Design. Analyze. Optimize.

Supplier Comparison

As an example case will be used the previously optimized item "Bearing 23456" (Reorder point = 5, Order size = 4).

The current supplier of the item supplies them in 9 days in average with a standard deviation of 3 days. The supplier charges 20 EUR cargo costs per order. An alternative supplier promises to provide the items in 2 days in average with a standard deviation of 1 day and each order occasion would cost 30 EUR. Which one of the suppliers should be chosen to provide the items in the future if the consumption and other cost factors of the item will stay unaltered?

The problem can be solved by altering the delivery times and cargo costs of the previously optimized item "Bearing 23456" to be similar to the ones the alternative supplier promises. After making these changes and simulating them in StockOptim it is possible to compare the cost results between these two different supplier scenarios:

Cost (EUR) Old supplier
Delivery time a = 9
Delivery time s.d. = 3
Cargo costs = 20 EUR/order Reorder point = 5
Order size = 4
New supplier
Delivery time a = 2
Delivery time s.d. = 1
Cargo costs = 30 EUR/order Reorder point = 5
Order size = 4
Ordering (a) 26.82 27.07
Ordering (s.d.) 15.95 15.75
Ordering (95%) 60.00 60.00
Cargo (a) 26.82 40.60
Cargo (s.d.) 15.95 23.63
Cargo (95%) 60.00 90.00
Space and upkeep (a) 147.51 149.79
Space and upkeep (s.d.) 14.09 13.67
Space and upkeep (95%) 172.10 172.99
Interest (a) 105.81 107.44
Interest (s.d.) 10.11 9.80
Interest (95%) 123.45 124.09
Shortages (a) 0.00 0.00
Shortages (s.d.) 0.00 0.00
Shortages (95%) 0.00 0.00
Sum (a) 306.95 324.89
Sum (s.d.) 31.74 37.16
Sum (95%) 359.04 383.91
(a = average value, s.d. = standard deviation and 95% = 95% quantile)

If changing the supplier wouldn't affect the storage strategy parameters (reorder point and order size) the use of the new supplier would be a little bit more expensive. It is though relevant to test how the shorter delivery times of the new supplier would affect the optimal storage strategy parameters if we assume that these delivery time estimates are reliable:

Cost (EUR) Old supplier
Delivery time a = 9
Delivery time s.d. = 3
Cargo costs = 20 EUR/order Reorder point = 5
Order size = 4
New supplier
Optimal storage strategy
Delivery time a = 2
Delivery time s.d. = 1
Cargo costs = 30 EUR/order Reorder point = 3
Order size = 4
Order (a) 26.82 26.88
Order (s.d.) 15.95 15.74
Order (95%) 60.00 60.00
Cargo (a) 26.82 40.31
Cargo (s.d.) 15.95 23.61
Cargo (95%) 60.00 90.00
Space and upkeep (a) 147.51 109.78
Space and upkeep (s.d.) 14.09 13.57
Space and upkeep (95%) 172.10 132.91
Interest (a) 105.81 78.75
Interest (s.d.) 10.11 9.73
Interest (95%) 123.45 95.34
Shortages (a) 0.00 0.00
Shortages (s.d.) 0.00 0.00
Shortages (95%) 0.00 0.00
Sum (a) 306.95 255.71
Sum (s.d.) 31.74 36.90
Sum (95%) 359.04 315.31
(a = average value, s.d. = standard deviation and 95% = 95% quantile)

The results show that by using the supplier with the faster deliveries it is possible to keep lower reorder point in the storage without increasing the shortage risk. As a final outcome the total costs coming from the storing of the item would be 17% lower if the new supplier would handle the item deliveries.