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TRANSCRIPT
UNDERSTANDING & MANAGING FUTURE RISK
Michael Hoeksema, Supply Manager Knape & Vogt Manufacturing
2
The Problem
Lack of Data
Overabundance of Data
Multiple Locations
Lack of Effective Analysis
3
Agenda
• Situational Background
• Broken Windows?
• Supply Base
• Part Data
• Quotes
• Wrap It Up
KV Background
Knape and Vogt Manufacturing
• Founded in 1898
• $300M+ Revenue
• 1200 employees, 3 manufacturing sites
• Global supply base of 500+ suppliers
• Products: – Drawer Slides
– Storage and Organization
– Kitchen and Bath
– Ergonomics Equipment
– Hardware
• Business segments: Retail, Distribution, OEM
• Held by Private Equity Firm Wind Point Partners
• Growth through acquisitions
• Operates in a diverse group of product categories
• Various product categories work with overlapping commodity groups
• Growth through acquisitions created a broad supply base
• Extensive data is available but scattered through multiple reports
KV Background
Data Management
• MSU Supply Chain Management Certificate
• Create a resource to better understand and manage KV’s Supply Base
– Single location for critical data
– Ease of use
– Consistency of evaluation
– Understanding of Total Cost of Ownership in decisions
• Launch with plastics commodity
Project Background
• Three Primary Purposes
– Understanding the supply base of a commodity
– Tools for part evaluation
– Standard template for evaluating supplier quotations
• Matrix consist of three connected spreadsheets
– Part Data Spreadsheet
– Order History Spreadsheet
– Commodity Review Spreadsheet
• Designed to be easily updated and expanded
Commodity Matrix
Broken Window Theory
• Criminological theory that states visible signs of crime encourages further crime
• Popularized in the 1990s by New York City police commissioner William Bratton and Mayor Rudy Giuliani
• To help combat major crime on city subway Transit Police cracked down on minor crimes
• Gladwell applied theory to organizational culture where minor habits snowball into major issues
• Small elements of a supply change left unattended that lead to major issues
What are the minor changes done with excellence that lead to major improvements
• Overview of commodity suppliers
• Understanding total spend
• Identifying Risk in Supply Chain
Evaluating Supply Base
• Total Spend by: – previous month
– rolling 12 months
– previous fiscal year
• Total Unit Count by: – previous month
– rolling 12 months
• Charts for visual representation of spend
Vendor # Supplier CO Prev R12
12967 China Supplier #1 CN ########## 35.1% ########## 44.1% ########## 40.5% ########## 77.1% ########## 70.2% 0.04$ 0.05$
11392 US Supplier #1 US ########## 30.9% ########## 24.6% ########## 22.8% ########## 1.0% ########## 0.7% 2.72$ 2.75$
10843 US Supplier #2 US ########## 7.1% ########## 9.3% ########## 9.4% ########## 0.1% ########## 0.1% 11.42$ 9.32$
16673 Canadian Supplier #1 CA ########## 7.6% ########## 4.9% ########## 5.2% ########## 5.5% ########## 4.2% 0.12$ 0.09$
11408 US Supplier #3 US ########## 7.3% ########## 8.2% ########## 12.3% ########## 14.5% ########## 21.0% 0.04$ 0.03$
16733 Canadian Supplier #2 CA ########## 6.7% ########## 4.2% ########## 4.4% ########## 0.4% ########## 0.2% 1.55$ 1.29$
11017 US Supplier #4 US ########## 3.3% ########## 2.1% ########## 2.4% ########## 0.5% ########## 3.0% 0.63$ 0.05$
15961 Canadian Supplier #3 CA ########## 1.3% ########## 1.9% ########## 2.0% ########## 0.6% ########## 0.4% 0.18$ 0.36$
16852 Canadian Supplier #4 CA ########## 0.7% ########## 0.6% ########## 0.9% ########## 0.4% ########## 0.3% 0.15$ 0.15$
Prev. Month Units R12 Units
Ave Unit
Prev. Month Spend R12 Spend Prev FY Spend
Evaluating Supply Base - Commodity Overview
• Spend relatively balanced
• Unit count skewed heavily
• China supplier provides 70% of total units
• Identified significant risk if any issues arise with Chinese supplier
• Beginning stages of diversifying production of our internationally sourced plastic components
Evaluating Supply Base - Results
• Detailed supplier specific data for evaluation
• Division of spend
• Number of parts quoted and ordered
• Total lead time breakdown
• Understanding Total Cost of Ownership
• Impact of Economic Order Quantity
Evaluating Suppliers
Supplier CO R12 Spend R12 Units
% of
Spend
% of
Units
Quoted
Parts
Prev
Month
Ave
Lead
Ave
Post
Total
Lead
Ship %
of
TCO %
of EOQ %
China Supplier #1 CN ########## ########## 44.1% 70.2% 358 64 43.1 27.5 70.6 4.54% 15.4% 39.8%
US Supplier #1 US ########## ########## 24.6% 0.7% 82 23 10.9 1.2 12.0 0.35% 0.7% 23.6%
US Supplier #2 US ########## ########## 9.3% 0.1% 91 17 19.3 0.9 20.3 0.33% 1.0% 27.1%
Canadian Supplier #1 CA ########## ########## 4.9% 4.2% 129 18 25.9 4.6 30.5 0.01% 1.2% 72.8%
US Supplier #3 US ########## ########## 8.2% 21.0% 122 23 5.4 1.2 6.6 0.05% 0.6% 30.9%
Canadian Supplier #2 CA ########## ########## 4.2% 0.2% 25 6 18.2 4.7 22.9 0.05% 0.9% 39.9%
US Supplier #4 US ########## ########## 2.1% 3.0% 23 2 23.3 1.9 25.2 0.03% 0.7% 53.5%
Canadian Supplier #3 CA ########## ########## 1.9% 0.4% 25 6 26.1 4.6 30.7 0.06% 0.7% 54.7%
Canadian Supplier #4 CA ########## ########## 0.6% 0.3% 6 2 27.8 4.3 32.1 0.00% 0.0% 46.2%
Lead time reduction • China based supplier showing extended lead time • 43 days vs. 20 to 25 days • Extended lead time lead to inflated safety stock levels • Opened discussion with suppler • Reduced safety stock inventory 8%
Supplier CO R12 Spend R12 Units
% of
Spend
% of
Units
Quoted
Parts
Prev
Month
Ave
Lead
Ave
Post
Total
Lead
Ship %
of
TCO %
of EOQ %
China Supplier #1 CN ########## ########## 44.1% 70.2% 358 64 43.1 27.5 70.6 4.54% 15.4% 39.8%
US Supplier #1 US ########## ########## 24.6% 0.7% 82 23 10.9 1.2 12.0 0.35% 0.7% 23.6%
US Supplier #2 US ########## ########## 9.3% 0.1% 91 17 19.3 0.9 20.3 0.33% 1.0% 27.1%
Canadian Supplier #1 CA ########## ########## 4.9% 4.2% 129 18 25.9 4.6 30.5 0.01% 1.2% 72.8%
US Supplier #3 US ########## ########## 8.2% 21.0% 122 23 5.4 1.2 6.6 0.05% 0.6% 30.9%
Canadian Supplier #2 CA ########## ########## 4.2% 0.2% 25 6 18.2 4.7 22.9 0.05% 0.9% 39.9%
US Supplier #4 US ########## ########## 2.1% 3.0% 23 2 23.3 1.9 25.2 0.03% 0.7% 53.5%
Canadian Supplier #3 CA ########## ########## 1.9% 0.4% 25 6 26.1 4.6 30.7 0.06% 0.7% 54.7%
Canadian Supplier #4 CA ########## ########## 0.6% 0.3% 6 2 27.8 4.3 32.1 0.00% 0.0% 46.2%
Evaluating Suppliers - Results
• Total Cost of Ownership – High volume of business moving to China supplier
based on cost – TCO show 15% savings is our break even price
• Economic Order Quantity – Data shows KV ordering at about 40% of EOQ – Results in higher total cost of goods
Supplier CO R12 Spend R12 Units
% of
Spend
% of
Units
Quoted
Parts
Prev
Month
Ave
Lead
Ave
Post
Total
Lead
Ship %
of
TCO %
of EOQ %
China Supplier #1 CN ########## ########## 44.1% 70.2% 358 64 43.1 27.5 70.6 4.54% 15.4% 39.8%
US Supplier #1 US ########## ########## 24.6% 0.7% 82 23 10.9 1.2 12.0 0.35% 0.7% 23.6%
US Supplier #2 US ########## ########## 9.3% 0.1% 91 17 19.3 0.9 20.3 0.33% 1.0% 27.1%
Canadian Supplier #1 CA ########## ########## 4.9% 4.2% 129 18 25.9 4.6 30.5 0.01% 1.2% 72.8%
US Supplier #3 US ########## ########## 8.2% 21.0% 122 23 5.4 1.2 6.6 0.05% 0.6% 30.9%
Canadian Supplier #2 CA ########## ########## 4.2% 0.2% 25 6 18.2 4.7 22.9 0.05% 0.9% 39.9%
US Supplier #4 US ########## ########## 2.1% 3.0% 23 2 23.3 1.9 25.2 0.03% 0.7% 53.5%
Canadian Supplier #3 CA ########## ########## 1.9% 0.4% 25 6 26.1 4.6 30.7 0.06% 0.7% 54.7%
Canadian Supplier #4 CA ########## ########## 0.6% 0.3% 6 2 27.8 4.3 32.1 0.00% 0.0% 46.2%
Evaluating Suppliers - Results
• Single view of detailed part information
• Address issues found on macro level
• Understand a parts total spend
• Impacts of lead time, safety stock and MOQ
• Total Cost of Ownership
• Economic Order Quantity
• Price Breaks
Evaluating Parts
Order Data Cost Breakdown Part Data
Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing
1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$ 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$ 5.3% 69333 125,000 0.0360 - 10,000 50 30
4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$ 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$ 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30
7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$ 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$ 5.3% 500000 750,000 0.0463 - - 50 30
• Data reviewed by part number • Previous month order quantity • R12 quantity ordered • R12 total spend • R12 total cost of ownership
Evaluating Parts
Order Data Cost Breakdown Part Data
Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing
1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$ 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$ 5.3% 69333 125,000 0.0360 - 10,000 50 30
4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$ 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$ 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30
7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$ 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$ 5.3% 500000 750,000 0.0463 - - 50 30
Order Data
Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO
1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$
4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$
7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$
• Duty rate • Minimum Order Quantity • Safety Stock • Part weight/volume • Lead time
Evaluating Parts – Part Data
Order Data Cost Breakdown Part Data
Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing
1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$ 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$ 5.3% 69333 125,000 0.0360 - 10,000 50 30
4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$ 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$ 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30
7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$ 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$ 5.3% 500000 750,000 0.0463 - - 50 30
Part Data
Part # Description Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing
1234 RETAINER 5.3% 69333 125,000 0.0360 - 10,000 50 30
4567 LEVER 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30
7891 STOP 5.3% 500000 750,000 0.0463 - - 50 30
• Part Cost • Total Cost of Ownership Calculation
– Duty Cost – Transportation Costs – Cost of Safety Stock – cost of capital & storage – Cost of MOQ – cost of capital & storage – if MOQ > SS – Z-Factor – assigning value to risk & other non-monetary factors
• Total Cost of Ownership percentage
Evaluating Parts – Total Cost of Ownership
Cost Breakdown
Part # Description Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor
1234 RETAINER 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$
4567 LEVER 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$
7891 STOP 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$
Order Data Cost Breakdown Part Data
Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing
1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$ 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$ 5.3% 69333 125,000 0.0360 - 10,000 50 30
4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$ 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$ 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30
7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$ 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$ 5.3% 500000 750,000 0.0463 - - 50 30
• Duty = part cost x duty rate provided • Freight = average rate per pound by supplier by part weight • Safety cost = total cost of SS x 5% (time value of money) / annual usage • Storage Cost = total units of SS x part volume x ave. $ per sq. ft. / annual usage • MOQ cost = MOQ – Safety x part cost x 5% / annual usage • MOQ Storage = MOQ-Safety x part volume x ave. $ per sq. ft. / annual usage • Z-Factor –based on factors including location, quality issues, responsiveness etc.
Evaluating Parts – Total Cost of Ownership
Cost Breakdown
Part # Description Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor
1234 RETAINER 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$
4567 LEVER 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$
7891 STOP 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$
Order Data Cost Breakdown Part Data
Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing
1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$ 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$ 5.3% 69333 125,000 0.0360 - 10,000 50 30
4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$ 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$ 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30
7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$ 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$ 5.3% 500000 750,000 0.0463 - - 50 30
Evaluating Parts – MOQ Impact
Saw-Tooth Inventory Diagram
• MOQ = 2,000 units
• Usage = 200 per week
• Average Inventory – 1,147 units
• MOQ – 1,200 units
• Average Inventory – 726 units
• Average inventory reduction of 421 units
• ½ MOQ reduction = reduction in ave. inv.
• Lead time drives safety stock
• SS = Z x σLT x D avg Desired service level x standard deviation LT x avg demand
• Reducing LT will reduce SS, inv. levels
Evaluating Parts – LT & MOQ Impact
• MOQ drives order size
• MQO reduction will reduce ave. inv. levels
• ½ MOQ reduction = reduction in ave. inv.
KV LT & MOQ Evaluation Project resulted in an
average inventory reduction of:
$1,000,000
Part Data
Part # Description Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing
1234 RETAINER 5.3% 69333 125,000 0.0360 - 10,000 50 30
4567 LEVER 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30
7891 STOP 5.3% 500000 750,000 0.0463 - - 50 30
• Economic Order Quantity - quantity used to minimizes the holding and ordering cost
• Part Ranking – determine the number of times to order part based on its sales volume
• Price Break – price improvements by ordering in larger quantities
Rank % of Spend MOQ Target
A 65% 4wk/use
B 20% 8wk/use
C 10% 13wk/use
D 5% 26wk/use
Evaluating Parts – EOQ and Price Break
• Review data by part • Units ordered R12 • Unit usage R12 • Total spend • Number of orders processed
Evaluating Parts – EOQ and Price Break
Order Data EOQ/MOQ Data Price Break Data
Part # Description Supplier R12 Order R12 Usage R12 Orders R12 Spend EOQ Ave R12 Order MOQ EOQ Orders EOQ % Part Rank Rank MOQ Last PO Price ROQ Price Savings Break EOQ EOQ Price Savings
1234 RETAINER China Supplier #1 951,000 826,320 13 142,079.40$ 60,600 73,154 69333 16 76.9% A 63,563 0.1494$ 0.1494$ -$ 60,600 0.1494$ -$
4567 LEVER China Supplier #1 154,200 138,242 19 91,409.76$ 12,250 8,116 3000 13 68.4% A 10,634 0.5928$ 0.3900$ 28,035.48$ 14,300 0.3900$ 28,035.48$
7891 STOP China Supplier #1 6,426,000 5,153,177 14 75,184.20$ 562,907 459,000 500000 11 78.6% A 396,398 0.0117$ 0.0110$ 3,607.22$ 519,876 0.0110$ 3,607.22$
Order Data
Part # Description Supplier R12 Order R12 Usage R12 Orders R12 Spend
1234 RETAINER China Supplier #1 951,000 826,320 13 142,079.40$
4567 LEVER China Supplier #1 154,200 138,242 19 91,409.76$
7891 STOP China Supplier #1 6,426,000 5,153,177 14 75,184.20$
• EOQ calculated based on R12 usage • Calculates average R12 order • Displays MOQ • Number of EOQ orders • Potential to request lower MOQ to reduce average
inventory
Evaluating Parts – EOQ and Price Break
Order Data EOQ/MOQ Data Price Break Data
Part # Description Supplier R12 Order R12 Usage R12 Orders R12 Spend EOQ Ave R12 Order MOQ EOQ Orders EOQ % Part Rank Rank MOQ Last PO Price ROQ Price Savings Break EOQ EOQ Price Savings
1234 RETAINER China Supplier #1 951,000 826,320 13 142,079.40$ 60,600 73,154 69333 16 76.9% A 63,563 0.1494$ 0.1494$ -$ 60,600 0.1494$ -$
4567 LEVER China Supplier #1 154,200 138,242 19 91,409.76$ 12,250 8,116 3000 13 68.4% A 10,634 0.5928$ 0.3900$ 28,035.48$ 14,300 0.3900$ 28,035.48$
7891 STOP China Supplier #1 6,426,000 5,153,177 14 75,184.20$ 562,907 459,000 500000 11 78.6% A 396,398 0.0117$ 0.0110$ 3,607.22$ 519,876 0.0110$ 3,607.22$
EOQ/MOQ Data
Part # Description EOQ Ave R12 Order MOQ EOQ Orders EOQ % Part Rank Rank MOQ
1234 RETAINER 60,600 73,154 69333 16 76.9% A 63,563
4567 LEVER 12,250 8,116 3000 13 68.4% A 10,634
7891 STOP 562,907 459,000 500000 11 78.6% A 396,398
• Review last PO price
• Price break for ROQ
• Price break for EOQ
• Show savings
• Potential savings of $28k on single part
Evaluating Parts – EOC and Price Break
Order Data EOQ/MOQ Data Price Break Data
Part # Description Supplier R12 Order R12 Usage R12 Orders R12 Spend EOQ Ave R12 Order MOQ EOQ Orders EOQ % Part Rank Rank MOQ Last PO Price ROQ Price Savings Break EOQ EOQ Price Savings
1234 RETAINER China Supplier #1 951,000 826,320 13 142,079.40$ 60,600 73,154 69333 16 76.9% A 63,563 0.1494$ 0.1494$ -$ 60,600 0.1494$ -$
4567 LEVER China Supplier #1 154,200 138,242 19 91,409.76$ 12,250 8,116 3000 13 68.4% A 10,634 0.5928$ 0.3900$ 28,035.48$ 14,300 0.3900$ 28,035.48$
7891 STOP China Supplier #1 6,426,000 5,153,177 14 75,184.20$ 562,907 459,000 500000 11 78.6% A 396,398 0.0117$ 0.0110$ 3,607.22$ 519,876 0.0110$ 3,607.22$
Price Break Data
Part # Description Last PO Price ROQ Price Savings Break EOQ EOQ Price Savings
1234 RETAINER 0.1494$ 0.1494$ -$ 60,600 0.1494$ -$
4567 LEVER 0.5928$ 0.3900$ 28,035.48$ 14,300 0.3900$ 28,035.48$
7891 STOP 0.0117$ 0.0110$ 3,607.22$ 519,876 0.0110$ 3,607.22$
• Standardize method for quote evaluation
• Provide a breakdown of supply chain costs
• Monetizes supply chain costs at piece price level
• Shift from piece price evaluation to a Total Cost of Ownership evaluation
Evaluating Quotes
• Data entry of quotes from two suppliers • Purchasing provided information (blue) • Supplier provided information (red) • Gray fields formula driven
Evaluating Quotes – Data Entry
• TCO = piece price + duty + transportation + safety stock + MOQ + Z-factor + Tooling
• Duty = quoted piece price x duty rate • Transportation Cost = piece weigh x supplier average freight per
pound • Safety & MOQ cost same as used in TCO by part calculations • Z-factor – assigned by supply manager as additional percentage to
piece price • Tooling = Total Tooling Cost / (Annual usage x 2)
Evaluating Quotes – Calculations
Part # Part Cost TCO TCO % Total Cost Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Tooling
1 1.5000$ 1.7275$ 15.2% 172,746$ 0.0795$ 0.0125$ 0.0183$ 0.0022$ -$ -$ 0.0150$ 0.1000$
2 5.0000$ 5.7414$ 14.8% 287,070$ 0.2650$ 0.0625$ 0.0610$ -$ 0.0390$ 0.0139$ 0.0500$ 0.2500$
3 5.4000$ 7.7038$ 42.7% 154,076$ 0.2862$ 0.6250$ 0.0732$ -$ 0.0618$ 0.2036$ 0.0540$ 1.0000$
Part # Part Cost TCO TCO % Total Cost Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Tooling
1 1.7500$ 1.8825$ 7.6% 188,247$ -$ 0.0006$ 0.0062$ 0.0006$ -$ -$ -$ 0.1250$
2 5.5000$ 5.8239$ 5.9% 291,197$ -$ 0.0030$ 0.0158$ 0.0051$ -$ -$ -$ 0.3000$
3 6.0000$ 6.9735$ 16.2% 139,469$ -$ 0.0300$ 0.0173$ 0.0512$ -$ -$ -$ 0.8750$
Supplier A - International
Supplier B - Domestic
• Evaluation by quoted piece price:
– Supplier A = $62,000 annual saving
• Evaluation by TCO:
– Supplier A = $5,000 annual saving
Evaluating Quotes – Results
Part # Part Cost TCO TCO % Total Cost Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Tooling
1 1.5000$ 1.7275$ 15.2% 172,746$ 0.0795$ 0.0125$ 0.0183$ 0.0022$ -$ -$ 0.0150$ 0.1000$
2 5.0000$ 5.7414$ 14.8% 287,070$ 0.2650$ 0.0625$ 0.0610$ -$ 0.0390$ 0.0139$ 0.0500$ 0.2500$
3 5.4000$ 7.7038$ 42.7% 154,076$ 0.2862$ 0.6250$ 0.0732$ -$ 0.0618$ 0.2036$ 0.0540$ 1.0000$
613,892$
Part # Part Cost TCO TCO % Total Cost Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Tooling
1 1.7500$ 1.8825$ 7.6% 188,247$ -$ 0.0006$ 0.0062$ 0.0006$ -$ -$ -$ 0.1250$
2 5.5000$ 5.8239$ 5.9% 291,197$ -$ 0.0030$ 0.0158$ 0.0051$ -$ -$ -$ 0.3000$
3 6.0000$ 6.9735$ 16.2% 139,469$ -$ 0.0300$ 0.0173$ 0.0512$ -$ -$ -$ 0.8750$
618,913$
Supplier A - International
Total Cost
Supplier B - Domestic
Total Cost
• Understand spend to identify risks
• Impact of lead time and MOQ
• Total Cost of Ownership calculation
• Economic Order Quantity
• Price break impact
• Standardize evaluation method
Little things done with excellence make a major impact!
Main Concepts