Case Study Background Pure Vision Manufacturing’s Sourcing vs. Inventory Challen
ID: 456968 • Letter: C
Question
Case Study Background
Pure Vision Manufacturing’s Sourcing vs. Inventory Challenge
It is no secret; the economy has been pretty tough in the last few years. Pure Vision Manufacturing
produces vision systems used in a variety of industrial manufacturing applications. These systems help
manufacturers check for quality specifications on high speed manufacturing lines. Even though Pure
Vision Manufacturing was the first to market with their vision systems and still maintains the largest
market share many overseas electronics companies are entering the market with newer versions of ABC
Manufacturer’s technology. In order to compete in the changing global competitive environment the
company has realized that the only way to revamp the company’s competitiveness is to invest in the
supply chain organization. As a result, the company’s President has decided to hire a group of recent
GGU gradates with graduate degrees to pioneer the new Strategic Sourcing Program reporting directly
to the Procurement Manager. The President hopes that establishing a strong Strategic Sourcing
Program that the company can reduce their cost of goods sold resulting in increased profit margins
while holding prices stable for their customers.
The supply chain is fairly stable and contains many legacy suppliers that have become accustomed to
consistent blanket purchase orders, getting little push back on price increases as long as they could
explain the increase effectively and not having to manage their outbound logistics to Pure Vision
Manufacturing’s facility in Livermore, California. As the Strategic Sourcing Team it is your task to find a
new source for a component the company has been buying for years. The current supplier is going out
of business, so the decision to re-source this product needs to happen as soon as possible. The
following provides more detail that will help you answer the questions in the case study.
§ The component you are trying to source is an electrical connector that connects the vision
system camera to the display used by the operator. It’s fairly simple connector with a two pin
connection with a two wires wrapped in conduit to protect from them from the elements. The
Harmonized Tariff Schedule used to classify this product is 8536.90.8085.
§ The annual usage for this component is 30,000 units. They are used on first fit applications
(complete new systems), in replacement kits and in warranty repairs. Due the high demand for
this component Pure Vision Manufacturing holds at least two weeks supply of inventory on
hand at all times.
§ One of your teammates has worked industrial manufacturing prior to being hired at Pure Vision
Manufacturing and has a few sourcing options your group can consider; two domestic suppliers,
one German supplier and one supplier in Japan. Depending on the transit mode and time
inventory may need to be added/subtracted from the current inventory stocking level.
Supplier Options
Supplier #1 – Reno, NV
§ A well known distributor with multiple distribution locations
§ Stocks many different types of connectors, ranging in price and complexity from all over the
globe
§ Local representative available to work on new projects and issues
§ Willing to do consignment/vendor managed inventory
Supplier #2 – Charleston, South Carolina
§ Experienced electronics company with primary US location in Charleston
§ Major customers are from the automotive industry
§ Non-union workforce
§ Recently received their ISO9001:TS16949 Certification
§ Various models already on the shelf
§ Global engineering team located in Germany, with domestic account representatives
Supplier #3 – Taiwan
§ Relatively new company (within the last 5 years)
§ Customers in the medical industry
§ Specializing in simple connectors and electrical components (sensors)
§ English speaking
§ Labor costs are the lowest and raw materials sourced from China
§ State of the art engineering programs with quick prototyping capabilities
Supplier #4 – Frankfurt, Germany
§ Well established company with a reputation for quality and efficiency
§ Primary customers are some of the worlds top high performance car manufacturers
§ English speaking Customer Service and Engineering teams
§ High labor costs and raw materials sourced from India
§ Quick Engineering turn-around time for new projects
. What are the important costing comparison attributes your team must consider in completing
an apples-to-apples sourcing comparison? (Total landed cost)
Explanation / Answer
Since the component is a critical item and sourcing team better to develop strategic supplier for the given item. Following important costing comparison attributes are considered:
The following quantitative techniques can be used to compare the different suppliers on above mentioned parameters.
1. Total Landed Cost- Calculate Total Landed Cost per unit for each supplier using data such as purchase cost, transportation cost, customs duty, inventory cost etc.
2. Scoring Model – Calculate supplier index for all the suppliers using above mentioned five-point criteria
3. Total Cost of Ownership (TCO) – This is similar to total landed cost but in TCO, we consider all the costs related to all the phases of sourcing such as Pre-acquisition, Ownership phase, and post ownership phase.TCO is a great tool to identify any hidden costs in the sourcing.
4. Using Analytical Hierarchical Process (AHP) to refine the supplier selection – AHP is quantitative model helps the sourcing manager in objective decision making while selecting the suppliers.