1.

  Suppliers
XYZ produces five different types of frozen vegetables (okra, molokheya, peas, artichokes, green
beans).
XYZ have approximately 20 local and international vendors supply materials. In general, XYZ select
suppliers based on some predetermined criteria (ex. cost, quality, delivery, service levels, etc.). They
select suppliers (both local and international) that are ISO 9000 certified. They have an approved
supplier list that is updated annually. It could be identified that the procurement team (with whatsoever
supplier) are very much concerned with complying with the strategic posture of the differentiation
strategy strongly recommended by the top management.
The company has seven production lines with a max. capacity (Actual O/P) of 73,200 tons per month.
During 2018 and 2019, the capacity of the factory barely covered the market demand. Thus, it seems
critical to rethink their capacity for 2019.
The main problem facing XYZ is with the international supplies. It takes long lead times to get their
needs from international supplies. XYZ start thinking to try out insourcing one material coming from
one of the two international suppliers.
During the meeting, the operations manager proposed two capacity alternatives to increase their
capacity. The first alternative is to buy a new production line. The second alternative is to toll
manufacture with a third party. The following table indicates the fixed and variable cost of each
alternative:

Toll manufacture Buy a new line

Fixed cost None LE 1,000,000
Variable cost LE 400/ton LE 270/ton

Nevertheless, it is not only the cost that needs to be considered while taking this strategic move. Other
factors (quality, flexibility and delivery) needs to be further analysed to assess the two alternatives.

Suppliers

Supplier relationship management (SRM), in simplest terms, refers to interacting with and
managing third-party vendors that provide goods, materials, and services to your organization.
It
sounds easy enough—you choose suppliers that are cost-efficient and easy to work with to
maximize the value of the relationship.

The concept of SRM was first introduced in 1983 by McKinsey consultant Peter Kraljic
in a Harvard

top management can recognize the extent of its own supply weakness and treat it with a
comprehensive strategy to manage supply
 How can a company guard against disastrous supply interruptions and cope with the changing
economics and new opportunities brought on by new technologies? What capabilities will a
profitable international business need to sustain itself in the face of strong protectionist pressures?
Almost every kind of manufacturer will have to answer these questions. Some companies have
already responded to the growing pressures. For example:

 Hoechst (the German petrochemical giant) has established ties to Kuwait and DuPont recently
acquired Conoco as part of their new acquisition strategies. This reflects a long-term approach
to supply security that other chemical companies like Dow Chemical in the United States and
BASF in Europe have used to good advantage.
 Cabot Corporation, faced with growing scarcity of chromium, vanadium, niobium, titanium, and
other metals critical to its operations, set up a mineral resources division that developed an
overall corporate supply strategy and explored new options, ranging from the purchase of ore in
the ground to the start-up of joint ventures for primary metal processing. Cabot also acquired a
London-based trading company to supplement existing purchasing skills with special trading
expertise and access to the London metals market.

Recommendations

1- They can make a good use of opportunities for concerted action among different
departments by combining the supply requirements to increase the corporation’s total
buying clout. For Example: *******. Only after consolidating and combining these
volumes at the corporate level this could bring company’s true bargaining weight to bear
and will benefit it for Quantity discount.
2- The company’s top management should change company’s purchasing policy to build up
alternative domestic sources.
3- If the company covers a large percentage of its supplies from sources it owns, it will be in a
much better negotiating position to cover the remainder of its outside requirements than its
less-integrated competitors. Dow Chemical, BASF, and DuPont have all reduced their
supply vulnerability through backward integration in response to long-term considerations.
On the other hand, the company may find it more profitable to source outside if key
suppliers have chronic overcapacity.
4- first classifies all its purchased materials or components in terms of profit impact and supply
risk. Next it analyzes the supply market for these materials. Then it determines its overall
strategic supply position. Finally, it develops materials strategies and action plans.
5- Supplier’s break-even stability. A supplier that achieves break-even at below 70% capacity
utilization can ultimately deliver at lower cost than one who breaks even at 80% utilization.
For the same reason, however, the first supplier will prove a tougher bargainer, for it can
more easily delay negotiations and accept capacity underutilization.
6- Annual volume purchased and expected growth in demand. Volume, the main determinant
of the company’s overall bargaining power, is critical because economies of scale in
purchasing often yield a decisive competitive cost advantage.
7- the company developed several strategic supply scenarios, each involving a different mix of
suppliers and different assumptions about price, volume, and risk. The scenarios ranged
from very low risk (total dependence on well-established sources) to very high (most
 purchases from lesser-known, geographically dispersed suppliers). Cost-benefit analyses of
each enabled management to pinpoint several opportunities for substantial improvement.
8- Improvement of operational flexibility through a rolling demand forecast system with a
three- to six-month time horizon, coupled with systematic evaluation of supply market data.
9- Integration of purchasing systems with other corporate systems, such as liquidity planning,
and/or with the corresponding planning and disposition systems of key suppliers. The most
familiar example is the so-called Kanban system, which allows the Japanese automaker
Nissan to work with practically no parts or work-in-process inventories. Recently, however,
U.S. and European car manufacturers are moving in the same direction.
10-

Suppliers, Arnold describes supplier management as market-oriented planning,

management and control of individual supplier-customer relationships (Arnold et al. 2008).

Recently the diversity of companies in many supply networks has increased due to globalization
and integration of abroad suppliers, i.e. from low-cost countries (Weiler et al. 2011).

But suppliers from low cost countries often show less awareness of quality and high variation of
product features (e.g. measures, tolerances, etc.

Conferring to Dickson (1966) the most important categories in the 1960s were the quality,
delivery, performance history, warranties and claim policies, production facilities and capacities,
price, technical capability, financial position. A later study of Weberet al. (1991) ranked quality as
of extreme importance, net price, delivery, production facilities and capacity, technical capability,
financial position, performance history, warranties and claims as of important criteria.

Furthermore product’s quality depends on the quality of its components and materials. The
quality requirements on a product cannot be met if components and materials of insufficient
quality are used (Bowersox, Closs, and Cooper 2002), for ex. What happen with Volkswagen AG
(Schaal 2012) they found defective timing chains on 1.4 liter gasoline engines, and after checking
the root case they found process deviations at a supplier due to worn out stamping tools, the
consequences for this was the high repair cost and the risk of potential image loss.

Recommendations

Supplier relationship management is little bit complex, with many suppliers funding to get one
product only before it gets to the customer, and to make any improvement activity XYZ Company
should understand the root cause of the problem. Even if there was poorly performing supplier it
doesn’t put all the blame on the suppliers, my recommendation to XYZ Company as the following,

- Mixing supply chain implementation with financial management, manufacturing and

quality processes enables a manufacturer to reliably meet demanding customer delivery
 requirements at the right time and cost. Solving the problem needs a solution that supports best
practices for supplier visibility and collaboration.
- Economies of scale, consider buying raw materials in larger quantity.
- Use the supply chain management systems such as SAP can support XYZ Company to
plan and manage the relationship and the coordination with supplier also improves the accuracy
of the demand forecasts, gives the company more visibility to monitor and replenish the buyer's
and retailer’s inventories and needs and help multiple business partners increase visibility, Buyers
can share sold inventory reports, and suppliers respond with new shipment notifications and
Share forecasts throughout the supply chain which can improve forecast accuracy in the supply
chain and results in lower costs and shorter lead times. Some companies include such
information in their contracts such as both Hewlett-Packard and IBM require resellers to include
such information in their contracts from the beginning. (Stevenson, 2009)
- Expand suppliers Network, they can search for new suppliers that provide better quality,
Int J Supply Oper Manage (IJSOM), Vol.1, No.4 405
Sharma, J. K (2009). Operations Research: Theory and Applications,4thed., India Macmillan Publishers.
- Stevenson, B. U (2010). Operations management, 10thedition, N.Y. McGraw-Hill Publishing Inc.
[Link] prices, and faster delivery times local and international, also it’s very risky to make
70% from international imported Soya bean oil from 2 suppliers only it would be better if they
study the market and prepare recommended suppliers list in case of any lack supplying happened
from current suppliers.
- Invest in Assets; invest in purchasing new equipment that makes the manufacturing
process easier and faster which can lower the production costs in the long run.

1- Erply Retail Software. 2020. Zara, H&M, Ikea & Walmart Inventory Management Success Stories.
[online] Available at: <[Link]
luck-is-not-a-key-factor/> [Accessed 20 June 2020].
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Available at:<[Link]
%27s_economical_lot_size_model> [Accessed 20 June 2020].
3- Shamsuzzaman, M.; Alzeraif, M.; Alsyouf, I.; Khoo, M.B. Using Lean Six Sigma to improve mobile
order
4- fulfilment process in a telecom service sector. Prod. Plan. Control. 2018, 29, 301–314.
5- Boar, B.H. Practical Steps for Aligning Information Technology with Business Strategies: How to
Achieve a Competitive Advantage; JohnWiley & Sons, Inc.: Hoboken, NJ, USA, 1994.
6- Kraljic, P., 2020. Purchasing Must Become Supply Management. [online] Harvard Business Review.
Available at: <[Link]
[Accessed 22 June 2020].
 Why Inventory is Important

Inventory is a key component of calculating cost of goods sold (COGS) and is a key driver of profit, total assets, and
tax liability. Many financial ratios, such as inventory turnover, incorporate inventory values to measure certain aspects
of the health of a business. 

For these reasons, and because changes in commodity and other materials prices affect the value of a company's
inventory, it is important to understand how a company accounts for its inventory. Common inventory accounting
methods include first in, first out (FIFO), last in, first out (LIFO), and lower of cost or market (LCM). Some industries,
such as the retail industry, tailor these methods to fit their specific circumstances. Public companies must disclose
their inventory accounting methods in the notes accompanying their financial statements. 

Given the significant costs and benefits associated with inventory, companies spend considerable amounts of time
calculating what the optimal level of inventory should be at any given time, and changes in inventory levels can send
mixed messages to investors. Increases in inventory may signal that a company is not selling effectively, is
anticipating increased sales in the near future (such as during the holidays), or has an inefficient purchasing
department.

On the other hand, declining inventories may signal that the company is selling more than it expected, has a backlog,
is experiencing a blockage in its supply chain, is expecting lower sales, or is becoming more efficient in its purchasing
activity.

Because there are several ways to account for inventory and because some industries require more inventory than
others, comparison of inventories is generally most meaningful among companies within the same industry using the
same inventory accounting methods, and the definition of a "high" or "low" inventory level should be made within this
context.

Stevenson, B. U (2010). Operations management, 10thedition, N.Y. McGraw-Hill Publishing Inc.

Burtonshaw-Gunn, S.A. (2010) Essential tools for Operation management. John Wiley and sons, UK.
ISBN 9780566088971.