Supplier Selection at Casturn Systems

2017

GROUP ASSIGNMENT - 3 Supplier Selection at Casturn Systems ( A ) & ( B )

SUBMITTED BY : Group I-9 Vinayak Sharma Kartikeya Khare Keshav Singla Prashant Pratap Singh

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Case: Supplier Selection at Casturn Systems ( A ) & ( B ) Questions Casturn Systems A: 1. What are the drivers for successful usage of e-RAs? Following are the various drivers of successful usage of e-RA’s: a. Type of Product – Generic/Commodity b. Product/Service Specification – General Industry Standard c. Supplier Base – Large supplier base d. Supplier Relationship – Transactional e. Switching Cost / Risk – Low f. Supplier Internet knowhow – Decent g. Communication – Clear communication of the specifications to the suppliers is required 2. Can e-RAs be used for sourcing highly engineered parts? It will be difficult to use e-RA’s for sourcing highly engineered parts for the following reasons: a. Supplier Base: It will be difficult to have many suppliers for a highly engineered product. Thus with no or minimum competition it will be difficult to get the lower price. b. Communication: It will be difficult to communicate all the aspect of the complex product and any error in the understanding of the specification may lead to wrong quotes and failure of e-RA exercise. c. Supplier Relationship: e-RA’s induce an abusive and opportunistic behavior among buyers which can strain the long term buyer-suppler relationships. 3. What are the benefits and disadvantages of the re-sourcing process in Figure 1? Are there any improvements that should be made to the current practices within Global Supply Management? BENEFITS: a. Reverse auction & further negotiation allows Casturn to gain a deeper understanding of the suppler cost structure and get a cost concession. b. During technical evaluation, Casturn are able to weed out incapable suppliers who might later create problems for the company and incur significant cost of lost demand, time and supplier resourcing. c. The collaborative approach of the teams from engineering, commodity management, launch management and end user plant in PPAP and business case approval ensures the suppler is of required quality standards. DISADVANTAGE: a. Having technical evaluation after the price bid evaluation, the process could lead to choosing an incapable supplier or someone who misinterpreted the specification of the product just because of the low quoted price. These errors would slow down the process of sourcing and would demotivate potential suppliers from participating. b. The whole process of e-RA takes on an average 18 months and Casturn, which has highly engineered products, which are changing rapidly with the technology, might miss the chance to capitalize on the reduced sourcing price for their products. c. Since the whole process is based on selection of supplier with least quote, the factor of small cycle time has been neglected in it. IMPROVEMENTS: a. The process could be altered with Technical evaluation being the step prior to commercial bid evaluation. This way the errors could be minimized and cycle time could be improved. b. Rather than taking the quote on per piece basis, total landing cost to be used for commercial evaluation.

Questions Casturn Systems B: 4. Which parts (if any) should be taken to electronic reverse auction? In general parts which have simpler specifications, have high supplier base, high competition among the suppliers and transactional relationship with the suppliers could be procured using e-RA. In reference of the case (Refer Exhibit 2) out of the three products, Pin and Sleeve could be procured using e-RA.  Pin – From M/S Browne, North America  Sleeve – From HNC, East Asia 5. What is the optimal setup for electronic reverse auctions? As discussed in previous questions the optimal setup for the e-RA is as follows:

Note: Technical evaluation could also include non-price factors such as cycle time, reputation etc.

6. Specifically, answer the following questions that Haro and Blake wanted to determine:

a) What should be the duration of the auction event? The optimum duration of the event should not be so low that it leads to suppliers making errors and should not be so high that it doesn’t seem important. In general, people bidding check the status by using “time ending earliest button”. It should also factor in the time difference for bidding parties from different parts of the world. Thus, duration anywhere between 1 hr to 1 day is good enough for bidding. b) Should the bid be on piece price or total cost? The bid should be on per piece basis as it gives a better understanding of the cost structure of the supplier and gives buyer a better chance for negotiating a better price. c) Should the auction have a reserve price? Should that price be visible to suppliers? Yes, auction should have a reserve price and should be visible to the suppliers as it would save the time for both suppliers, who would not take part if their cost is higher than the reserve price, and buyer, who would not have to evaluate unfruitful applications. d) Should it be a dynamic bidding event, or a single-shot (best-and-final) tender? For parts which are not strategic in nature and low price is the major factor of evaluation, dynamic bidding should be used. Similarly, for strategic, highly engineered products, the due importance is to be given to other aspects of the tender such as cycle time, technical evaluation and single-shot tender is best choice here.

EXHIBIT 1: Process flow of resourcing at Casturn

EXHIBIT 2: Net savings calculation with Re-Sourcing