059 3060 3062 3064 3065 3066 3068 3069 3071 3072 3074 3079 3080 3081 3083 3084 3085 3086 3087 3088 3089 3091 3094 3095 3097 3098 3099 3100 3101 3102 3103 3105 3106 3109 3111 3112 3113 3116 3117 3118 3119 3120 3125 3126 3127 3128 3130 3132 3136 3138 3140 3142 3143 3144 3145 3146 3150 3151 3152 3156 3157 3158 3160 3161 3163 3164 3165 3168 3170 3171 3173 3174 3175 3176 3178 3181 3182 3183 3184 3185 3186 3187 3190 3191 3192 3193 3195 3196 3197 3200 3201 3205 3206 3207 3208 3209 3211 3212 3213 3214 3215 3216 3217 3218 3219 1 782 28 53 423 187 347 680 278 25 24 642 100 339 24 150 436 178 125 507 24 32 19 111 735 214 18 250 1191 35 12 12 32 460 219 799 4 149 706 96 124 1000 115 685 1199 652 4 221 279 3 14 45 2 43 12 94 768 673 727 76 26 26 136 456 231 730 1539 270 0 1 1477 102 16 36 355 33 140 15 317 497 101 36 57 146 192 355 157 202 23 291 960 11 2041 26 46 66 175 1030 45 39 276 54 218 118 75 2 94 650 169 38 484 24 1 1083 22 1494 92 105 6 8 438 138 717 161 31 120 37 190 584 660 333 30 390 842 954 15 2079 683 138 12 28 supplier importance on-time deliveries per year 0 11 10 36 250 4 54 87 110 4 4 435 22 25 2 21 285 15 115 158 5 1 9 88 154 8 6 4 566 2 1 7 11 253 70 60 0 33 292 11 42 45 23 149 353 12 1 71 1 0 2 22 1 7 5 3 29 44 553 4 3 6 31 10 6 13 324 24 0 1 34 22 1 2 142 5 26 2 273 45 7 1 20 68 10 6 24 23 5 70 44 3 58 2 2 8 35 791 10 14 4 10 72 6 5 0 15 2 43 2 38 1 0 166 1 155 21 16 2 4 78 1 2 18 2 21 2 8 9 3 197 7 197 82 346 4 88 28 36 0 0 supplier dispensability supplier manageability number of variants in product time needed to switch to an distance [in km] between our group loading wagon where optional supplier and to headquarters and the parts of this supplier are used secure reliable supply supplier’s premisses 1 up to 3 weeks 623 10 up to 3 weeks 219 1 up to 3 weeks 293 7 >6 weeks to 6 months 41 12 >6 weeks to 6 months 21 10 more than 12 months 378 13 up to 3 weeks 61 10 up to 3 weeks 34 1 >6 weeks to 6 months 50 4 3 to 6 weeks 243 1 3 to 6 weeks 205 138 up to 3 weeks 41 13 >6 weeks to 6 months 223 1 >6 months to 1 year 625 3 up to 3 weeks 36 4 up to 3 weeks 570 7 >6 weeks to 6 months 913 23 3 to 6 weeks 33 1 >6 weeks to 6 months 124 9 up to 3 weeks 918 1 up to 3 weeks 788 1 up to 3 weeks 24 1 >6 weeks to 6 months 222 1 >6 weeks to 6 months 388 43 >6 weeks to 6 months 54 5 >6 weeks to 6 months 208 10 3 to 6 weeks 1400 7 >6 weeks to 6 months 238 4 >6 weeks to 6 months 15 1 up to 3 weeks 11 3 >6 weeks to 6 months 21 3 up to 3 weeks 49 1 3 to 6 weeks 215 3 >6 weeks to 6 months 128 32 >6 months to 1 year 224 1 >6 weeks to 6 months 926 1 >6 weeks to 6 months 31 6 >6 weeks to 6 months 222 16 >6 weeks to 6 months 48 13 3 to 6 weeks 413 3 more than 12 months 210 3 3 to 6 weeks 728 8 more than 12 months 601 5 more than 12 months 660 68 >6 weeks to 6 months 47 9 >6 weeks to 6 months 189 1 up to 3 weeks A Supply Chain Management Farmco Study Case

A Supply Chain Management Farmco Study Case. 723 1 3 to 6 weeks 36 3 >6 months to 1 year 51 8 >6 weeks to 6 months 217 1 up to 3 weeks 260 1 >6 weeks to 6 months 81 1 3 to 6 weeks 228 3 >6 weeks to 6 months 221 1 >6 months to 1 year 231 1 3 to 6 weeks 452 1 >6 months to 1 year 23 1 up to 3 weeks 255 29 >6 months to 1 year 36 6 >6 weeks to 6 months 669 8 >6 weeks to 6 months 764 2 >6 weeks to 6 months 36 1 3 to 6 weeks 708 1 3 to 6 weeks 535 4 3 to 6 weeks 50 1 3 to 6 weeks 758 133 >6 weeks to 6 months 20 10 >6 weeks to 6 months 221 1 >6 weeks to 6 months 20 3 more than 12 months 629 1 3 to 6 weeks 404 6 >6 months to 1 year 32 3 >6 months to 1 year 174 5 >6 weeks to 6 months 722 1 >6 months to 1 year 200 1 3 to 6 weeks 310 1 >6 weeks to 6 months 230 1 >6 weeks to 6 months 20 1 3 to 6 weeks 633 1 3 to 6 weeks 51 2 >6 weeks to 6 months 257 1 more than 12 months 51 3 >6 months to 1 year 2188 5 >6 weeks to 6 months 239 3 >6 months to 1 year 217 1 3 to 6 weeks 448 3 3 to 6 weeks 46 2 >6 weeks to 6 months 171 3 >6 weeks to 6 months 215 8 >6 weeks to 6 months 211 16 3 to 6 weeks 232 2 3 to 6 weeks 699 1 >6 weeks to 6 months 444 1 up to 3 weeks 19 3 3 to 6 weeks 890 4 >6 weeks to 6 months 219 3 >6 weeks to 6 months 635 1 3 to 6 weeks 54 2 >6 weeks to 6 months 58 1 more than 12 months 909 11 >6 weeks to 6 months 23 1 >6 weeks to 6 months 624 1 3 to 6 weeks 23 4 >6 months to 1 year 218 8 >6 weeks to 6 months 59 1 3 to 6 weeks 16 7 >6 weeks to 6 months 235 6 >6 weeks to 6 months 219 2 >6 months to 1 year 242 16 >6 weeks to 6 months 454 8 more than 12 months 75 3 3 to 6 weeks 23 1 3 to 6 weeks 47 40 >6 weeks to 6 months 126 3 3 to 6 weeks 217 1 >6 weeks to 6 months 18 2 3 to 6 weeks 35 7 3 to 6 weeks 22 3 3 to 6 weeks 720 1 >6 weeks to 6 months 238 6 >6 weeks to 6 months 20 5 >6 weeks to 6 months 18 4 >6 weeks to 6 months 10 2 >6 weeks to 6 months 672 2 up to 3 weeks 181 4 >6 months to 1 year 866 3 >6 weeks to 6 months 281 1 more than 12 months 217 17 3 to 6 weeks 224 19 3 to 6 weeks 730 1 3 to 6 weeks 35 51 >6 weeks to 6 months 33 1 3 to 6 weeks 0 11 >6 weeks to 6 months 17 85 >6 weeks to 6 months 46 1 3 to 6 weeks 652 1 3 to 6 weeks 422 21 more than 12 months 583 5 3 to 6 weeks 229 1 >6 weeks to 6 months 51 1 3 to 6 weeks 885 Supplier – ID supplier reliability total deliveries per year 3012 3017 3019 3020 3023 3024 3031 3032 3034 3037 3038 3039 3043 3044 3045 3050 3051 3054 3060 3061 3062 3064 3065 3071 3072 3073 3077 3078 3079 3082 3089 3091 3094 3097 3099 3101 3103 3105 3106 3110 3112 3116 3117 3119 3121 3124 3126 3132 3139 3140 3144 3145 3147 3150 3151 3152 3154 3156 3158 3159 3162 3163 3166 3169 3173 3174 3175 3178 3183 3184 3187 3188 3192 3195 3196 3197 3199 3203 3204 3205 3207 3208 3209 3210 3212 3213 A Supply Chain Management Farmco Study Case

A Supply Chain Management Farmco Study Case. 3214 3215 3217 423 347 680 278 642 100 436 178 507 19 111 735 250 1191 35 32 460 173 149 229 706 96 124 1199 652 103 40 19 221 221 768 673 727 26 136 231 1539 270 0 29 102 36 355 140 186 3 497 146 55 157 291 960 5 2041 26 46 1 66 1030 67 2 276 2 0 94 650 169 484 1083 22 105 31 438 717 161 31 14 46 335 190 660 333 30 62 842 954 15 2079 138 supplier importance on-time deliveries per year 250 54 87 110 435 22 285 15 158 9 88 154 4 566 2 11 253 19 33 15 292 11 42 353 12 10 4 1 71 13 29 44 553 3 31 6 324 24 0 5 22 2 142 26 4 0 45 68 6 24 70 44 4 58 2 2 0 8 791 0 1 4 0 0 15 2 43 38 166 1 16 18 78 2 18 2 0 1 77 8 3 197 7 4 82 346 4 88 36 supplier dispensability supplier manageability number of variants in time needed to switch to an distance [in km] between our product group plough where optional supplier and to headquarters and the parts of this supplier are used secure reliable supply supplier’s premisses 4 >6 weeks to 6 months 21 57 up to 3 weeks 61 9 up to 3 weeks 34 6 >6 weeks to 6 months 50 224 up to 3 weeks 41 23 >6 weeks to 6 months 223 25 >6 weeks to 6 months 913 18 3 to 6 weeks 33 2 up to 3 weeks 918 1 >6 weeks to 6 months 222 1 >6 weeks to 6 months 388 169 >6 weeks to 6 months 54 43 >6 weeks to 6 months 238 14 >6 weeks to 6 months 15 1 up to 3 weeks 11 3 3 to 6 weeks 215 2 >6 weeks to 6 months 128 21 more than 12 months 107 5 >6 weeks to 6 months 222 39 more than 12 months 622 119 >6 weeks to 6 months 48 2 3 to 6 weeks 413 3 more than 12 months 210 51 >6 weeks to 6 months 47 6 >6 weeks to 6 months 189 1 more than 12 months 187 2 3 to 6 weeks 239 1 3 to 6 weeks 454 5 3 to 6 weeks 36 7 >6 weeks to 6 months 253 1 >6 months to 1 year 23 15 up to 3 weeks 255 45 >6 months to 1 year 36 1 >6 weeks to 6 months 764 1 3 to 6 weeks 708 19 3 to 6 weeks 50 171 >6 weeks to 6 months 20 4 >6 weeks to 6 months 221 3 >6 weeks to 6 months 20 2 3 to 6 weeks 343 2 >6 months to 1 year 32 16 >6 weeks to 6 months 722 1 >6 months to 1 year 200 3 >6 weeks to 6 months 230 81 more than 12 months 394 1 up to 3 weeks 619 1 3 to 6 weeks 49 1 >6 weeks to 6 months 239 81 up to 3 weeks 1746 10 3 to 6 weeks 43 13 >6 weeks to 6 months 211 22 3 to 6 weeks 232 5 up to 3 weeks 868 1 >6 weeks to 6 months 444 4 up to 3 weeks 19 7 3 to 6 weeks 890 1 up to 3 weeks 461 17 >6 weeks to 6 months 219 1 3 to 6 weeks 54 2 >6 weeks to 6 months 80 5 >6 weeks to 6 months 428 21 >6 weeks to 6 months 23 1 3 to 6 weeks 728 2 3 to 6 weeks 217 39 >6 weeks to 6 months 235 15 >6 weeks to 6 months 219 8 >6 months to 1 year 73 8 more than 12 months 75 72 >6 weeks to 6 months 126 1 3 to 6 weeks 217 7 3 to 6 weeks 22 7 more than 12 months 287 2 >6 weeks to 6 months 20 1 >6 weeks to 6 months 10 2 >6 weeks to 6 months 672 4 up to 3 weeks 181 3 more than 12 months 487 2 more than 12 months 698 100 more than 12 months 50 2 more than 12 months 217 29 3 to 6 weeks 730 1 3 to 6 weeks 35 2 >6 weeks to 6 months 33 14 3 to 6 weeks 75 1 >6 weeks to 6 months 17 183 >6 weeks to 6 months 46 1 3 to 6 weeks 652 1 3 to 6 weeks 422 1 3 to 6 weeks 229 Supplier -A Supply Chain Management Farmco Study Case

ID 3002 3003 3006 3011 3012 3016 3017 3019 3020 3021 3022 3023 3024 3026 3027 3030 3031 3032 3033 3034 3035 3036 3037 3038 3039 3041 3042 3043 3044 3045 3047 3048 3050 3051 3054 3056 3058 3059 3060 3061 3062 3064 3065 purchasing volume total amount [€] last fiscal year € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € 645 4.593.698 17.731 264.180 261.022 791.138 38.536 527.320 760.360 88.811 5.245 87.859 152.533 936.168 53.903 889.485 1.268.524 32.678 755.507 2.264.703 80.935 8.402 12.420 390.755 4.321.420 100.345 21.744 18.497 199.382 16.446 8.486 1.609 4.696 1.232.827 87.325 2.488.738 1.184.552 1.015 371.361 907.656 1.443.950 192.734 334.516 3066 3068 3069 3071 3072 3073 3074 3077 3079 3080 3081 3082 3083 3084 3085 3086 3087 3088 3089 3091 3094 3095 3097 3098 3099 3100 3101 3102 3103 3105 3106 3109 3110 3111 3112 3113 3116 3117 3118 3119 3120 3121 3124 3125 3126 3127 3128 € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € 752.013 1.214.691 2.648.972 117.280 423.370 357.000 6.673 87.213 101.852 292.418 2.792 495.003 24.140 58.718 18.226 42.900 26.155 62.660 2.192.960 699.535 645.909 23.642 81.189 17.362 86.509 576.164 91.780 1.402.514 211.626 134.814 103.215 22.501 49.235 1.622.467 93.210 116.812 10.737 1.485.242 163.895 286.564 14.821 1.325.140 785 633.025 417.327 371.360 139.886 3130 3132 3136 3138 3139 3140 3142 3143 3144 3145 3146 3147 3150 3151 3152 3154 3156 3157 3158 3159 3160 3161 3162 3163 3164 3165 3166 3168 3169 3170 3171 3173 3174 3175 3176 3178 3181 3182 3183 3184 3185 3186 3187 3188 3190 3191 3192 € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € € 673.669 65.495 255.363 537.178 785.320 140.267 570.564 12.301 298.476 987.258 7.212 185.000 638.456 16.186 7.251 123.000 14.420 89.872 792.541 746.213 88.281 378.414 49.200 351.562 109.609 101.900 18.200 106.931 132.141 361 175.285 233.093 112.026 15.841 801.218 4.505 35 1.916.768 1.258 95.170 123.355 13.001 458.396 2.197 43.073 165.392 3193 3195 3196 3197 3199 3200 3201 3203 3204 3205 3206 3207 3208 3209 3210 3211 3212 3213 3214 3215 3216 3217 3218 3219 € € € € € € € € € € € € € € € € € € € € € € € € 51.072 487.357 645.464 514.193 243.010 456.043 21.535 1.023.578 1.896.000 2.517.779 263.096 166.827 264.969 133.901 548.000 237 422.000 5.088.484 2.027 1.979.839 1.285.872 69.171 16.656 243.142 supplier-ID complaints 3002 0 3003 42 3006 1 3011 0 3012 1 3016 7 3017 0 3019 5 3020 0 3021 8 3022 16 3023 0 3024 0 3026 30 3027 4 3030 58 3031 262 3032 0 3033 0 3034 2 3035 0 3036 0 3037 0 3038 1 3039 0 3041 4 3042 0 3043 0 3044 1 3045 1 3047 0 3048 0 3050 0 3051 1 3054 3 3056 11 3058 0 3059 0 3060 0 3061 90 3062 4 3064 0 3065 0 3066 10 3068 73 3069 167 3071 203 3072 0 3073 4 3074 3077 3078 3079 3080 3081 3082 3083 3084 3085 3086 3087 3088 3089 3091 3094 3095 3097 3098 3099 3100 3101 3102 3103 3105 3106 3109 3110 3111 3112 3113 3116 3117 3118 3119 3120 3121 3124 3125 3126 3127 3128 3130 3132 3136 3138 3139 3140 3142 3143 0 0 0 0 60 1 6 1 1 0 0 0 2 9 12 68 0 2 2 0 22 0 18 12 0 1 2 0 36 0 0 0 13 0 0 0 0 0 4 6 7 1 3 0 0 25 1 0 0 0 3144 3145 3146 3147 3150 3151 3152 3154 3156 3157 3158 3159 3160 3161 3162 3163 3164 3165 3166 3168 3169 3170 3171 3173 3174 3175 3176 3178 3181 3182 3183 3184 3185 3186 3187 3188 3190 3191 3192 3193 3195 3196 3197 3199 3200 3201 3203 3204 3205 3206 0 17 0 0 18 1 0 0 0 2 3 0 1 14 0 1 0 2 0 1 0 3 0 0 0 0 0 0 0 0 0 10 0 0 0 0 0 0 0 1 1 0 0 3 0 0 0 13 2 3207 3208 3209 3210 3211 3212 3213 3214 3215 3216 3217 3218 3219 58 1 0 64 0 0 3 0 70 370 0 0 1 A Supply Chain Management Farmco Study Case

Co FarmC The C Complexitty of Evalluating Su uppliers Casee Prepareed By: Markkus Gerschhberger, FH-Steyr, A Austria Illa Manuj, FH-Steyr,, Austria and a UNT-D Denton, U USA Updatedd Octoberr 29, 2014 Acknow wledgement: The authorss would likee to acknowledge the suupport of Euuropean Com mmission’s Marie C Curie Actionss (SCCompllexity-6284223 Internatioonal Incominng Fellowshiip) for their support of this projject. The auuthors are grrateful to Dr. Theodoree (Ted) Farriis for unconnditionally sharing s his case devvelopment m materials andd for his guiddance in prepparation of thhis case. FarmC Co The com mplexity of e evaluating s suppliers Page 1 FARMC CO F FarmCo is a mid-sizedd manufactuurer of farm m equipmennt based in Austria. FaarmCo has positioned itself as a premium manufacture m er offering ccustomized products p andd a 30 year sspare parts maining com mpetitive in warrantyy. The abilityy to providee excellent cuustomer servvice is imperative to rem their nicche market ssegment. Prooducts are m made at three productionns sites (Austria, Czechh Republic, and Gerrmany) by 1,100 1 emplooyees resultiing in an annnual turnovver of €180 million. Products are divided into two maajor market segments – grassland aand tillage – and over 800 product grroups. The most im mportant prooduct group is the loadding wagonn accountingg for over 20% 2 of thee company turnoverr. A one of tthe key meaasures of cuustomer servvice FarmCoo counts thee number off customer As complainnts. Recentlly FarmCo has been getting moree than usuall complaintss from the customers. c Klaus S Staberhofer, FarmCo CEO, summooned Raimuund Schüsteer, the SC m manager, annd Johann Steiner, VP of Finannce, into his office. K Klaus begann, “I am gettiing an increaasing numbeer of complaaints from ouur customerss. Where is the probblem?” R Raimund suuspected thatt Klaus had called the m meeting for tthis very reaason. He repplied, “We are havinng some prooblems with the supplierrs which affe fect our prodduction scheddules and deeliveries to customeers, and at tim mes, the quaality of the fiinal product..” “ “Tell me more,” m demannded Klaus. “What is the problem m? Is it relaated to the quality of components they aree supplying uus?” “ “Well, to a very limitedd extent, it is material qquality. Theere are otherr things thatt are more importannt like lead ttimes, distannces, and abiility to find aan alternativve supplier”, replied Raim mund. J Johann appeeared to be a little impattient, “Why are you discussing thesse things witth me? Do these afffect financiaal outcomes??” FarmC Co The com mplexity of e evaluating s suppliers Page 2 R Raimund ressponded, “Thhese things are related too how we m measure suppplier perform mance, how we rewaard or penaliize supplierss, and how w we award conntracts. We spend moneey managingg suppliers. If we can c identifyy which supppliers to fo focus on, thhen we willl spend less money onn supplier managem ment. The m money saved will be a dirrect additionn to the comppany profit.”” N Now Johannn was intereested, “I am m listening. A Supply Chain Management Farmco Study Case

K Keep going. Tell me w what makes a supplier critical?” R Raimund coontinued, “I think we nneed to talk to the purcchasing mannagers to annswer your questionn. Let me gett back to youu in two dayys.” R CRITICA AL? WHAT MAKES A SUPPLIER T Two days laater, all threee met again,, this time inn Raimund’ss office where he had m many charts lying onn his desk. R Raimund beegan, “I starrted by asking our purrchasing maanagers abouut the most important characteeristics for suuppliers. It all a boils dow wn to the folllowing four:: supplier relliability (SR R), supplier manageaability (SM)), supplier iimportance ((SI), and suupplier dispeensability (S SD). SR, as the name suggestss, is the reliaability of the supplier in terms of leadd times. SM M is the ease oof doing bussiness with a supplier which in turn makes the supplierr more manaageable. Suppplier imporrtance is thee criticality of a suppplier to our internal opeerations. Finnally, suppliier dispensabbility is the difficulty inn finding a replacem ment supplieer.” “ “Okay. So, now we cann identify thhe critical suuppliers. I aam sure we have the daata.” Klaus said. R Raimund coontinued, “W We have lots of raw data. How wever, convverting it innto usable informattion is the chhallenging taask.” FarmC Co The com mplexity of e evaluating s suppliers Page 3 J Johann interrjected, “I have h an inteern, Ingrid Legenstein, L who is veryy good withh numbers. Would you y have a uuse for her skkills?” “ “That wouldd be very hellpful; thank yyou!” said R Raimund. K Klaus summ marized, “OK K, Raimund,, as the firstt step, I wannt you to woork with Inggrid to find the data that can help us quantify fy SR, SM, S SI, and SD.” HOW T TO INTERP PRET DATA A AND TO O TRANSFO ORM IT INT TO USABL LE INFORM MATION T Two weekss later, Klaaus, Raimunnd, Johann, and Ingridd were asssembled in the main conferennce room. R Raimund staarted, “It hass been challeenging to convert the raw w data into a usable form mat. Ingrid has spennt the last tw wo weeks diliigently combbing throughh the data, clleaning it upp, and makinng sense of the data.. I will let heer show you what she foound.” I Ingrid was excited. e Thiss was her firrst presentatiion in a real business sccenario. She was about to graduuate and hadd been seleccted for thiss competitivve internshipp position w with FarmCoo. She had worked hard on thiss assignmentt and felt thaat if she imppressed the ssenior execuutives in the room, she could lannd a career pposition withh the companny. “ “Thank you, Raimund.”” began Ingrrid. “A Supply Chain Management Farmco Study Case

As the first step to solving the problem, wee needed to identify the data to measure supplier reeliability (S SR), supplieer manageabbility (SM)), supplier importannce (SI), andd supplier diispensabilityy (SD). T higher tthe number of on-time deliveries foor a supplierr, the higherr the reliabillity of that The supplierr. Therefore,, for supplier reliability ty, I compilled the dataa on total ddeliveries annd on-time deliveriees. T assumption behind supplier maanageability is that the closer The c the geeographical pposition of a supplieer to our preemises, the eeasier it is to do businesss and manage them becaause of ease of o meeting FarmC Co The com mplexity of e evaluating s suppliers Page 4 in persoon, similar w working stanndards, low wer languagee and culturral barriers, similar govvernmental regulatioons, currencies, and timee zones, shoorter time to deliver misssing parts, leess exposuree to natural risks, leess traffic jaams and manny other sim milar reasonns. Thereforee, for suppliier manageaability, the most criitical elemennt is distancee. So I comppiled the data on geograpphical distannce. For sim mplification reasons, we calculaated the disttance based on a route-planning syystem to thee headquartters for all supplierrs and decideed to use truck as the meeans of transsport. This iss acceptable since all sup uppliers are in Europpe. M Measuring ssupplier impportance waas the most time-consum ming and coomplex taskk. The aim was to gget an idea oof how impoortant a singgle supplier is for an enttire product group. To uunderstand the impoortance of a supplier, wee have to exaactly know hhow many pproduct variaants in a prodduct group use the pparts from a given suppllier. For the loading waggon categoryy, we have 2257 variationns and 141 supplierrs. In our suppplier relatioonship manaagement sysstem, we onlly have dataa on suppliers for lead time and distance. In our matterial requirrements plannning system, we havee the data on bill of materialls for every product. Thhere is no linnk between the t two systtems. I looked at the daata on each supplier – at the levvel of parts ppurchased – in our Suppplier Relatioonship Manaagement andd Materials Requirem ment Planniing systems to identify the number of product variants forr which thatt particular supplierr supplied prooducts. S Supplier disppensability was w also diffficult. I met with the maanagers of eaach of our 15 strategic planningg groups annd requestedd they identify the timee it would take t for theem to replacce a given supplierr. The longeer it takes too switch froom a currennt supplier tto a new suupplier; the lower the w produuction. Switcching time inncludes conssiderations dispensaability of thiis supplier foor loading wagon such as finding and assessing a supplier, thee supplier obbtaining necessary certiffications, etcc. Standard parts supppliers can eeasily be repplaced, someetimes withinn 3 weeks. F For specializzed parts supppliers, the replacem ment time coould take up to one year. FarmC Co The com mplexity of e evaluating s suppliers Page 5 T followinng chart show The ws the data for five supppliers. I am rready for your questionss.” Supplieer ID 3002 3003 3006 3011 3012 Supplier Reliability (SR) Supp plier Manageeability (SM M) Total delliveries per yyear On-Time deliiveries per yeaar 1 782 28 53 423 0 11 10 36 250 Distancee from HQ Q (km m) 623 219 293 41 21 Supplier IImportance (SI) pplier Sup Dispeensability ( (SD) p variannts # product usiing parts from ma supplier 1 110 1 7 112 Time too replace a suupplier up to 3 w weeks up to 3 w weeks up to 3 w weeks >6 weekss to 6 months >6 weekss to 6 months T room w The went silent foor several seeconds. Klauus broke the silence, “Grreat work, Inngrid. You are a risiing star and will go placces. A Supply Chain Management Farmco Study Case

I am happpy we hiredd you as an inntern at Farm mCo.” J Johann and R Raimund alsso praised Inngrid. Ingridd took a deepp breath and smiled to herself. She was satisfied with heer presentatiion and was happy that tthe senior exxecutives likked her workk. J Johann had a question, “A supplier may be crittical on one measure buut not on anoother. How do we m meaningfullyy combine the data on alll four measuures to identiify critical suuppliers?” R Raimund reesponded, “IIngrid and I have alreeady started working oon the guideelines that managerrs in any prroduct groupp can use too identify critical suppliiers. We neeed some moore time to refine it.. How aboutt we meet in one week annd Ingrid annd I will pressent the guiddelines to youu.” FarmC Co The com mplexity of e evaluating s suppliers Page 6 HOW T TO USE DA ATA FOR D DECISION M MAKING E Everyone assembled in the t main connference rooom. Ingrid raan the meetinng. This tim me, she was more connfident and eeager to preseent the guideelines. I Ingrid begann, “Raimund aand I consultted with the ppurchasing m manager for lloading wagoons and the 15 strateegic product ggroup managgers. Here aree our guidelinnes: o o o o To estimate suppplier reliability (or shouldd I say, unreliiability), we ddecided to caalculate the ratio of the deliveeries not on-ttime divided to the total nnumber of deeliveries. To estimate e suppplier manageeability, we applied the ratio of the distance froom a given suppplier to the lonngest distancce from any ssupplier. To eestimate suppplier importaance, we useed the ratio of o number oof products fo for which a suppplier supplies parts dividedd by the totall number of pproducts empployed. Finally, to estim mate supplierr dispensabiility, one w way is to grooup the supppliers into diffeerent categorries and assign a score bbetween 0 and 1 based on the time needed to replaace a supplieer. After connsultation wiith purchasinng managers,, we came uup with the folloowing groupss (and scores): up to 3 weeks w (0.2), 3 to 6 weeeks (0.4), 6 w weeks to 6 montths (0.6), 6 m months to 1 yyear (0.8) andd more than 112 months (1). A After we dettermined a sccore for eachh item, we caan add up thee scores to iddentify the m most critical supplierss. I haven’t iddentified the suppliers yeet, but if you give me one week, I will get back to yyou.” J Johann was eager to unnderstand the financial iimplications,, “This is vvery interestiing and so differentt from the ussual ABC analysis based on purchasinng value thaat we traditionally use forr cash flow analysis.. I am curious how the tw wo approaches line up withh each other to rate our most m critical ssuppliers.” I Ingrid had a ready respoonse, “Raimuund and I hhad discussedd this. One w way is to coompare the number oof complaintts that are geenerated by thhe suppliers based on thee approach w we developed with those based onn the ABC annalysis. Furthhermore, we have gathereed the data onn one more pproduct groupp, ploughs, and we pplan to underrtake a similaar analysis foor both groups” K Klaus also had h an observvation, “The first supplier on your lisst has just onne delivery aand that too was late.. Do you thinnk it will affeect the rating of the suppliier? How do you plan to aaddress this iissue?” R Raimund responded, “Some more taskks for you, Inngrid!” FarmC Co The com mplexity of e evaluating s suppliers Page 7 E Everyone lauughed. Ingridd said, “Sure, I will identify the critical suppliers based b on the guidelines I presentted and baseed on the AB BC analysis. A Supply Chain Management Farmco Study Case

I will also think about how to addrress supplierrs with few deliveriees. How abouut we meet aggain in one week…” w DISCUS SSION QUE ESTIONS 1. Based B on thiss case, what are the three key challengges in using ddata for decission making?? 2. Use U traditionnal ABC analysis (using ppurchasing € value as thee benchmarkk) to identify the top 20% % s suppliers of eeach of the tw wo product ggroups. 3. Use U the guiddelines preseented by Inggrid to identiify the top 220% suppliers for each of the two p product grouups. 4. Are A the supppliers identifiied as criticall the same orr different baased on the tw wo approachhes? Which o ones are com mmon? 5. Which W approoach is better in your opinnion? Why? 6. Identify I two other measures to include for each off the four brooad measures of SR, SM, SI, and SD? F each item For m, identify hoow you will qquantify and use the data. 7. How H will youu deal with ssuppliers withh very few deeliveries, sayy less than 100 per year? FarmC Co The com mplexity of e evaluating s suppliers Page 8