ACT302: Supplier Management, Inventory, and JIT Report for Bike Asif

This report analyzes the supplier management practices of Bike Asif Ltd., a motorbike manufacturer, focusing on their implementation of a just-in-time (JIT) inventory system. The report examines the cost per unit of activity for different supplier-related tasks, calculates supplier performance indices for two suppliers (RevMech and Omoto), and compares their performance based on factors like total cost, rejected orders, and late deliveries. The report highlights the need for improvements in supplier management, including reviewing supplier performance, building strong supplier relationships, and implementing replacement strategies to mitigate the impact of defective materials. It also discusses the advantages of electronic transactions with suppliers and the rationale behind improving supplier relationships to achieve cost-effective transactions and ensure the supply of quality materials. The report further explores how JIT methodology impacts product quality, effective payment control, and the potential for cost savings by reducing order sizes. The report concludes with recommendations for contract renewal and performance measurement, emphasizing the importance of delivery schedules, accuracy of orders, and material quality in evaluating supplier performance.

Managing Suppliers,
Inventory and Just-in-Time
(JIT)

Content
• INTRODUCTION
• Cost per unit of activity
• Calculation of supplier performance index of both suppliers
• Comparison of performance of both suppliers.
• Total cost per unit for Omoto
• Implementation of changes
• Renewal of suppliers contract as well as for measuring the performance.
• Advantages of electronic transaction with suppliers
• Rational behind improving the relationship with suppliers
• Effective control over payment to the suppliers
• Savage of money by reducing the size of orders
• Risk due to running down the level of inventory
• CONCLUSION
• REFERENCES

INTRODUCTION
Suppliers are necessary for offering raw materials to the manufacturers. It is important for the companies to choose those suppliers
who can provide raw material at lower cost(Bortolotti, Danese and Romano, 2013). Additionally, suppliers cost is calculated by
considering many factors like delivery cost, purchasing cost etc. Suppliers performance can be measure by the calculating overall
cost of different suppliers. For enhancing the supplying services, JIT (just in time) technique is introduced which is related to the
minimisation of time production by offering raw materials exactly on the time when it is needed. Herein, the project report Bike
Asif Ltd. implements the just in time method for evaluation of their suppliers performance. They are the bike manufacturer who
purchase raw materials from different suppliers.

Cost per unit of activity driver for
each supplier-related activity.
Activity Cost per activity
Order components from supplier 1800000/6000= $ 300
Receive order 9000000/10000= $ 900
Return reject components to supplier 38500/55= $ 700
Receive late deliveries 260000/130= $ 2000
Production downtime due to late delivery 2400000/800= $ 3000
Production downtime due to defective material 3600000/3000= $ 1200
Process invoice and pay supplier 1050000/3000= $ 350
Dispute invoiced amount 40000/50= $ 800
Quality audit of suppliers 500000/10= $ 50000

Continue
Activity RevMech Omoto
Order components from supplier 3000000/90= $ 33333.33 3600000/130= $27692.30
Receive order 3000000/90= $33333.33 3600000/150= $ 24000
Return reject components to supplier 3000000/15= $ 200000 3600000/16= $225000
Receive late deliveries 3000000/6= $ 500000 3600000/28= $128571.42
Production downtime due to late
delivery
3000000/45= $66666.67 3600000/59= $ 61017
Production downtime due to defective
material
3000000/20= $ 150000 3600000/29= $ 124138
Process invoice and pay supplier 3000000/12= $ 250000 3600000/130= $ 27692.30
Dispute invoiced amount 3000000/3= $1000000 3600000/3= $ 1200000
Quality audit of suppliers 3000000/1= $ 3000000 3600000/2= $ 180000

Calculation of supplier
performance index of both
suppliers
Supplier performance index= Purchasing price+ Non-conformance Costs/ Purchasing price
RevMech= 3000000+916666.67/ 3000000= 1.30
Calculation of non-conformance cost- (Return reject components to supplier+Receive late deliveries+Production downtime due to late
delivery+Production downtime due to defective material: 200000+500000+66666.67+150000= 916666.67)
Omoto- 3600000+538726.42/3600000= 1.14
Calculation of non-conformance cost- (Return reject components to supplier+Receive late deliveries+Production downtime due to late
delivery+Production downtime due to defective material:225000+128571.42+61017+124138=538726.42)

Comparison of performance of
both suppliers.
Basis RevMech Omoto
Total cost This supplier sells the engine at the
cost of $1000 per unit which result
in total cost of $3000000.
While on the hand, this supplier sells
the engines at $900 per unit which is
low in compare.
Number of
rejected orders.
RevMech supplier sent the defective
material for 15 times which occurs in
the cost of $ 200000.
This supplier gives more defective
parts of bike. They sent 16 times
which loss to the company in total
cost of $ 225000.
SPI(supplier
performance
index)
Their supplier performance index is
of 1.30.
On the other hand, their performance
index is less. It is only of 1.14.
Late deliveries This supplier sent the raw the raw
material late for 6 times which loss to
the company in total cost of $
500000.
They sent more late deliveries which
is 28 times. This result in cost of $
128571.42.

Total cost per unit for Omoto
Activity Omoto
Order components from supplier 3600000/130= $27692.30
Receive order 3600000/150= $ 24000
Return reject components to supplier 3600000/16= $225000
Receive late deliveries 3600000/12= $ 300000
Production downtime due to late delivery 3600000/30= $ 120000
Production downtime due to defective material 3600000/29= $ 124138
Process invoice and pay supplier 3600000/130= $ 27692.30
Dispute invoiced amount 3600000/3= $ 1200000
Quality audit of suppliers 3600000/2= $ 1800000

Implementation of changes
In all kind of manufacturing organisations role of supplier is very crucial. This is why because suppliers provide raw material for
the production(Fredendall and Hill, 2016). If supplier related cost is law then it would be beneficial for the company to
generate more revenue, on the other hand if supplier's cost is high then it may result in the loss. Herein, the Bike Asif Ltd.
they purchase raw material from the two suppliers. Though, they need some changes to reduce the cost of suppliers which are
following:
By reviewing the supplier's performance- This is a better way to control the supplier's cost by analysing their performance. Due
to this company can know that which suppliers are lower costly and which ones are not. The above mentioned bike
manufacturer company can evaluate the performance of their suppliers to control the cost. They can measure the performance
by checking following terms: price, quality, delivery time etc.
Building good relationship with supplier- It is important to maintain good relationship with the suppliers because if relation is
good between company and suppliers then it will be helpful in reducing the cost of raw materials. The finance controller and
purchasing manager of Bike Asif Ltd. try to create good relationship with the suppliers so that they can offer raw material at
lower cost as well as with good quality.
Applying replacement strategies- The above bike manufacturing company purchase about 70% parts of the bikes and some parts
delivers defective. In this situation it is important for the company to apply replacement strategies to prevent from the loss due
to defective material. This can help in the reducing the cost of suppliers.

Renewal of suppliers contract as
well as for measuring the
performance.
The bikes Asif Ltd. deals with the different suppliers for purchasing the raw material. As per the case study, they make the contract
with the suppliers to assure them that they will purchase the raw material from them. They use following criteria for renewal
of contract:
Delivery schedule- Company requires different parts of bike at right time. They renews the contract of those suppliers who offer
raw material on time according to the delivery schedule(Battini, Boysen and Emde, 2013). For measurement of performance
of the supplier they can use following performance measure tool:
(a)Time of delivery- If they do not deliver material on the time then it can be loss for the company. Company can evaluate the
performance of suppliers by checking time of delivery.
(b) Delivery according to schedule- It is important to delivery the material as per the schedule. Like if delivery is scheduled on
Monday and they are supplying on any other day then it can be negative aspect for the suppliers. This framework can be used
for performance measurement of the suppliers.
Accuracy of order- The Bike Asif Ltd. makes the contract with the suppliers on the basis of accuracy of delivered order. This
accuracy can be measure by the cost and quality of the delivery. This criteria of contract renewal can be used for performance
measurement of the suppliers in this way:
(a) Cost of order- The above bike manufacturer company can evaluate the performance of the suppliers by calculating the cost of
delivered order. If cost is according to the mentioned catalogue then it will be good for the performance of suppliers.
(b) Quality of material- This term can be used to measure the performance by analysing the quality of the bike's parts.

Advantages of electronic
transaction with suppliers
Electronic transaction system- Electronic transaction system is a way of paying or receiving the money in a digital form. It does not
include use cash or cheque. This makes work easy of both buyer and seller(Kaynak, 2013). If Bikes Asif Ltd. use this
electronic system then it can be beneficial for both to the company and their suppliers. Herein, some advantages are discussed
below:
Advantages to suppliers-
Due to electronic payment system, suppliers can receive instant payment of delivered material.
This can help them in reducing the risk of carrying huge amount from the company.
Remove the headache of money collection.
Advantages to company-
This system can help to the above manufacturing company in removing the problem of cash collection for purchasing.
It makes transaction smooth which can result in better relationship with the suppliers.
This system pays money in a moment, this saves the time and cost of company.

Rational behind improving the
relationship with suppliers.
The relationship with between suppliers and company is very crucial in the context of receiving raw material at sufficient
price(Cimorelli, 2016). In the absence of good relation with the supplier it may result in loss for the company and suppliers.
The Bike Asif Ltd. tries to make strong relationship with the supplier for following reasons:
Cost effective transaction- The rational behind the relationship with the suppliers is the cost effective transaction. This is why
because if suppliers are in good touch with the company then then they may negotiate the prices of raw material.
Quality material- Due to better relationship with the supplier, the above manufacturer company can receive good quality of bike
parts from the suppliers.
(b) Impact of just in time on the strategic priority of product's quality.
Just in time methodology is related to the providing the raw material on the exact time of the production. Eventually, it may help in
improving the quality of products(Nadarajan, Chandren and Mohamed Elias, 2013). The bike Asif Ltd. company implements
the JIT system that can improve the quality of their manufactured bikes. It can impact the quality of products(Bikes) in
following way:
Ensures availability of needed material- Just in time methodology provides the raw material on the time of need which makes
possible the good quality of products. Herein, the bike Asif Ltd. company apply this technique to ensure about the quality of
their manufacturing bikes.