Supplier Performance Analysis Project: Cost Analysis and Comparison

This project provides a detailed analysis of supplier performance for a company that sources components from two suppliers, Hot Exhausts and Chrome Manufacturers. The analysis begins with a cost per activity driver breakdown, detailing costs associated with activities like order processing, receiving, returns, late deliveries, production downtime, invoice processing, disputes, and quality audits. The project then calculates supplier performance indices for both suppliers, using the formula (Purchase Price + Non-performance Cost) / (Purchase Price), to assess their relative efficiency. The analysis reveals that Hot Exhausts has a better supplier performance index compared to Chrome Manufacturers. A component-wise comparison highlights that Chrome Manufacturing has a higher number of orders, late deliveries, and invoices, leading to higher costs. Despite Chrome Manufacturing's better invoice management, the overall cost-benefit analysis favors Hot Exhausts due to lower costs in other areas. The project concludes that Hot Exhausts is the better-performing supplier based on the calculated indices and detailed cost comparisons. The analysis references SME (2011) for supplier evaluation metrics.

1
Statement showing Cost per activity driver
Total
cost($)
Number of
activities Type
Cost/
activity
Order components from supplier 18,00,000 6,000 orders 300.00
Receive Order 90,00,000 10,000 deliveries 900.00
Return Reject components to supplier 38,500 55 returns 700.00
Receive late deliveries 2,60,000 130
late
deliveries 2,000.00
Production downtime due to late delivery 24,00,000 800 hours 3,000.00
Production downtime due to defective
material 36,00,000 3,000 hours 1,200.00
Process invoice and pay supplier 10,50,000 3,000 invoices 350.00
Dispute invoiced amount 40,000 50 disputes 800.00
Quality audit of suppliers 5,00,000 10 adults 50,000.00

2
Statement showing Supplier wise cost per unit and cost per activity
For Hot Exhausts
Order components from supplier 90 27,000.00
Receive Order 90 81,000.00
Return Reject components to supplier 15 10,500.00
Receive late deliveries 6 12,000.00
Production downtime due to late delivery 45 1,35,000.00
Production downtime due to defective material 20 24,000.00
Process invoice and pay supplier 12 4,200.00
Dispute invoiced amount 3 2,400.00
Quality audit of suppliers 1 50,000.00
Total Cost 3,46,100.00
No of units 3,000.00
Cost per unit 115.37

3
For Chrome Mfg
Order components from supplier
13
0 39,000.00
Receive Order
15
0 1,35,000.00
Return Reject components to supplier 16 11,200.00
Receive late deliveries 28 56,000.00
Production downtime due to late delivery 59 1,77,000.00
Production downtime due to defective material 29 34,800.00
Process invoice and pay supplier
13
0 45,500.00
Dispute invoiced amount 3 2,400.00
Quality audit of suppliers 2 1,00,000.00
Total Cost 6,00,900.00
No of units 4,000.00
Cost per unit 150.23

4
The supplier performance index is a measure to value the supplier's performance with
respect to the cost of the units provided. (SME, 2011).
It is calculated as (Purchase Price + Non-performance Cost) / (Purchase Price).
In the given case Fast Lane Ltd Takes supplies for its components from two suppliers Hot
Exhaust and Chrome Manufacturers and below we are calculating the Supplier performance
index for both of them to identify the performance of which supplier is better. The supplier
whose index is closer to 1 will be better because it will have a low non-performance cost as
compared to the other supplier.
In our case, we have already calculated the numerator in the excel and the calculation of the
Supplier performance index is given below.
For Hot Exhausts:
$115.37/100 = 1.15
For Chrome Manufacturers:
$150.23/90 = 1.67
We can see that the index is closer to 1 for Hot Exhausts as compared to Chrome
Manufacturers thus Hot Exhausts has performed better as compared to Chrome
Manufacturers.
After the calculation of the Cost measure of the performance index, we can now do a
component-wise analysis of both the suppliers to figure out which supplier has performed
better.
In the case of Hot Exhausts, the number of orders made to suppliers is more in the case of
Chrome Mfg. as compared to Hot exhausts and the more and since higher the number of
orders, the cost is also higher for Chrome. The orders are received in the ratio of 1:1 with
deliveries, whereas the ratio is 13:15 in the case of Chrome Manufacturing. The late

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deliveries are severely high in the case of Chrome as compared to Hot exhausts and which
causes huge production downtime for the company and thereby leading to higher costs. The
no of invoices is way higher for Chrome Mfg., more than 10 times as compared to Hot
Exhausts that constitutes as a higher cost of processing those invoices. The last competitive
advantage hot exhausts have is it needs only 1 quality audit whereas Chrome Mfg. needs 2
quality audits. And since Chrome mfg. needs to quality audits the cost to do these audits are
also higher, which eventually increases the total cost of input. The only better performance
for Chrome Mfg was better invoice management, the % of disputes were only 2.31% in the
case of Chrome Mfg, however in the case of Hot Exhausts the % of disputes were 25%. It
gave some cost-benefit to Chrome, but overall the total cost-benefit was in favor of Hot
Exhausts.
So after evaluating each aspect of both the suppliers, calculating the supplier performance
index & based on the performance of the two suppliers we can come to the conclusion that
Hot Exhausts was a better performing supplier as compared to Chrome Mfg.
References:
SME, S. (2011). Performance Measurements and Metrics: An Analysis of Supplier
Evaluation | Supply Chain Resource Cooperative | NC State University. [online]
Scm.ncsu.edu. Available at: https://scm.ncsu.edu/scm-articles/article/performance-
measurements-and-metrics-an-analysis-of-supplier-evaluation [Accessed 21 Jan. 2020].