1. Sourcing process

3. The Sourcing Progress Sourcing and the Management of Suppliers 1 2 3 4 Identify needs Define requirements Decide to make or buy Identify possible suppliers Pre-screen possible sources Evaluate remaining supply base Choose supplier Deliver product/perform service 5 6 7 8 9 10 11 Identify type of purchase Conduct market analysis Post purchase performance evaluation Sourcing is the progress of identifying, selecting and developing suppliers The Eleven Stages of the Sourcing Process (Pg 368)

7. Yes No Yes No Yes No Yes No Make or buy Is the component/ assembly strategic important/core business? Have we design capability? Have we manufacturing capability? Are we competitive? Make Vs Buy Make Buy Make Vs Buy Buy Make Vs Buy Buy Make

9. Example 11.2, page 395 Marginal costing Materials 90 Labour 40 Variable overheads 10 Fixed overheads 20 Works cost 160 Given: Annual usage : 10,000 Purchase price : $156 , but the capacity would be idle 30% of fixed costs is recoverable if component is bought Make Buy Difference Variable costs (90+40+10) 140 156 16 Variable costs x Volume 1,400,000 1,560,000 Fixed costs (30% x 20 x 10k) 60,000 60,000 1,460,000 1,620,000 160,000

10. Total cost of purchase = total cost of making Purchase price x OQ = Total fixed cost + Variable costs x OQ OQ (Purchase price - Variable costs) = Total fixed cost OQ = Total fixed cost / (Purchase price - Variable cost) OQ = F / (P - V)

14. NPV

15. Make per unit US$ Direct labour 40 Inventory storage 25 Factory overheads 15 Capital equipment 30 Cost per unit 110 Make Buy Difference Cost per unit $110 $80 $30 Cost × volume (100,000 pieces) $11,000,000 $8,000,000 $3,000,000