Case Study on

AssamTech Corporation Strategic Sourcing

of Jazberry’s
You have recently been appointed on the cross functional team at AssamTech Corporation conducting
market research to source a new miniature video camera – a component in a new line of AssamTech
wireless palm held computers branded Jazberry’s. The Lead Team at AssamTech Corporation have
requested your team prepare a position paper recommending the sourcing strategy of no more than 20 pages
(not including appendices as supporting information) by the 1st May 2021 for pre-reading to the 13th May
Lead Team meeting, when you will be advised of approval to proceed.

The cross-functional team realized this supplier selection decision, which was one of the most critical
involving the new product line, was going to be difficult. Until the team analyzed the numbers and
discussed the findings from the field visits, it was clear that no consensus existed among team members
concerning which supplier(s) to select. Your team has provided you with the following market and business
summary. Conduct the analysis required by the team and ensure your paper covers the results in your
company format of the strategic sourcing position paper.

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OVERVIEW

AssamTech Corporation, Pty Ltd. (CharlTech) is a medium-sized high technology company located in
Karachi. In its early years, AssamTech produced component parts and subsystems for personal computers
and engineering workstations. In 2010, AssamTech added its own line of hand held palm pilots and mini
computers to its product offering. Recently, the company decided to expand its product line to include
fully assembled wireless palm held computers called “Jazberry’s”. The company, recognized as a well-
established component and subsystem manufacturer, has grown from a single product manufacturer with
annual sales of $2.5 million, to a multi-product $2 billion firm in just ten years. This growth was helped in
part through acquisitions in server markets and related computer industries. AssamTech Corporation has
a vision to be a trusted partner to business customers requiring high quality business products with on-time
customer delivery. The company also emphasizes state-of-the-art technology in its product design,
production, information, and delivery systems.

AssamTech’s decision to enter the wireless palm held computer market occurred during the peak of the
business mobility boom in the recent time in Pakistan. In particular, the marketing department decided to
focus on the corporate executive user, to exploit the booming growth in mobility of the office. The
projected growth rate of Jazberry sales to the business sector far exceeded the home sector, and is predicted
to surpass the home sector in total share of shipments. Although AssamTech Corporation is a small player
in the global market, the company decided to pursue an aggressive strategy of selling high quality wireless
palm held computers at affordable prices.

The new line of palm held, called the Jazberry, allow a customer to use the Jazberry in conjunction with a
laptop. The stand-alone Jazberry allows customers to receive and respond to e-mails, access the internet,
view and edit documents, receive and make telephone calls and video / tele-conference. The Jazberry
would come with a high capacity microprocessor, memory, hard disk space, Bluetooth wireless access, a 4
-inch flat smart screen color monitor and a digital video camera to record real-time videos that can be
transmitted instantaneously via the internet.

Although industry forecasts for personal computers have certainly been downgraded, AssamTech is
estimating that in the next two years the wireless mobile computer industry in Pakistan will grow at a slow
but steady state as business executives upgrade their palm pilots and mobile accessories with the predicted
slow but steady growth in the mobility requirements of industry. This decision poses some risks, given
that there is a “mixed bag” of opinions regarding the growth of the electronics sector. The decision was
made to pursue the business computer user, through a strategy focused on shipping low-cost, high-quality
Jazberry’s directly to business customers as orders are received (make-to-order). This production model is
similar to the Dell approach, and appears to be the model that will dominate the PC industry. Because the
company does not plan to build finished Jazberry’s (i.e., make-to-stock) in anticipation of future sales,
market demand forecasts, supplier quality, supplier capacity, lead time, and delivery reliability are critical
factors. The company is willing to carry some units in component inventory as safety stock as a buffer
against missing customer order commitments.

AssamTech Corporation will assemble the Jazberry’s in its own facilities, but intends to outsource many
of the key product components and subassemblies, including the video camera, a feature that will be
standard on each AssamTech Jazberry. The decision to outsource the video camera resulted from an
executive-level insourcing/outsourcing study that concluded the cost to manufacture these drives in-house
was highly prohibitive. The product requires production capabilities that are beyond AssamTech’scurrent
expertise. Marketing estimates that first year demand for the Jazberry, and therefore the video camera,
would be approximately 500,000 units, with a 20% growth expected for year two. Expected pricing for the
Jazberry will be around $1000 to $1200. Video camera demand depends totally on final product demand,
which can be volatile.

Exhibit 1 details the monthly sales forecast for the Jazberry. However, given the volatility of the computer
market and AssamTech’slimited experience with marketing directly to end users, marketing estimates, with
95% confidence that actual demand will likely be between 400,000 and 600,000 units. As with most high
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technology companies, adequate supplier capacity is a critical issue. Taking a lesson from the demands
placed on it by its current customers, AssamTech Corporation will seek some assurance from its suppliers
that they can increase the supply of components by 25% within four weeks notice of changing market
conditions. Supplier responsiveness and ability to satisfy AssamTech Corporation’s volume requirements
will be critical.

AssamTech recognizes that digital video camera demand is growing rapidly, although actual numbers are
difficult to obtain. One of the challenges AssamTech faces, and perhaps a major reason why AssamTech
may want to quickly “lock in” supplier capacity, is that other industries use the same miniature digital video
camera as are used in the Jazberry. In particular, producers of personal computer systems and mobile
phones are moving aggressively in the digital video camera supply market. Another risk is the potential
for quality problems on new electronic components as technology for miniature units is still in it’s infancy.
Another consideration is the growth of the consumer electronics digital video camera industry. AssamTech
must share their market with the growing mobile phone market, and assess their relative leverage in the
market given other market demands for digital video cameras.

Exhibit 1
Two Year Jazberry Demand Forecast
Expected Sales
Year 1 Expected Sales (Units) Year 2
(Units)
February 55,000 February 66,000
March 50,000 March 60,000
April 40,000 April 48,000
May 40,000 May 48,000
June 45,000 June 54,000
July 35,000 July 42,000
August 35,000 August 42,000
September 40,000 September 48,000
October 40,000 October 48,000
November 40,000 November 48,000
December 40,000 December 48,000
January 40,000 January 48,000

AssamTech Corporation is targeting the price of its Jazberry line from $1000 - $1200, depending on the
model and configuration. This means that the total video camera cost component would need to be in the
$150 – 170 range. This is not unreasonable given current market pricing. However, the market for
miniature video cameras extends well beyond the computer industry, and is not without its share of
uncertainty and disruptions.

Another key consideration in the supplier selection decision is that AssamTech Corporation expects to
control the transportation link from the supplier(s) to its facility in Melbourne. The company has decided
to assume responsibility for transportation, but not ownership of inventory, from the supplier's facility. The
company plans to support its inbound logistics with carriers that offer corporate-negotiated rate discounts.
To support this, the supplier information given in this document provides transport and logistics associated
costings for each supplier.

While early personal computers and mobile phones were notorious for quality-related problems, today's
customers demand defect-free products. With intense price competition and narrow profit margins, a single
product defect, particularly when the Jazberry is in the customers' hands, can "wipe out" any profit from

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the sale. Poor quality will also adversely affect market reputation and future sales. Although exact numbers
are difficult to obtain, financial analysts at AssamTech Corporation calculate, based on experience and
assumptions, that each defect will result, on average, in $300 in non-conformance costs that AssamTech
Corporation must bear (including return freight and lost customer goodwill).

The company plans to introduce the new line of Jazberry’s directly to the marketplace in February 2022.
It must have inventory by the 1st December to begin process proving and pilot production. The February
date coincides with other new technology promotions prior to end of financial year, which is the busiest
time of year for businesses. In mid May 2021 your team needs to present a pre-reading paper to go to the
AssamTech Executive Lead Team for approval at their 15th May meeting. You will receive confirmation
of the decision on this date.

AssamTech Corporation relies on cross-functional commodity teams to develop sourcing strategies for key
purchased items. Executive management views the digital video camera supplier selection decision as a
critical part of the Jazberry development. The commodity team has spent the last several weeks visiting
four video camera suppliers, and is currently evaluating various supply options. The team expects to begin
negotiation with one or more suppliers immediately following the Executive Lead Team decision.
Negotiations and contract development will take approximately 1 ½ months but this can not start until
approval is given to go ahead with the recommendation. Information regarding the suppliers under
consideration is presented in the following section.

THE SUPPLY ALTERNATIVES

Six suppliers responded to the commodity team’s Request for Proposal, which the commodity team
forwarded to them June 202020. Although other digital video camera suppliers exist, these were the only
six that showed any interest to AssamTech’sinitial enquiries. A review of these proposals revealed that
four out of the six proposals were cost competitive given AssamTech’sinitial target cost.

The team was somewhat divided, as some members felt that AssamTech should globalize its sourcing
initiatives, while others felt that local suppliers would be a better choice in terms of working arrangements.
Engineering supported the commodity team's preliminary efforts by purchasing off-the-shelf video
camera’s for testing. This helped determine if the suppliers had a product that initially satisfied
AssamTech’sexpectations. Relying on product samples, while providing preliminary insight into the
capability and technology of each supplier, was not sufficient to support a final supplier selection decision.
Hence, the need for direct visits by the commodity team became apparent.

The team decided to visit four suppliers directly to collect detailed information. The visits ranged from
one to two days each, with all four visits completed within a three-week period. These visits were time-
consuming and exhausting, particularly since two suppliers were located in Asia. Unfortunately,
AssamTech Corporation does not have an International Purchasing Office (IPO) to support its international
procurement activities. Furthermore, no one on the team spoke Korean or Japanese. Fortunately, the other
two suppliers, located in Pakistanwere much easier to visit. In fact, one supplier was located only ten
kilometres from the AssamTech assembly facility. The following sections summarize data collected during
the commodity team's visits to the four suppliers.

Camcom Technologies

Camcom Technologies, located in Nagasaki, Japan, was the largest supplier the team visited (sales of $6.5
billion). The plant covered ten acres, with a wide variety of computer and electronic components produced
in the facility. Video camera’s represent a large segment of Camcom’s production (Camcom commits 50%
of total capacity to video camera production and derives 60% of its revenues from video cameras). Because
of its size, however, the company seemed most interested in large contracts ($150 million or more
annually). Camcom currently controls approximately 30% market share of global digital video camera
sales. Geographic distance from Pakistan, along with the need to accommodate the needs of some large
customers, made Camcom’s quoted lead time one of the longest of the four suppliers being evaluated.
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The highest-ranking manager that met with the AssamTech team was a sales manager, who took the team
to visit various departments. The division vice-president and plant manager were in conference with a
large digital video camera customer, who the AssamTech team found out had formed a strategic supply
alliance with Camcom. The AssamTech commodity team felt a bit "snubbed" at the facility, particularly
the group's female members. The facility was efficient, spotless, and modern.

When the team visited engineering, they spoke with a manager in design. The engineer estimated, based
on previous experience, that the ramp-up time to begin production that would satisfy
AssamTech’sspecifications would be about 4 months. Furthermore, tooling costs would likely be $1.5
million.

The sales manager was proud that Camcom Technologies was "the price leader" for the industry, and was
producing video cameras for several of the major brand name mobile phone companies. He also talked
about the company's extensive investment in research and development. When the sales manager heard
that the video camera order, based on 500,000 units in year one, would likely not exceed $75 million per
year, he hesitated, saying that he would need to discuss the order with management. Moreover, he indicated
that the company typically was not interested in orders of less than $150 million per annum, but that
exceptions might be possible. The economics associated with large orders is what made Camcom a low-
cost producer. Relevant Camcom Technologies data include:

 EXW Quoted price = $125 per unit (quoted at 120 yen to 1 AUD.)
 FIS Quoted price = $169 per unit (quoted at 120 yen to 1 AUD.) including transport, duties, customs
and insurance
 Delivery lead time = 8 weeks
 On-time delivery record = 95% on-time (for large customers – somewhat less for smaller customers)
 Quality = 9,500 PPM defects
 Transportation costs from Asia to AssamTech Corporation = $19 per unit
 Current installed capacity for mini camera production = 97%
 Duties and customs = $9.50 per unit
 Insurance = $2.00 per unit
 Frequency of shipment = 4 Weekly
 Tooling costs = $1.5 million
 Ordering, inbound receiving, and quality inspection costs = $4.50 per unit
 Ramp-up time = 4 months
 Denomination of contract = Yen

DigiVid Company

A second candidate for the contract is DigiVid Company, a small manufacturer located in Lahore, Pakistan.
The company focuses exclusively on the design and production of mobile devices including still digital
camera and video camera. The team discovered this company almost by accident. A team member was
browsing a trade journal and saw DigiVid’s advertisement. When the team visited the facility, the team
was surprised at its small size and by the fact that it is located in an old warehouse. DigiVid’s president
met with the team in person. He explained that he was a graduate of Stanford in electrical engineering and
had decided to start his own company after working overseas for IBM for 15 years. The company entered
the digital video camera market four years ago and has produced video cameras for just over a year. During
this time, however, DigiVid has established a reputation for delivery reliability and innovation. The
president explained that DigiVid’s success was based largely on its commitment to develop new
technology, especially technology that enhanced product reliability. He also claimed that he knew every
customer personally. PC Week had praised the company’s products in several recent editions. However,
the company was definitely a small growing entity (with just over 4% of global market share), but they
expressed their intent to focus more on the mobile computer industry as opposed to the home consumer
mobile phone industry.

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Everyone in the plant seemed highly motivated, and, except for the president, the team did not see any
person who appeared over the age of 35. The president was particularly excited about the possibility of
working with AssamTech Corporation, and promised to work with them closely on this contract and for
any new product lines. In particular, he emphasized that digital video camera technology was improving
for mobile devices, and that the mobile computer market was another sector that would continue to expand
in the future. To be extra diligent in ensuring tooling was perfect and allowing time for adequate ramp-up,
the time to start real production for the new video camera would be approximately 5 months.

When asked if his firm would have any problem in meeting demand should they receive the contract, he
hesitated before answering. He admitted that this contract would be the largest in DigiVid’s relatively short
history. He also indicated that several other buying teams were also going to be sending teams to evaluate
DigiVid within the next month. However, he assured the team that he would do whatever it took to maintain
reliable delivery schedules if DigiVid received a contract. Interestingly, it appeared that the production
lines were experiencing some problems during the team's visit, as they were shut down for nearly four
hours! Relevant DigiVid data include:

 EXW Quoted price = $144 per unit

 FIS Quoted price = $157 per unit including transport, duties, customs and insurance
 Delivery lead time = 2 weeks
 On-time delivery record = 97% on-time
 Quality = 10,500 PPM defects
 Transportation costs from DigiVid Company to AssamTech Corporation = $6.00 per unit
 Current installed capacity for mini camera production = 89%
 Duties and customs = $0.00 per unit
 Insurance = $1.50 per unit
 Frequency of shipment = weekly
 Tooling costs = $1.9 million
 Ordering, inbound receiving, and quality inspection costs = $4.00 per unit
 Ramp-up time = 5 months
 Denomination of contract = US dollars

Coretek Systems

The third supplier, a fairly large and reputable manufacturer of computer equipment, including digital video
camera equipment, was located in Karachi less than ten kilometres from AssamTech’s facilities. Exactly
three-quarters of the company’s sales came from the sale of video cameras. In fact, the firm was the second
largest producer of these devices worldwide (with over 13% market share). In addition, the plant manager
pointed out that the company has committed significant resources to setting up a JIT production system for
the video carmera line. Indeed, the AssamTech team was impressed with the performance of the kanban
signals and flow-through workstations. The plant manager also emphasized that because of their close
proximity to AssamTech Corporation, they would have no problem delivering the product in two-day lot
sizes, "just-in-time," to AssamTech’s facilities. The manager was able to show the team reports that backed
this claim. Coretek Systems also had a solid reputation within the industry for working with its customers
on future product development.

Upon visiting the quality department, the quality manager seemed particularly preoccupied. When the
plant manager left for a few minutes to answer a phone call, the group asked the quality manager if the
company had experienced any significant problems recently. He confessed that the last shipment of
cameras had several quality problems, and the number of returns from large distributors had increased
dramatically. This was creating some fairly severe disruptions to production scheduling and delivery. The
most serious problem was an annoying "clicking" sound made by the device as it engaged the video camera.
However, he assured the AssamTech team that the design engineers were working full-time on the problem
and that it would be solved well before AssamTech placed an order. When the plant manager returned, the
quality manager made no further mention of the problem. The plant manager estimated that the ramp-up

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time for the first shipment would be very short, approximately 3 ½ months. Relevant Coretek Systems
data include:

 EXW Quoted price = $141 per unit

 FIS Quoted price = $167 per unit including transport, duties, customs and insurance
 Delivery lead time = 2 weeks
 On-time delivery record = 99.5%
 Quality = 7,500 PPM defects
 Transportation costs from Coretek Systems to AssamTech Corporation = $14 per unit (due to frequent
deliveries of small quantities)
 Current installed capacity for mini camera production = 95%
 Duties and customs = $0.00 per unit
 Insurance = $3.00 per unit
 Frequency of shipment = Mon, Wed, Fri (3 out of 7 days per week)
 Tooling costs = $1.85 million
 Ordering, inbound receiving, and quality inspection costs = $3.25 per unit
 Ramp-up time = 3 ½ months
 Denomination of contract = Dollars

Happy Technologies

The fourth supplier, Happy Technologies, is a Korean company with 10.42% of global market share in
mini camera sales. Happy Technologies provided the second lowest bid at $132 per unit. During the team's
visit the plant manager claimed that capacity was not an issue, and that the company would be willing to
commit the required production capacity to the AssamTech Corporation contract.

The commodity team felt much more comfortable at Happy Technologies than at Camcom. While this
supplier has no experience doing business with Pakistan firms, the company seemed quite anxious for the
contract. The company has several large Taiwanese and Japanese PC makers as customers. At this time
Happy Technologies has no Pakistan facilities or support staff. The team had some concerns about
becoming Happy Technologies first major Pakistan customer.

The company's product was excellent. Every video camera went through an extensive testing procedure
that assured few problems would occur. In fact, Happy Technologies process control and testing were
more thorough than any other supplier the team visited. However, the combination of the testing process
and geographic distance meant that delivery cycle times were much longer, up to 10 weeks per order,
although the on-time delivery performance for the facility was excellent. The team was not sure if current
Asian delivery performance would be indicative of delivery performance to Pakistan. The facility appeared
well maintained, clean, and orderly. The team noticed that the video camera facility was extremely busy
and wondered if the plant manager's claim about adequate capacity was accurate. All employees worked
closely together in work cells and knew each other by name. Industry experts viewed Happy Technologies
as one of the most promising and dynamic companies in the industry. The ramp-up time for the production
of the first shipment ready for delivery was quoted as 4 months. Relevant Happy Technologies data
include:

 EXW Quoted price = $132 per unit

 FIS Quoted price = $175 per unit including transport, duties, customs and insurance
 Delivery lead time = 10 weeks
 On-time delivery record = 99.0%
 Quality = 4,000 PPM defects
 Transportation costs from Happy Technologies to AssamTech Corporation = $18 per unit
 Current installed capacity for mini camera production = 92%
 Duties and customs = $9.50 per unit
 Insurance = $3.50 per unit
 Frequency of shipment = 4 Weekly
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 Tooling costs = $1.6 million
 Ordering, inbound receiving and quality inspection costs = $2.25 per unit
 Ramp-up time = 4 months
 Denomination of contract = Dollars

It must be noted that regional instabilities pose a threat to international sourcing as there is potential political
and economic risks with the Asia region predicted within the next two years.

SUPPLIER FINANCIAL DATA

The team also gathered financial data for each supplier. While the team believes the data for the Pakistan
suppliers to be reliable, several assumptions and estimates had to be made regarding the Asian suppliers.
The team had to convert Japanese and Korean currency into US dollars. In some cases, the desired figures
were not available, or the supplier showed no interest in providing the team with the requested information.
In particular, this was an issue with Camcom Technologies. Exhibits 2 and 3 summarize selected supplier
financial data.

Exhibit 2
Selected Supplier Balance Sheet Data (US dollars - $ in millions)
For Period Ending June 202020

Camcom DigiVid Coretek Happy

ASSETS
Cash $96 $35 $85 $54
Marketable securities $122 $9 $105 $28
Accounts receivable $889 $45 $380 $175
Inventories $1,058 $75 $165 $185
Total current assets $2,165 $164 $735 $442
Investments at equity $738 $21 $70 $95
Goodwill $300 $40 $145 $80
Total investments and other assets $1,038 $61 $215 $175
Property, plant, and equipment $1,735 $125 $450 $413
TOTAL ASSETS $4,938 $350 $1,400 $1,030

LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable $525 $11 $48 $35
Accounts payable $526 $75 $225 $125
Taxes due on income $245 $23 $70 $48
Accrued payroll and employee benefits $484 $13 $202 $139
Total current liabilities $1,780 $122 $545 $347
Long-term debt $1,244 $55 $241 $165
TOTAL LIABILITIES $3,024 $177 $786 $512
Shareholders' equity $1,914 $173 $614 $518
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,938 $350 $1,400 $1,030

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Exhibit 3
Statement of Income Data (US dollars - $ in millions)
Year Ended June 2020

Camcom DigiVid Coretek Happy

Net sales $6,500 $550 $2,300 $1,355
Cost of goods sold $5,500 $403 $1,495 $948
Selling, general, and administrative expenses $475 $66 $570 $252
Interest expense $305 $12 $65 $55
Costs and expenses $6,280 $481 $2,130 $1,255
Income before income taxes $220 $69 $170 $100
Estimated taxes on income $66 $21 $51 $30
NET INCOME $154 $48 $119 $70

ADDITIONAL INFORMATION AND ASSUMPTIONS

 Although AssamTech Corporation is buying a standard miniature digital video camera, extra
production demands and a small level of design customization will result in additional tooling
requirements at each supplier.
 While tooling depreciation could be a cost consideration, this case does not consider depreciation.
 The commodity team will allocate all supplier-related production costs, such as tooling, on a per unit
basis over the expected units in the first year only.
 The company expects the Jazberry to have a two-year life cycle. The company fully expects to
introduce its next generation of wireless mobile devices at the end of two years.
 AssamTech Corporation plans to maintain a standard base level of safety stock inventory for the video
cameras for the first year. Due to long material pipelines, AssamTech Corporation expects to maintain
30 days of the annual estimated usage as safety stock inventory if it utilizes overseas suppliers. For
domestic suppliers, the company expects to maintain an inventory equal to 15 days worth of annual
estimated usage as safety stock.
 For the second year, the company expects to maintain an inventory equal to half of the frequency of
deliveries worth of demand as safety stock (ie if deliveries are every 4 weeks, 14 days of the annual
estimated usage will be kept as safety stock).
 Inventory carrying costs, which include storage, handling, obsolescence, taxes, and cost of capital, are
18% per annum of the inventory's unit purchased price. The company assumes carrying costs for safety
stock material.
 Assume the unit price quoted by each supplier is what AssamTech Corporation would pay for the video
camera from each supplier. Subsequent negotiations will likely alter the quoted price.
 Current installed capacity indicates that portion of the supplier’s video camera production capacity that
is currently utilized. For example, if current installed capacity is 98%, then this supplier is utilizing
98% of its production capacity and therefore has 2% of its capacity available for new business.
 Suppliers have quoted a FIS price as well as an EXW price. FIS includes transport, customs, duties
and insurance. AssamTech has chosen to manage their own transport and AssamTech has gained
indicative quotes from current logistics providers – these have been stated in the information stated for
each of the suppliers.

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ANNEX 1: Marking Criteria and Report Format (not part of case)

Type of Assignment: Final Project Report

(Group Project)
 Based on the above case study develop a sourcing strategy for ASSAM
Tech. Follow the structure given below.
 This is a group project
 Each Group to be consisted with 8 to 10 students.
 The marking criteria and the structure for the report is given below.
 Word Limit : 3000 +/- 10%
 Due Date: 13 May 2021

Marking Criteria
The following is evaluation guidelines for the AssamTech Corporation Case Study. This is not part of the
case study but will be useful to use as a guide for format and content. Please include as the final sheet in
your paper (after references). I will then fill out the sheet in your paper to provide comments.

DESCRIPTION WEIGHT SCORE COMMENTS

Format 15%
 Business context - professional
 Easy to follow
 Executive summary has recommendation in first
pages
 Conclusion and justification
Process 10%
 Gantt chart format
 Logical order with time allowed
 Recommendation follows process
Overall Strategic Direction 10%
 Broad strategy development
 Theoretical concepts
 Discussed procurement
Financial Analysis 5%
 Financial risk analysis accurate and thorough
 Interpreted and conclusions
Capacity 5%
 Capacity identified
 Issues discussed
 Recommendation follows process
Single v’s Multiple Sourcing 5%
 Sourcing strategy considered
 Advantages and disadvantages discussed
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 DESCRIPTION WEIGHT SCORE COMMENTS
Domestic v’s International Sourcing 5%
 Sourcing strategy considered
 Advantages and disadvantages discussed
Total Cost Analysis 5%
 Total cost analysis accurate and thorough
Supplier Evaluation and Selection 5%
 Supplier evaluation and selection process
 Justified / comments
Risk Assessment 5%
 Risk management plan thorough
Recommendation 20%
 Correct decision
 Decision justified
Referencing 10%
 Harvard System of referencing/APA
 Evidence of research / reading
TOTAL 100%

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 Sourcing Strategy Position Paper

[Title of Paper]

[Decision Required:
 Contract Name
 Contract Value
 Company Name
 Term of Contract]

[Date Submitted =13th May 2021]

[Date of Lead Team Meeting]

[Contact Names of team submitting paper]

Name Student ID

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Table of Contents

Table of Contents
1 Background / Situation / Process Conducted ................................................................................ 15
2 Overall Strategic Direction ........................................................................................................... 15
3 Supplier Financial Analysis Comments ........................................................................................ 15
4 Capacity Issues.............................................................................................................................. 15
5 Sourcing Strategy – single versus multiple ................................................................................... 15
6 Sourcing Strategy – domestic versus international ....................................................................... 15
7 Total Cost Analysis ....................................................................................................................... 16
8 Supplier Evaluation and Selection ................................................................................................ 16
9 Risk Assessment ........................................................................................................................... 16
10 Recommended Sourcing Strategy ............................................................................................. 16
11 References ................................................................................................................................. 16
12 Appendices................................................................................................................................ 16

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Executive Summary
Summarise your recommendation detailing a brief summary of reasons and justifications here

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1 Background / Situation / Process Conducted
Document that your team has been through a thorough process that provides a logical order from
initially determining potential suppliers, conducting site visits and preparing this recommendation,
through to how to proceed with the supplier selection process, to the point of AssamTech’s February
sales. Present this process in the form of a Gantt chart with key decision points and time required for
each step clearly identified.

Information provided here – refer to appendices where necessary

Interpretations and conclusions

2 Overall Strategic Direction

Perform a basic analysis to determine a broad potential strategy for the supply of the video camera for
your business. Explain using theoretical purchasing concepts that developing an appropriate strategy
for sourcing video camera is important for CharlTech. Use this as an opportunity to advise your
management why Procurement is an important function in your company.

2.1 Supplier Financial Analysis Comments

While this case assumes that the cross-functional team visited four suppliers, organizations often
perform a preliminary financial risk analysis to identify the suppliers that may not warrant further
consideration due to excessive financial risk. Conduct a preliminary financial analysis as per template
in “Appendix”

Information provided here – refer to appendices where necessary

Interpretations and conclusions

2.2 Capacity Issues

The issue of capacity is an important consideration during supplier selection. What level of attention
or importance should supplier capacity receive during the sourcing decision of video cameras? Why?
Conduct a preliminary capacity analysis

Information provided here – refer to appendices where necessary

Interpretations and conclusions

2.3 Sourcing Strategy – single versus multiple

The issue of single versus multiple sourcing is an important consideration during supplier selection.
Identify the potential advantages and disadvantages of single and multiple sourcing for the sourcing
decision of video cameras within a table to educate your management on your decision.

Information provided here – refer to appendices where necessary

Interpretations and conclusions

2.4 Sourcing Strategy – domestic versus international

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The issue of domestic versus international sourcing is also an important consideration during supplier
selection. Identify the potential advantages and disadvantages of domestic versus international
contracts for the sourcing decision of video cameras within a table to educate your management on your
decision.

Information provided here – refer to appendices where necessary

Interpretations and conclusions

2.5 Total Cost Analysis

Unit price rarely, if ever, equals the total cost of doing business with a supplier. This analysis requires
your group to identify relevant additional costs beyond unit price. This involves considering a
combination of actual and estimated costs. Consider potential currency issues in your analysis. Conduct
a preliminary cost analysis as per template in “Appendix”

Information provided here – refer to appendices where necessary

Interpretations and conclusions

2.6 Supplier Evaluation and Selection

As organizations continue to rely on fewer suppliers, the supplier selection process takes on greater
importance. The Supplier Evaluation and Selection Analysis is a robust tool used during supplier
assessment. Conduct a preliminary supplier evaluation and selection analysis as per directions in
“Appendix”

Information provided here – refer to appendices where necessary

Interpretations and conclusions

2.7 Risk Assessment

Sourcing decisions invariably involve risk. Identify the potential risks associated you’re your sourcing
decision, assess the possible magnitude of each risk to operations, and identify ways to manage or
reduce risk exposure. Conduct a preliminary risk analysis as per template in “Appendix”

Information provided here – refer to appendices where necessary

Interpretations and conclusions

3 Recommended Sourcing Strategy

What is your recommended sourcing strategy in this case? Include the supplier selection, term of
contract and specific inclusions in a contract. Support your decision with quantitative and qualitative
evidence gathered during the case analysis. Also, present your plan to reduce any risks associated with
your sourcing decision.

4 References
Harvard Referencing

5 Appendices

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As required – attach on separate pages

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Appendix – These tools, templates and directions are to assist

Supplier Financial Analysis Worksheet

Purchasers assess supplier financial health for several reasons. The most important reason involves
managing supply base risk. The analysis may highlight difficulties that will interfere with the smooth
and timely flow of material. A supplier may be experiencing capacity constraint problems, have
difficulty meeting its payables, have too many receivables, have poor inventory management as
revealed by low inventory turns, or have cash flow problems as noted by current liabilities exceeding
current assets.

A supplier financial analysis is likely whenever a purchaser is attempting to reduce a pool of potential
supply sources. If a supplier does not meet certain thresholds as defined by the purchaser, then the
supplier will likely not move to the next level of consideration.

Financial ratios are a key part of a supplier financial analysis. Of course, the key to a supplier financial
analysis is a purchaser's ability to obtain reliable and complete financial data, which can be a challenge
when evaluating closely or privately held corporations.

Besides calculating and attempting to interpret the meaning of financial ratios, comparing ratio data can
provide even greater insight into a supplier's financial condition. While no correct answers exist for
financial ratios, a comparison of a supplier's ratios to published industry norms can help identify if
further financial analysis is necessary. An analyst should also compare several years of supplier
financial data, if available, to identify favorable or unfavorable trends. Another comparison involves
comparing a supplier's ratios with industry averages, which is likely when a purchaser has collected
data from many suppliers or can refer to market intelligence demonstrating the norm for the industry.

Selected Financial Ratios

Market Share
Asset Utilization:
Asset Turnover = Sales/Assets
Inventory Turnover = Cost of Sales/Average Inventory
Receivable Days = Accounts Receivable/Sales X 360
Payable Days = Accounts Payable/Sales X 360
Capitalization:
Leverage = Assets/Equity
Return on Equity = Net Income/Equity
Long-term Debt to Equity = Long-term Debt/Equity
Long-term Debt to Assets = Long-term Debt/Assets
Current Ratio = Current Assets/Current Liabilities
Quick Ratio = (Cash + Inventory + Accounts Receivable)/ Current Liabilities
EBIT Coverage = Earnings Before Interest and Taxes/Interest Expenses
Profitability Ratios:
Contribution Margin = (Sales - Variable Cost)/Sales
Profit Margin = Net Income/Sales

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Appendix – These tools, templates and directions are to assist

Total Cost Analysis Worksheet

This template requires the commodity group to quantify costs that are in addition to the quoted unit
price. Using cost information provided in the case for each supplier, calculate the estimated per unit
total cost from each supplier for year one and year two to determine the total cost to the business.

Total Cost Analysis Worksheet

COSTS - YEAR X
Quoted Unit Price
Transportation
Tooling (Tooling cost / units)
Quality non-conformance costs (PPM defects / 1,000,000 X cost per defect)
Duties/customs, insurance, and tariffs
Inventory safety stock carrying charges: (unit cost * 18% / 365 * days in inventory)
Ordering, inbound receiving and inspection costs
Estimated Per Unit Total Cost

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Appendix – These tools, templates and directions are to assist

Supplier Evaluation and Selection Analysis Worksheet

The development of a supplier evaluation and selection analysis follows a sequence of steps:

 Step One: Identify Key Supplier Evaluation Categories

Supplier evaluations must include those performance categories that are relevant to the sourcing
decision under consideration. Examples of supplier evaluation categories that a team or individual
may evaluate include (but are not limited to):

• Management and personnel capability • Cost competitiveness

• Quality performance
• Process and technological capability
• Delivery performance
• Previous history and performance
• Responsiveness to customer needs
• Safety record
• Environmental compliance
• Longer-term partnership potential
• Supplier's supply management efforts

While including the relevant performance categories is critical, each additional category adds a
greater degree of assessment complexity.

 Step Two: Weight Each Relevant Evaluation Category

The performance categories included within the analysis receive a weight proportional to the
relative importance of that category. With any combination of weights, the weights must sum to
100%.

 Step Three: Identify and Weight Subcategories

Step 2 defines the broad performance categories included within the evaluation. This step requires
the user to identify performance subcategories, if they exist, within each broader performance
category. Each subcategory receives a weight, the total of which equals the weight of the broader
performance category. For example, assume that supplier quality performance is 20% of the total
score. Within that category, a team may create subcategories related to process control systems
(5%), total quality commitment (8%), and parts per million defect performance (7%). Please note
that the subcategories sum to 20%.

 Step Four: Evaluate Supplier Directly

This step requires that a review team or individual visit a supplier's facilities to assess supplier
performance capabilities. It is common for a reviewer to meet with a supplier shortly after the
initial evaluation to discuss findings, and to point out opportunities for improvement. The visit
may also help identify future supplier development opportunities. The highest performing supplier
for the category receives a 10, whilst other suppliers are scaled down depending on the variance
or differentiation between suppliers.

 Step Six: Review Evaluation Results and Make Selection Decision

The primary output from this step is a recommendation concerning which supplier(s) should
receive a purchase contract. As with any tool, the outcome from this analysis is only as good as
the planning and effort put forth.
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Appendix – These tools, templates and directions are to assist

Sourcing Risk Management Plan Worksheet

Please complete this exercise after the selection decision. For the selected supplier, identify any
concerns by Potential Concern Area and make note of your plan to reduce the potential risk.

Supplier: __________________

Potential Concern Area Potential Risk Risk Reduction Plan

Management Capability

Delivery Performance

Quality Performance

Process Capability

Capacity

Cost

Technical Ability

Logistics

Financial Issues

Other Commercial Issues

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