Supply Chain Management

Systems Technologies: Supplier Evaluation and Selection

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OVERVIEW Systems Technologies (ST) is a medium-sized high technology company located north of San Francisco. The company has traditionally produced component parts and subsystems for personal computers and CAD/CAM workstations, but recently has decided to expand its product line directly into fully assembled personal computers (PCs). 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 $3 billion firm in just ten years. Systems Technologies has a strong reputation for manufacturing high quality products with on- time customer delivery. The company also emphasizes state-of-the-art technology in its production, information, and delivery systems. While System Technologies is primarily a producer of work stations, it has decided to enter the personal computer market. All market forecast evidence suggests that this sector will grow faster than any other. In particular, the marketing department has decided to focus on the home user. The projected growth rate of U.S. PC shipments to the home sector exceeds the business sector, and should surpass the business sector in total share of shipments. Although Systems Technologies is a small player in this market, the company decided to pursue an aggressive strategy selling high quality computers at affordable prices. The new line of computers, called the 9000x series, would come with a Pentium i7 microprocessor, 16 gigabytes of memory, 800 gigabytes of hard disk space, a CD-ROM drive, and a 17 inch standard color monitor. The company plans to ship computers directly to customers as orders are received (make-to- order). This production model is similar to the Dell and Gateway model, and is the model that all major PC producers will likely evolve toward. Because the company does not plan to build finished PC’s in anticipation of future sales, market demand forecasts, supplier quality, lead time, and delivery reliability are critical factors. The company is willing to carry some level of monitors in component inventory as safety stock as a buffer against missing customer order commitments. Systems Technologies will assemble the computer in its own facilities, but intends to outsource many of the key product components and subassemblies, including the 17-inch color monitor. The decision to outsource the monitor resulted from an executive-level insourcing/outsourcing study that concluded the cost to manufacture color monitors in-house was highly prohibitive. Marketing estimates that first year demand for the new PC, and therefore the color monitor, would be approximately 500,000 units, with 20% annual growth expected for year two. Exhibit One details the monthly sales forecast for the 9000x series. However, given the volatility of the computer market and ST's limited 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 technology companies, adequate supplier capacity is a critical issue. Taking a lesson from the demands placed on it by its customers, Systems Technologies will seek some assurance from supplier(s) that it can increase the supply of monitors by 25% within four weeks notice of changing market conditions. Supplier responsiveness to Systems Technologies volume requirements will be critical. Systems Technologies is targeting the price of its high end computer line from $1300-$1800, depending on the model and configuration. This means that the monitor's unit price would need to be in the $125-$150 range. However, recent trends indicated that maintaining this level of pricing over an extended period would be difficult. As pointed out in a recent business article, "The new rules (in high tech industries) require more than ingenuity, agility, and speed. They call

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for redefining value in an economy where the cost of raw technology is plummeting toward zero. Eventually, this plunge will obliterate the worth of almost any specific piece of hardware or software." The market price of the technology embedded in the personal computer will undoubtedly decrease in the future. Another key consideration in this decision is that Systems Technologies wants to control the transportation link from the supplier(s) to its facility in California. 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. If the monitor originates from a U.S. facility, then shipping terms F.O.B. Shipping Point will apply. For shipments originating from foreign facilities, then INCOTERMS will apply. While early PC monitors (and also the computer) were notorious for quality-related problems, today's customer demands defect-free products. With intense price competition and narrow profit margins, a single product defect, particularly when the PC is in the customers' hands, can "wipe out" any profit from the sale. Poor quality will also adversely affect market reputation and future sales. Although exact numbers are difficult to obtain, financial analysts at Systems Technologies calculate, based on experience and assumptions, that each monitor with a defect will result, on average, in $250 in non-conformance costs that Systems Technologies must bear (including lost customer goodwill). The company plans to introduce the new line of computers directly to the marketplace in August 2018. This target date coincides with back-to-school sales, which is the busiest time of year for PC makers. It is now January 2018. Systems Technologies relies on cross-functional commodity teams to develop sourcing strategies for key purchased items. Executive management views the PC monitor decision to be the most important sourcing decision supporting the 9000x series. Commodity team responsibilities include:

1. Identifying potential suppliers 2. Developing an in-depth analysis of each supplier based on plant visits. 3. Recommending a sourcing strategy for the PC monitor contract. The team will present

its recommendation to a corporate-level review board, which usually accepts commodity team recommendations.

The commodity team has visited four PC monitor suppliers, and is currently evaluating its supply options.

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Exhibit One Two-Year 9000x Demand Forecast

August 2018 55,000 units August 2019 66,000 units September 2018 50,000 units September 2019 60,000 units October 2018 40,000 units October 2019 48,000 units November 2018 40,000 units November 2019 48,000 units December 2018 45,000 units December 2019 54,000 units January 2019 35,000 units January 2020 42,000 units February 2019 35,000 units February 2020 42,000 units March 2019 40,000 units March 2020 48,000 units April 2019 40,000 units April 2020 48,000 units May 2019 40,000 units May 2020 48,000 units June 2019 40,000 units June 2020 48,000 units July 2019 40,000 units July 2020 48,000 units

THE SUPPLY ALTERNATIVES Six suppliers responded to the commodity team's Request for Proposal, which was forwarded to suppliers twelve weeks previously. A review of these proposals revealed that four of the six suppliers were cost competitive given Systems Technologies initial target cost. Engineering supported the commodity team's preliminary efforts by purchasing off-the-shelf monitors for testing. This helped determine if the suppliers had a product that initially satisfied the expectations of System Technologies. Relying on product samples, while providing preliminary insight into each suppliers’ capability and technology, was not sufficient to support a final supplier selection decision. Hence, the need for direct visits by the commodity team became apparent. The team visited each supplier directly to collect additional information. The visits ranged from one to two days each, with all four visits concluded within a three week period. These visits were a time-consuming and exhausting effort, particularly since two suppliers were located in Asia. Unfortunately, Systems Technologies does not have an International Purchasing Office (IPO) to support its overseas purchase requirements. Furthermore, no one on the team spoke Korean or Japanese. Fortunately, the other two suppliers, located in the U.S., were much easier to visit. In fact, one supplier was located only ten miles from Systems Technologies. The following sections summarize data and information gained during the commodity team's visits to the four suppliers.

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Asia-Pacific Technologies Asia-Pacific Electronics, located in Nagasaki, Japan, was the largest supplier the team visited (sales of $6.5 billion). The plant covered four acres, with a wide variety of computer and electronic components produced in the facility. Monitors were a fairly large segment of Asia-Pacific's production (Asia-Pacific commits 50% of total capacity to monitors and derives 60% of its revenues from monitors). Because of its size, however, the company seemed most interested in large contracts ($150 million or more annually). Geographic distance from California, along with the need to accommodate the needs of some large customers, made Asia-Pacific's quoted lead time the longest of the four suppliers being evaluated. In fact, the team felt a bit "snubbed" at the facility, particularly the group's female members. The plant manager was too busy to meet with the team, so they had to meet with a sales manager who took the team to visit various departments. The facility was efficient, spotless, and modern. When the team visited engineering, they spoke with a manager in monitor design. The engineer estimated that the ramp-up time to begin production that satisfied ST's specifications would be about 4 months. Furthermore, tooling costs would likely be $2.5 million. The sales manager was particularly proud of Asia-Pacific's new electronic data interchange (EDI) system. This system allowed direct communication with customers. He was also proud that Asia- Pacific was "the price leader" for the industry, and was producing monitors for several large brand name computers. He also bragged about the company's extensive investment in R&D. When the sales manager heard that the monitor 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 top 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 Asia-Pacific a low-cost producer. Relevant data include:  Quoted price = $129 per unit (quoted at 120 yen to $1 U.S.)  Delivery lead time = 8 weeks, of which 6 weeks is transportation  On-time delivery record = 95% on-time (for large customers)  Quality = 6,900 ppm defects  Transportation costs from Asia-Pacific to Systems Technologies = $17 per unit  Current installed capacity for monitors = 98%  Duties and customs = $9.50 per unit  Insurance = $3.00 per unit  Frequency of shipment = Monthly  Tooling costs = $2.5 million  Ordering, inbound receiving, and quality inspection costs = $3 per unit  Ramp-up time = 4 months  Denomination of contract = Yen

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CanDo Technologies Another candidate for the monitor contract is CanDo Technologies, a small manufacturer located in Colorado Springs, Colorado. The company exclusively designs and produces PC monitors. The team discovered this company almost by accident. A team member was browsing a trade journal and saw CanDo's advertisement. When the team visited the facility, the team was surprised at its small size and location in an old warehouse. CanDo's president met the team in person, who explained that he was a graduate of Stanford in electrical engineering and had decided to start his own company after working for IBM for 15 years. The company entered the color monitor market four years ago. During this time, however, CanDo has established a reputation for delivery reliability and innovation. The president explained that CanDo's success was based largely on its commitment to develop new screens, especially in the area of advanced liquid crystal technology and flat screen technology. He also claimed that he knew every customer personally. PC Week had recently highlighted in recent editions the company’s products. 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 Systems Technologies, and promised that he would be willing to work with them closely on this contract and for any new product lines. In particular, he emphasized that liquid crystal technology was improving for laptop computers, and that the laptop market was another sector that would continue to expand in the future. Ramp-up time for the new monitor would be approximately 5 months. When asked if his firm would have any problem in meeting demand should they receive the contract, he hedged before answering. He admitted that the size of this contract would be the largest in CanDo's relatively short history. However, he assured the team that he would do whatever it took to maintain reliable delivery schedules. Interestingly, it appeared that the production lines were experiencing some problems during the team's visit, which were shut down for four hours!  Quoted price = $146  Delivery lead time = 3 weeks, of which 1 week is transportation  On-time delivery record = 97% on-time  Quality = 12,500 ppm defects  Transportation costs from CanDo Technologies to Systems Technologies = $5.50 per unit  Current installed capacity for monitors = 94%  Duties and customs = $0.00 per unit  Insurance = $2.00 per unit  Frequency of shipment = weekly  Tooling costs = $3 million  Ordering, inbound receiving, and quality inspection costs = $4.50 per unit  Ramp-up time = 5 months  Denomination of contract = Dollars

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Davis Industries The third supplier, a fairly large and reputable manufacturer of computer equipment, including color monitors, was located less than ten miles from ST's facilities. About half the company’s $2 billion sales came from the sale of monitors. The firm was the second largest producer of monitors worldwide. In addition, the plant manager pointed out that the company has committed significant resources to setting up a JIT production system for the color monitor line. Indeed, the team was impressed by the kanban signals and flow-through work stations. The plant manager also emphasized that because of their close proximity to Systems Technologies, they would have no problem delivering the monitors in two-day lot sizes, "just-in-time," to ST's facilities. The manager was able to show the team reports that backed this claim. Davis Industries also had a solid reputation for working with its customers. Upon visiting the quality department, the quality manager seemed particularly preoccupied and "on edge." 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 monitors 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 had to do with a constant annoying "buzz" made by the monitors that seemed to begin after they had been turned on for an hour or so. However, he assured the team that the design engineers were working full- time on the problem and that it would be solved well before ST's 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 time for monitors would be very short, approximately 3 months.  Quoted price = $144  Delivery lead time = 3 weeks, of which 1 day is transportation  On-time delivery record = 99.5%  Quality = 6,500 ppm defects  Transportation costs from Davis Technologies to Systems Technologies = $12 per unit

(due to frequent deliveries of small quantities)  Current installed capacity for monitors = 96%  Duties and customs = $0.00 per unit  Insurance = $2.00 per unit  Frequency of shipment = Every other day  Tooling costs = $3.5 million  Ordering, inbound receiving, and quality inspection costs = $2.50 per unit  Ramp-up time = 3 months  Denomination of contract = Dollars

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Dihachi Technologies The fourth supplier, Dihachi Technologies, is a Korean company. Dihachi provided the second lowest bid at $132 per unit. During the team's visit the plant manager claimed capacity was not an issue, and that the company would be willing to commit the required production capacity to the Systems Technologies contract. Monitors account for about half of Dihachi's $1.3 billion in 1998 sales. The commodity team felt much more comfortable at Dihachi than at Asia-Pacific. While this supplier has had minimal experience doing business with North American firms, the company seemed quite anxious for the contract. The company has several large Taiwanese and Japanese PC makers as customers. At this time Dihachi has no U.S. facilities or support staff. The team was not quite sure how they felt about becoming Dihachi's first major North American customer. The company's monitor was excellent. Every monitor went through an extensive burn-in procedure that assured few quality problems would occur. In fact, Dihachi's process control and burn-in were more thorough than any other supplier the team visited. However, the combination of the burn-in 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 delivery performance would be indicative of delivery performance to the U.S. The company, which receives half of its revenues from monitors, maintained a clean and orderly plant. The team noticed that the monitor facility was extremely busy and wondered if the plant manager's claim about adequate capacity was true. All employees worked closely together in work cells and knew each other by name. Industry experts viewed Dihachi as one of the most promising and dynamic companies in the industry. The ramp-up time for the monitor was quoted as 4 months.  Quoted price = $132  Delivery lead time = 10 weeks, of which 7 weeks is transportation  On-time delivery record = 99.0%  Quality = 4,500 ppm defects  Transportation costs from Dihachi Technologies to Systems Technologies = $16 per unit  Current installed capacity for monitors = 94%  Duties and customs = $8.50 per unit  Insurance = $3.00 per unit  Frequency of shipment = Monthly  Tooling costs = $2.75 million  Ordering, inbound receiving and quality inspection costs = $1.50 per unit  Ramp-up time = 4 months  Denomination of contract = Dollars

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SUPPLIER FINANCIAL DATA The team also gathered financial data for each supplier. While the team believes the data for the U.S. 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 dollars. In some cases, the desired figures were not available, or the supplier showed no interest in providing the team with the figures. In particular, this was an issue with Asia-Pacific. Exhibits 2 and 3 summarize selected supplier financial data, which is required for performing a financial analysis for each supplier.

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Exhibit 2 Selected Supplier Balance Sheet Data (in millions $) For Period Ending December 31, 2011

Asia-Pacific

CanDo

Davis

Dihachi

ASSETS

Cash

$102.9

$35

$95

$54.3

Marketable securities

$122.5

$9

$105

$17.7

Accounts receivable

$889

$45

$410

$174.5

Inventories

$1050.7

$75

$125

$145.4

Total current assets

$2,165.1

$164

$735

$391.9

Investments at equity

$738.4

$21

$70

$95

Goodwill

$300

$40

$145

$80.4

Total investments and other assets

$1,038.4

$61

$215

$175.4

Property, plant, and equipment

$1,734.5

$125

$450

$412.5

TOTAL ASSETS

$4,938

$350

$1,400

$979.8

LIABILITIES AND

SHAREHOLDERS' EQUITY

Notes payable

$525.5

$11

$48

$35

Accounts payable

$525.9

$75

$225

$125

Taxes due on income

$245

$23

$70

$48

Accrued payroll and employee benefits

$484.2

$13.5

$202

$139

Total current liabilities

$1,780.6

$122.5

$545

$347

Long-term debt

$743.5

$55

$241

$165

Shareholders' equity

$2,413.9

$172.5

$614

$467.8

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$4,938

$350

$1,400

$979.8

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Exhibit 3 Statement of Income Data (in millions $) Year Ended December 31, 2011

Asia-Pacific

CanDo

Davis

Dihachi

Net sales

$6,500

$550

$2,300

$1,355

Cost of goods sold

$5,500

$407.5

$1,495

$948.5

Selling, general, and administrative expenses

$475

$65

$570

$250

Interest expense

$100

$12

$65

$55

Costs and expenses

$6,075

$484.5

$2,130

$1,253.5

Income before income taxes

$425

$65.5

$170

$101.5

Estimated taxes on income

$200

$28

$66.5

$55

NET INCOME

$225

$37.5

$103.5

$46.5

CASE ASSUMPTIONS Please make the following assumptions during your analysis:  Although Systems Technologies is buying a standard monitor, extra production demands

and a small level of design customization will result in additional tooling requirements at each supplier.

 The company expects the 9000x series to have a two-year life-cycle. The commodity team will allocate all supplier-related production costs, such as tooling, on a per unit basis over a two-year period. The company fully expects to introduce the next generation of personal computers at the end of two years.

 Systems Technologies plans to maintain some level of safety stock inventory for the monitors, at least for the first year. Due to long material pipelines, Systems Technologies expects to maintain one month safety stock inventory if it selects Asian suppliers. For domestic suppliers, the company expects to maintain two weeks worth of demand as safety stock.

 Inventory carrying costs, which include storage, handling, risk of obsolescence, taxes, and cost of capital, are 18% of the inventory's unit cost. The company assumes carrying costs for safety stock material.

 For this analysis, assume the unit price quoted by each supplier is what Systems Technologies would pay for the monitor from each supplier. Subsequent negotiations could alter the quoted price.

 While tooling depreciation could be a cost consideration, this case does not consider depreciation.

 While ST takes an active role in coordinating inbound transportation shipments, company policy states that ST will not assume title to material until the material arrives at the company’s receiving dock.

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Appendix 1: Supplier Financial Analysis 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 specific competitors, which is likely when a purchaser has collected data from more than one supplier. Supplier Financial Analysis Please use the following template to calculate selected financial ratios for the four suppliers being considered for the PC monitor contract.

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Supplier Financial Analysis Worksheet

Selected Financial Ratios

Asia-Pac

CanDo

Davis

Dihachi

Asset Utilization:

Asset Turnover = Sales/Total Assets

Inventory Turnover = Cost of Sales/Average Inventory

Receivable Days = Accounts Receivable/Sales X 360

Payable Days = Accounts Payable/Cost of 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 Total Assets = Long-term Debt/Total Assets

Current Ratio = Current Assets/Current Liabilities

Quick Ratio = (Current Assets-Inventory)/ Current Liabilities

EBIT Coverage = Earnings Before Interest and Taxes/Interest Expenses

Profitability Ratios:

Operating Margin = EBIT/Sales

Profit Margin = Net Income/Sales Return on Assets=Net Income/Total Assets

Note: Shareholders equity includes stock and retained earnings. This value is also referred to as Net Worth.

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Appendix 2: Total Cost Analysis This template requires each 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. Total Cost Analysis Worksheet--Year One Cost Category

Asia-Pacific

CanDo

Davis

Dihachi

Quoted Unit Price

Transportation

Tooling

Quality non-conformance costs

Duties/customs, insurance, and tariffs

Inventory safety stock carrying charges:

Ordering, inbound receiving and inspection costs

Estimated Per Unit Total Cost

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Appendix 3: Supplier Evaluation and Selection Analysis 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 • Information systems capability • Quality performance • Process and technological capability • Environmental compliance • Delivery performance • Longer-term partnership potential • Flexibility • Volume capacity • Previous history and performance • Supplier's supply management efforts • Responsiveness to customer needs • Information system capability

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: Define Scoring System for Categories and Subcategories

This step involves defining what each score means within a performance category. A clearly defined scoring system takes criteria that may be subjective and develops a quantified scale for measurement. The scoring metrics are reliable if different individuals interpret and score similarly the same performance categories under review.

 Step Five: 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.

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 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.

 Step Seven: Continuous Review of Supplier Performance

After supplier selection, a purchaser's emphasis must shift form initial evaluation to evidence of continuous supplier performance improvement.

When developing an instrument to support supplier evaluation, keep in mind that effective instruments have certain characteristics. Effective supplier evaluation instruments should be

 Comprehensive The evaluation considers all the performance categories or criteria considered important to the selection decision.

 Objective Objectivity requires the use of a quantitative scoring system, such as a

weighted point scale, with the meaning of each value on the measurement scale clearly defined. Objectivity requires the creation of quantitative scales to evaluate performance items and categories, some of which may be inherently subjective.

 Reliable Reliability refers to the degree to which different individuals or groups reviewing

the same supplier performance category using the same measurement scales would arrive at the same conclusion. Evaluated items and scales must be clearly defined and unambiguous so users understand what each means.

 Flexible Flexibility means the user can modify the performance categories,

subcategories, and assigned weights depending on the sourcing decision. For example, selecting a supplier to provide a key jet engine component may require a higher emphasis or weight placed on quality compared with other performance categories. On the other hand, an evaluation of a distributor that provides industry-standard items (with well accepted quality standards) will likely emphasize performance categories such as depth of inventory, cost, and delivery.

 Mathematically Straightforward The use of weights and points during the evaluation

should be simple enough so that those involved in the assessment (including suppliers) understand the mechanics of the scoring and selection process.

Weighted-Point Supplier Evaluation Assignment Using this as a model, create and complete a scorecard for each supplier that your group can use as an evaluation tool.

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Appendix 4: Sourcing Risk Management Plan Please complete this exercise after the group has made its selection decision. For the selected supplier, identify any concerns by Potential Concern Area and make note of your plan to reduce the potential risk. Sourcing Risk Management Plan Supplier: __________________

Potential Concern Area

Risk or Concern

Risk Reduction Plan

Management Capability

Delivery Performance

Quality Performance

Process Capability

Capacity

Cost

Technical Ability

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Potential Concern Area

Risk or Concern

Risk Reduction Plan

Logistics

Financial Issues

Other Commercial Issues