Executive Summary
Hoonda PowerMach USA (HPM) plans to introduce a new motorcycle alternative to the North American Version, 2016 VFRD1275Z. Two suppliers, ZEF Transmissions and BoggWorner have submitted their quotations for the Dual-Clutch Transmission (DCT) option and seem to have met the minimum suitability criteria set by HPM. Nonetheless, as HPM can do business with only one supplier, it is essential to determine which one of the two suppliers is better. Cost-effective analysis of two suppliers, ZEF Transmissions and BoggWorner, using both qualitative and quantitative criteria, offers evidence-based decisions.
A quantitative analysis of the two suppliers outlines the overall cost-effectiveness of the firms based on the costs. The metrics for evaluating ZEF Transmissions and BoggWorner, as potential suppliers, include the total cost of the transmission, the available cash discount, tooling cost, carrying cost, transportation cost, ordering cost, and quality cost. Moreover, the delivery rating in terms of the backorder and lost sales are applicable. The cumulative costs for each supplier and the marginal difference between the two form the basis of establishing the most cost-effective supplier. Naturally, a cost-effective option is quite satisfactory as it has a direct positive impact on the company’s profit margin.
However, a good decision does not depend merely on the quantitative metric. The cost-effective nature of supply presents a situation only on a short-term basis as the costs change with time. In this regard, it is essential to consider other measures in the form of a qualitative analysis of the suppliers described in terms of quality, technology, plant and process, environment, finance, responsiveness, delivery, and business. Evidently, qualitative and quantitative analysis shows that ZEF Transmissions are less costly than BoggWorner. However, BoggWorner offers better performance advantages that are more important in the long run than ZEF Transmission. Therefore, based on the advantages presented by the descriptive factors of the qualitative analysis process that highlights the long-term performance capabilities, BoggWorner qualifies as a supplier regardless of the fact that it is more costly than ZEF Transmissions.
Quantitative Analysis
- A supplier achieves a costing advantage if it obtains the lowest cumulative costs among its competitors (Booth 49). In this case, the total cost analysis shows that ZEF Transmissions has a more cost-effective supplier when compared to BoggWorner because it has lower costs of transmissions and tooling. In this view, ZEF Transmissions offers a competitive price in the market, which means that it is a probably market leader. Evidently, ZEF Transmissions uses a competitive pricing strategy to stay ahead of its competitors, as firms that use such a strategy are always aware of the needs of both the market and the customers.
- ZEF Transmissions has higher costs on the delivery rating than BoggWorner. Delivery rating is a very important element as HPM strives to deliver the engines way ahead of its competitor, Yamaja Motorsport, to attain a competitive advantage in the market. Therefore, there is a considerable risk on the delivery rating if the Hoonda PowerMach USA chooses ZEF Transmissions as the preferred supplier.
- The fact that ZEF Transmissions has a higher risk than BoggWorner on the delivery rating of the product presents various concerns regarding the capabilities of the supplier. The existence of such a risk may mean that the supplier has a large customer base, and thus, it is incapable of assigning an appropriate level of priority to each customer. Secondly, the supplier may be unable to meet its delivery obligations because it has problems with its own production process and schedule. Overall, the poor delivery rating implies that various other factors about the supplier, such as its business and production process and communication capability, need evaluation.
- ZEF Transmissions is a preferred supplier because it offers lower transportation costs than BoggWorner. The cost of transport usually depends on a number of conditions that may include geographical consideration, infrastructural conditions, energy consumption, and administrative obstacles, among many other factors (Tseng, Yue and Taylor 1627). Distance is an important factor to consider while choosing suppliers because transportation costs increase, according to the distance and nature of infrastructure. Therefore, a low cost of production may imply that various conditions have the least impact on the transport process, thereby guaranteeing that the products are delivered on schedule and without any unnecessary delays.
- The total cost analysis shows that BoggWorner offers a higher discount rate as compared to ZEF Transmissions. A high discount increases sales because it entices customers to increase their purchases. However, a higher discount rate in the market also implies that the retailers or customers have high bargaining power in the distribution channel. Consequently, suppliers usually have a fixed price list that they distribute to potential customers and offer incentives to their treasured customers in the form of discounts. Presumably, this high discount rate indicates that the supplier values the relationship with HPM and desires to enhance mutual business growth and development.
- On the other hand, both ZEF Transmissions and BoggWorner have the same ordering cost of $4,500. The ordering cost refers to the charges incurred when making an order irrespective of the size of the order but has a huge inverse implication on the carrying cost. This means that a larger inventory level will lead to a relatively lower carrying cost. The fact that both suppliers have the same ordering cost implies that their respective carrying costs change at the same rate.
Qualitative Analysis
Based on the various performance metrics evaluated, BoggWorner seems to be a better supplier as compared to ZEF Transmissions, thereby implying that the standard of its product and business process is higher than that of its competitor.
- BoggWorner has a higher rating on quality. Quality refers to the ability of a supplier to unswervingly meet or surpass the customers’ needs and expectations through the delivery of products that the company has paid for without any failure. Quality is not an added advantage or a special feature, but a requirement and an essential factor of a product or a service (Holjevac 1029). In this case, BoggWorner improves its level of reliability, product standard, business and production process, integrity, and service. It is critical for HPM to choose a supplier, which offers quality products and services, even if the differential margin is minimal, as this will guarantee the production of superior products in the market.
- BoggWorner scores higher on the performance rating of technology than ZEF transmission, thereby implying that the company utilizes superior technological aspects of the industry, and has an advanced level of technological expertise, application engineering, and process engineering. Furthermore, it implies that the firm invests heavily in research, development, and technological breakthrough to produce superior products.
- The plant and process criteria must also be satisfactory or exceed expectations. The plant and process criteria mean that BoggWorner has an upper hand because it ensures that its products meet the standards, requirements, and recognition from all the relevant sources. In addition, the criteria ensure impeccable design, production, storage, and maintenance of products, as well as strict adherence to procedures and rules. A high score on plant and process means that the final product will have none or minimal defects, thereby avoiding production problems in the future.
- BoggWorner has a better financial status as compared to ZEF Transmissions, which means that the firm is able to guarantee a favorable price and a corresponding convenient payment process. The financial status is evident through the fact that it offers a better discount rate than ZEF Transmissions. Apparently, BoggWorner scores high in terms of financial standing and stability; hence, making it a profitable supplier that is concerned with continuity and timely delivery of products that sustains its profitability level. BoggWorner understands that its profit margins will increase only if it offers quality products and services than its competitor. Notably, a supplier with financial problems will have problems with its cash flows and difficulties in paying bills, acquiring materials, and providing quality products (Booth 51). Hence, financial stance of a company is an integral factor to consider when choosing appropriate supplier.
- In the business arena, a supplier must have a top-notch business delivery process. This quality refers to the utility of the product, before and after sales service, ease of communication, accurate and timely delivery of quotations, and ability and willingness to hold stock and advice on technical issues. A supplier with a good business process lessens the acquisition complexity and reduces the chance of uncertainties related with reaching a decision to purchase, as it means that the supplier is very responsive (Stanley and Wisner 290).
Various other performance measures that should be included in HPM’s supplier scorecard include:-
- The supplier’s performance history requires scrutiny with a deep consideration of the competitiveness of the supplier, previous production schedule, how the market responds to it, and the ability of the supply to keep and maintain commercial relations and business networks. Presumably, suppliers that have been in the market for a long period are more experienced and thus, offer higher business stability level than younger companies.
- The lead-time is also a major factor to consider as it outlines the time taken from the ordering process, material placement to final delivery. Naturally, the best suppliers are those that have a shorter lead-time and the company will be happy and comfortable when the lead-time is as short as possible. A long lead-time implies that the supplier has a low level of efficiency or has a high level of customer orders, thus, leading to a delay in deliveries (Camerinelli 28).
- Communication efficiency is also another vital factor to consider as it reflects on the supplier’s ability to maintain an effective long-term relationship. Good suppliers should be effective communicators as business customs, ethics, and means of communications may vary from one customer to another.
- The customer response towards the supplier is also a very important aspect to consider as it highly reflects on the performance of the supplier. Suppliers that maintain a good customer base are better performers and should be preferred, as customers tend to flock where service delivery and performance are the best.
Recommendation
Considering both the quantitative and qualitative analysis, BoggWorner becomes the supplier best suited to meet the needs and requirements of Hoonda PowerMach USA. HPM strives to produce the highest quality engine ahead of its biggest market competitor. In this regard, ZEF Transmissions offers a better deal in terms of overall cost reduction, but falls short in terms of all other performance metrics measured under the qualitative analysis phase. Undoubtedly, the cost criterion is a very important element to consider when choosing a supplier as it has a direct impact on the profit margin.
However, other factors related to the performance metric of any particular supplier are able to offer valuable compensation. In many cases, customers buy products that are slightly expensive because they offer quality or improved service, thus, they get value for their money. Notably, the cost margin between ZEF Transmissions and BoggWorner is at a relatively low percentage; therefore, it is highly necessary to consider all other factors carefully. BoggWorner is a better supplier because its delivery rating risk is lower than that of ZEF Transmissions. Consequently, in this particular case, BoggWorner has a high quality performance metric, but at high cost. Notably, this is a vital purchase for HPM and the company desires to reduce the risk of late delivery that would disturb production and cause massive loss of sales and back orders. Therefore, HPM must produce the best quality engines at the right time to guarantee a huge market niche and a competitive advantage.
The importance of evaluating qualitative considerations
A qualitative analysis refers to the examination of the descriptive aspects of the supplier such as quality, service, business process, and so on. These non-financial elements offer clear advantages over quantitative analysis based on financial data because they delve deep into the long-term performance of the company, such as competitor information, customer satisfaction, and quality that are important in attaining profitability and competitive advantage.
Thus, qualitative analysis is highly vital in creating objectives, assessing performance, and establishing future action plans. Indeed, considering costs alone, which are purely quantitative in nature, the firm can attract a short-term view, as it may only relate to a particular purchase or financial period, which may be subject to changes or alterations when other descriptive factors require consideration.
There are various methods of conducting a qualitative analysis with the most famous methods being the weighted-point average system, as used in this paper, the categorical system, and the cost-based system. Although categorical system is the simplest method of assessing suppliers, it does offer a comprehensive assessment of actual performance for it assigns equal weights to all assessable attributes, and it is very subjective. Moreover, categorical system relies heavily on performance expertise rather than the nature of quantitative data.
Comparatively, the cost-based system is effective and reliable because it quantifies all attributes. Specifically, it assesses the costs of deficient attributes of a given supplier, which limits achievement of expectations. In this view, the use of supplier performance index provides accurate the total cost each product supplied. This method quantifies all the costs of dealing with the supplier by taking into consideration all the non-performance costs. However, it is quite complex and requires users to develop a cost accounting system. Consequently, it is quite difficult to recognize non-performance costs of the supplier.
Therefore, weighted point system is the most appropriate system that this assessment uses for it is not only reliable and versatile, but also cheaper to implement than other systems. It integrates both quantitative and qualitative elements of performance into a single system. The versatility enables users to alter metrics of strategic needs and company’s priorities or customize weights of each performance metric. Nonetheless, the company has a difficult task, as it must outline the value of each performance metric relative to the other metrics. Diversity of metrics complicates analysis of companies as biases and inaccuracies leads to unfair assessment. In this view, standardization of the metrics is essential to ensure that all companies receive equal ratings.
Appendices
Appendix A
Appendix B
Appendix C
Works Cited
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Camerinelli, Enrico. Measuring the Value of the Supply Chain: Linking Financial Performance and Supply Chain Decisions. London: Gower Publishing, 2009. Print.
Holjevac, Ivica. “Business ethics in tourism: As a dimension of TQM.” Total Quality Management and Business Excellence, 19.10 (2008):1029-1041. Print.
Stanley, Linda, and Wisner, Joel. Service quality along the supply chain: implications for purchasing. Journal of operations management 19.3 (2001): 287-306. Print.
Tseng, Yung-yu, Wen-Long Yue, and Michael Taylor “The Role of Transportation in Logistics Chain.” Proceedings of the Eastern Asia Society for Transportation Studies 5.2 (2005): 1657-1672. Print.