Confidential Customized for Lorem Ipsum LLC Version 1.

DA & PPA Emerson’s Sourcing Decision

Group 7
Strategic Decision Making & Negotiation
Abdullah Hisyam - 29323142
Amalia Nurhidayati - 29323110
Riefaldy Nadivkha S - 29323005
Sultansyah Ilham R - 29323120
Fahmi Haidar - 29323003
Confidential Customized for Lorem Ipsum LLC Version 1.0

TABLE OF CONTENT
● Case Overview
● Problem Identification (Stage 1)
● Alternatives Solution Available (Stage 2)
● Detailed Information of Alternatives Solution Available (Stage 3 - 6)
● Most-benefited Alternatives Solution Available (Stage 7)
● Sensitivity Analysis (Stage 8)
Overview Case

● Emerson has a problem with their 1895 model of which they has plan to replace the OEM for their
subpack vendors because of their effort to reducing their production costs as low as possible, as well as
examining other factors, such as political risks, minimising risks during shipment process, and
manufactures capacity
● Currently they have 4 alternatives available for them to either stay with current supplier, moving to
another supplier with more advanced technology, relocating their manufacturing process to their
homebase in the US, and relocating their manufacturing process to their sister-division assembly plant
in Mexico
Problem Identification

1 Subpack Quality

It takes 4 weeks to ship subpacks from Taiwan to the US assembly plant, which can delay production.
Sometimes, subpacks are missing components or have defects, which further slow down production.

2 Sourcing Flexibility
Relying heavily on Taiwanese suppliers exposes the company to potential political instability in Taiwan.

3 Currency Exchange Rates

The US dollar has been weakening against the Taiwanese dollar (NTD), increasing costs as contracts are paid
in NTD. The NTD has appreciated significantly, from 40 to 1 USD in 1984 to 31 to 1 USD in 1987.

Objective
Maximizing the production of new 1985 subpack models to fulfill world market with the least cost to achieve
profitability and increasing 20% sales
Decision Analysis - SMART Technique
Stage 1
Decision Maker

The decision maker for this case :

● Ken Powers
● Charles Knight (CEO Emerson’s)
Decision Analysis - SMART Technique
Stage 2
Alternative Solution Available
1 Stay with Current Vendor in Taiwan (Lao Chiang Planting Industries)

2 Change to Alternative Vendor in Taiwan (Ja Yang Industrial Company)

3 Make an Integrated Assembly Plant in USA (ACP Factory in Tennessee)

4 Manufacture Relocation to Mexico (Sister-division Assembly Plant)

Decision Analysis - SMART Technique
Stage 3
 Decision Tree of Alternative Option Available
Criteria

Costs Benefits

Supply Chain
Product
Access

Production Ease Ease

FOB Costs Tooling cost Quality Flexibility
cost Transaction Controlling

Labor cost
Decision Analysis - SMART Technique
Stage 4
Decision Analysis - SMART Technique Stage 4 - Cost
Analyzing the cost of every decisions based on the case

Cost
1895 Cost Additional tooling
No Decision FOB Cost Labor/year Total Cost
Production cost
1 Stay with Current Vendor in Taiwan $109,798 $129.08 $4,858 $20,000 $134,785

2 Change to Alternative Vendor in Taiwan $109,798 $116.06 $4,858 $40,806 $155,578

3 Make an Integrated Assembly Plant in USA $360,000 $14,573 $100,000 $474,573

4 Manufacture Relocation to Mexico $360,000 $900 $10,800 $371,700

Summary :
● The cost of business process in Taiwan is cheaper than the cost in USA and Mexico due to the production
cost in Taiwan is much lower.
● Based on a cost perspective, choosing Taiwan would be an efficient alternative compared to other countries.
● The cost consists of : FOB cost (40 cntr’,20’ via truck), 1895 production, labor, tooling cost.
 Decision Analysis - SMART Technique Stage 4 - Benefits
In Stage 4, we’ll assign value to measure performance of each decisions based on chosen attribute. Based on case, there are 4 decisions
as below explained. And The attributes are Quality product, Ease Transaction, Flexibility to produce product, Ease Controlling

Ease Ease
No Decision Quality Flexibility
Transaction Controlling
1 Stay with Current Vendor in Taiwan 30 75 30 20
2 Change to Alternative Vendor in Taiwan 90 80 40 80
3 Make an Integrated Assembly Plant in USA 100 100 60 100
4 Manufacture Relocation to Mexico 60 10 100 70

Reasons :
● Quality output : 100 point -> integrated plant in USA due to high quality subpack material, 30 -> stay with
current vendor because they produced low quality color variations
● Ease Transaction : 100 -> US$, is more easy for current currency, due to no need for exchange rate cost
plus did not require a third party bank to settle the transactions.
10 point -> Mexico peso is the most volatile currency to transact.
● Flexibility on production : 100 -> Owning fully manufacture in Mexico will be more flexible to customize
production, 30 -> current vendor Taiwan have their own standard and specification
● Ease Controlling -> 100-> Integrated plant in USA because all controlled and customized from company.
20 -> ‘stay with vendor taiwan’ due to more manual system plating line and dependency on vendor.
Decision Analysis - SMART Technique
Stage 5
Decision Analysis - SMART Technique Stage 5
Determine a weight for each attribute, that reflects their level of importance for the decision maker. This stage
allows to assess the strengths and weaknesses of each option relative to the established criteria.

Attributes Original Weights Normalized Weight

Quality 100 0.37
Ease Transaction 60 0.22
Flexibility 30 0.11
Ease Controlling 80 0.30
Total 270 1.00

Reasons weighted value :

● Quality output : 100 -> Quality of the product is the highest attributes because 83% of Emerson products held the
no. 1 or 2 position in their domestic markets and Emerson create new products to meet world market requirements
with Goal to increase share of new products to 20% of total sales
● Ease Transaction : 60 -> Currency high rate is the 3rd attributes, it will impact on labor cost, shipping cost, material
cost. The economic movement of the country is also important
● Flexibility on production :30 -> Production flexibility is the lowest attributes due to not impacting on product result
for customer
● Ease Controlling -> 80 -> 2nd highest attributes because when the machine and manufacturer automated/high
technology it will impact on product result and labor training.
Decision Analysis - SMART Technique
Stage 6
 Decision Analysis - SMART Technique Stage 6
we’ll take a weighted average of values assigned to that alternatives. Weighting reflects the priorities and
ensures that factors deemed more critical have a greater influence on the final decision.

Quality Ease Transaction Flexibility Ease Controlling Aggregate of

No Decision
(0.37) (0.22) (0.11) (0.3) weighted value

1 Stay with Current Vendor in Taiwan 30 75 30 20 37.0

2 Change to Alternative Vendor in Taiwan 90 80 40 80 79.3
Make an Integrated Assembly Plant in
3 100 100 60 100 95.6
USA
4 Manufacture Relocation to Mexico 60 10 100 70 56.3

Decision 3 & 2 are the highest weighted value

Summary :
● The aggregate of weighted value comes from ratio of decision multiple to normalized weights of attributes
● Decision 3 (make integrated plant in USA) has the highest point due to its quality, ease controlling
● Decision 2 (change vendor in Taiwan) has 2nd highest point due to ease transaction & quality
Decision Analysis - SMART Technique
Stage 7
Decision Analysis - SMART Technique Stage 7 -
After stage 6, we will comparing between the total cost and aggregate of weighted value from each decisions.
So we’ll know the decisions we’re going to choose :

Aggregate of weighted
No Decision Total Cost
value
1 Stay with Current Vendor in Taiwan $134,785 37.0
2 Change to Alternative Vendor in Taiwan $155,578 79.3
3 Make an Integrated Assembly Plant in USA $474,573 95.6
4 Manufacture Relocation to Mexico $371,700 56.3

Choose Decision 2
3 Consideration :
2 ● Decision 2 : change to alternative vendor in Taiwan,
4 have 2nd lower cost and the 2nd top aggregate
weighted value
1 ● Decision 2, high value on quality & ease transaction
(as company’s priority problems to solve)
● It is a much more vertically integrated & centralized
company with an automated plating line for decision 2
Decision Analysis - SMART Technique
Stage 8
Decision Analysis - SMART Stage 8 - Sensitivity Analysis
Criteria

Costs Benefits

Supply
Product Chain
Access

Shipping Taxes & Insurance

Costs import cost Costs
Ease Ease
Quality Flexibility
Transaction Controlling
Material
Labor cost
Cost

Take a look sensitivity analysis for Product and Inventory >>>

Decision Analysis - SMART Stage 8 - Sensitivity Analysis

Product = 0
Normalized
Attributes Original Weights
Weight

Quality 0 0.00

Ease Transaction 0 0.00

Flexibility 30 0.27

Ease Controlling 80 0.73

Total 110 1.00

Decision Analysis - SMART Stage 8 - Sensitivity Analysis

Ease Transaction Flexibility Ease Controlling Aggregate of

No Decision Quality (0.37)
(0.22) (0.11) (0.3) weighted value
1 Stay with Current Vendor in Taiwan 30 75 30 20 37.0
Change to Alternative Vendor in
2 Taiwan 90 80 40 80 79.3
Make an Integrated Assembly Plant
3 in USA 100 100 60 100 95.6
4 Manufacture Relocation to Mexico 60 10 100 70 56.3

Ease Transaction Flexibility Ease Controlling Aggregate of

No Decision Quality (0.0)
(0.0) (0.27) (0.73) weighted value
1 Stay with Current Vendor in Taiwan 30 75 30 20 22.7
Change to Alternative Vendor in
2 Taiwan 90 80 40 80 69.1
Make an Integrated Assembly Plant
3 in USA 100 100 60 100 89.1
4 Manufacture Relocation to Mexico 60 10 100 70 78.2
Decision Analysis - SMART Stage 8 - Sensitivity Analysis

Supply Chain Access = 0

Normalized
Attributes Original Weights
Weight

Quality 100 0.63

Ease Transaction 60 0.38

Flexibility 0 0.00

Ease Controlling 0 0.00

Total 160 1.00

Decision Analysis - SMART Stage 8 - Sensitivity Analysis
Ease Transaction Flexibility Ease Controlling Aggregate of
No Decision Quality (0.37)
(0.22) (0.11) (0.3) weighted value
1 Stay with Current Vendor in Taiwan 30 75 30 20 37.0
Change to Alternative Vendor in
2 Taiwan 90 80 40 80 79.3
Make an Integrated Assembly Plant
3 in USA 100 100 60 100 95.6
4 Manufacture Relocation to Mexico 60 10 100 70 56.3

Ease Transaction Flexibility Ease Controlling Aggregate of

No Decision Quality (0.63)
(0.38) (0.0) (0.0) weighted value
1 Stay with Current Vendor in Taiwan 30 75 30 20 46.875
Change to Alternative Vendor in
2 Taiwan 90 80 40 80 86.25
Make an Integrated Assembly Plant
3 in USA 100 100 60 100 100
4 Manufacture Relocation to Mexico 60 10 100 70 41.25
 Decision Analysis - SMART Stage 8 - Sensitivity Analysis
Aggregate
Aggregate of
of Weighted Aggregate of Weighted
No Decision Value Weighted Value Value
(Product = (Original) (Supply
0) Chain
Access=0) 20
Stay with Current Vendor in
1 Taiwan 22.7 37.0 46.88
Change to Alternative Vendor in
2 Taiwan 69.1 79.3 86.25
Make an Integrated Assembly
3 Plant in USA 89.1 95.6 100.00
Manufacture Relocation to
4 Mexico 78.2 56.3 41.25

● From the graph, we analyze that option “Integrated assembly plant in USA” is the most stable (insensitive) - low risk
● And Mexico is the most sensitive options (high risk)
From the 8 stage analysis, we choose : Decision 2 - choose
alternative vendor in Taiwan

● Decision 2 : change to alternative vendor in Taiwan, have 2nd lower cost and the 2nd top aggregate
weighted value of benefits
● Decision 2 have moderate sensitivity (2nd rank insensitive), this option is more stable than the 3
option
● Alternative vendor in Taiwan has benefit : high-tech technology, owning by family, effective
controlling (1 operators), effective timing
 Potential Problem Analysis for Alternative
Vendor in Taiwan (Ja Yang Company) #2
POTENTIAL PROBLEM CONSEQUENCE POSSIBLE CAUSE PREVENTIVE ACTION CONTINGENT ACTION

Uncertainty/ inaccurate Unexpected tooling cost Lack of transparency or Thorough due diligence Renegotiating terms with
about costing information escalations understanding of true and verification of the vendor, seek alternative
(usually there’s production cost by the costing information sourcing options,
adjustment of tooling vendor provided by Ja Yang Implement cost-saving
cost) Company measures within the
production process

Bad quality of the product Product not meeting the Unquality output Request testing product Change another vendor
result (1985 subpack) quality standard that proven quality result

Untrained employee for Decreased Productivity Automated plating line Regularly training and Create SOPs and standard
high-tech machine defects, or inconsistencies controlling for all
in the final products, employee in manufacture
safety risks
 Conclusion

● Decision analysis by SMART Technique has 8 stages. The objective of Emerson’s is Maximizing
the production of new 1985 subpack models with lowest price. They want to choose 4 options to
produce new units.
● The attributes benefits are : product (quality,ease transaction), inventory (flexibility,ease controlling)
● The decision of Emerson’s company is to choose alternative vendor in Taiwan (2)
● From the DA decision #2 -> aggregate weighted value = 70.4, and the total cost needed =
$155.578
● Decision #2 is more vertically integrated & centralized company with an automated plating line

Aggregate of weighted
No Decision Total Cost
value
1 Stay with Current Vendor in Taiwan $134,785 40.4
2 Change to Alternative Vendor in Taiwan $155,578 70.4
3 Make an Integrated Assembly Plant in USA $474,573 79.4
4 Manufacture Relocation to Mexico $371,700 65.2
Thank you.