[Procurement] Review Final Examination (Official)

Procurement Management
Lecturer: Duong Vo Nhi Anh
REVIEW FINAL EXAMINATION

Q1: Supplier Selection (TCO x/y, Scoring method, AHP)
1. Supplier Selection: Explain and Example
 Step 1 – Supplier Selection Scorecard
 Step 2 – Identify Suitable Suppliers
 Step 3 – Scorecard Ranking
 Step 4 – Negotiate
 Step 5 – Create contract
2. Scoring Method: Supplier selection based on Scoring Method
𝑾𝒕𝒅. 𝑺𝒄𝒐𝒓𝒆 = 𝑾𝒆𝒊𝒈𝒉𝒕 × 𝑺𝒄𝒐𝒓𝒆
→ Choose the supplier with the highest score
Supplier A Supplier B Supplier C
Bid evaluation Criteria Weight Score Wtd.Score Score Wtd.Score Score Wtd.Score
1. Technical Performance:
9 9 81 6 54 8 72
measurement precision
2. Product Reliability
*Low MTBF 4 5 20 6 24 6 24
*Durability of the equipment 4 5 20
3.Lead time to delivery 3 7 21 9 27 7 21
4.Availability of spares 9 7 63 5 45 4 36
5.Technical support
*Installation and Commissioning 5 8 40 6 30 5 25
*Training 5 9 45 7 35 8 40
*Response time for the issue,
10 4 40 4 40 5 50
maintenance and repair
6.Life-cycle costs
*Purchase price 25 7 175 4 100 9 225
*Spare-parts costs 20 5 100 8 160 7 140
Total weighted scores 605 515 633
→ We should choose supplier C (with the highest weighted score 633)
1
3. AHP method:
Given:
Pairwise Comparisons of Criteria:
Cost Quality Circle Time

Cost 1 1/3 1/7
Quality 1 1/5
Circle Time 1
Pairwise Comparisons of Alternatives:

• Cost Criteria:
Cost Supplier X Supplier Y Supplier Z

Supplier X 1 3 1/5
Supplier Y 1 1/7
Supplier Z 1
→ The more score of Cost is, the worse criterion is
• Quality Criteria:
Quality Supplier X Supplier Y Supplier Z

Supplier X 1 1/5 2
Supplier Y 1 5
Supplier Z 1
→ The more score of Quality is, the better criterion is
• Circle Time Criteria:
Circle Time Supplier X Supplier Y Supplier Z

Supplier X 1 7 5
Supplier Y 1 1/2
Supplier Z 1
→ The more score of Circle Time is, the worse criterion is
(a) Develop the weight of criteria and check consistency of the pair – wise comparison.
2
(b) Develop the weight of alternatives for the all the criteria
(c) Use AHP method to determine the best alternative for this problem
Solution:
(a) First, we fill all the blank in the criteria table:

Cost 1 1/3 1/7
Quality 3 1 1/5
Circle Time 7 5 1
Next, let’s sum up the score of each criteria:

Cost 1 1/3 1/7
Quality 3 1 1/5
Circle Time 7 5 1
SUM 11 19/3 47/35
Next, we will take each element in the table divided to the SUM and calculate the average
(Normalization Method):
AVERAGE
Cost Quality Circle Time (Priority Vector)
Cost 1/11 1/19 5/47 0.083
Quality 3/11 3/19 7/47 0.193
Circle Time 7/11 15/19 35/47 0.724
SUM 1
Next, let’s check the consistency:
Eigen value: 𝜆𝑚𝑎𝑥 = 𝑆 ∗ 𝑊
SUM Priority Vector

11 19/3 47/35 X 0.083 = 3.11
0.193
0.724
• Size of comparison matrix: n = 3

𝜆𝑚𝑎𝑥 −𝑛 3.11−3
• 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝐼𝑛𝑑𝑒𝑥: 𝐶𝐼 = = = 0.055
𝑛−1 3−1
• 𝑅𝑎𝑛𝑑𝑜𝑚 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝐼𝑛𝑑𝑒𝑥: 𝑅𝐼 = 0.58
3
CI 0.055
• 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜: 𝐶𝑅 = = = 0.095 = 9.5% < 10% → 𝐴𝑐𝑐𝑒𝑝𝑡𝑎𝑏𝑙𝑒
𝑅𝐼 0.58
(b) For each criteria, repeat the same steps above to determine the weight of alternatives:
➢ Cost Criteria:

Supplier X 1 3 1/5
Supplier Y 1/3 1 1/7
Supplier Z 5 7 1
→ The more score of Cost is, the worse criterion is → This is the cost criteria → We have to reverse
the matrix

Supplier X 1 1/3 5
Supplier Y 3 1 7
Supplier Z 1/5 1/7 1

Supplier X 1 1/3 5
Supplier Y 3 1 7
SUM 21/5 31/21 13
AVERAGE
(Priority Vector)
Supplier X 5/21 7/31 5/13 0.283
Supplier Y 5/7 21/31 7/13 0.643
Supplier Z 1/21 3/31 1/13 0.074
SUM 1
SUM Priority Vector

21/5 31/21 13 X 0.283 = 3.10
0.643
0.074
4

𝜆𝑚𝑎𝑥 −𝑛 3.10−3
𝑛−1 3−1
CI 0.05
• 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜: 𝐶𝑅 = = 0.58 = 0.086 = 8.6% < 10% → 𝐴𝑐𝑐𝑒𝑝𝑡𝑎𝑏𝑙𝑒
𝑅𝐼
➢ Quality Criteria:

Supplier X 1 1/5 2
Supplier Y 5 1 5
→ The more score of Quality is, the better criteria is → This is the benefit criteria → Keep the matrix

Supplier X 1 1/5 2
Supplier Y 5 1 5
SUM 13/2 7/5 8
AVERAGE
(Priority Vector)
Supplier X 2/13 1/7 1/4 0.182
Supplier Y 10/13 5/7 5/8 0.703
Supplier Z 1/13 1/7 1/8 0.115
SUM 1
SUM Priority Vector

13/2 7/5 8 X 0.182 = 3.09
0.703
0.115

𝜆𝑚𝑎𝑥 −𝑛 3.09−3
𝑛−1 3−1
5
CI 0.045
𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜: 𝐶𝑅 = = = 0.078 = 7.8% < 10% → 𝐴𝑐𝑐𝑒𝑝𝑡𝑎𝑏𝑙𝑒
𝑅𝐼 0.58
➢ Circle Time Criteria:

Supplier X 1 7 5
Supplier Y 1/7 1 1/2
Supplier Z 1/5 2 1
→ The more score of Circle Time is, the worse criterion is → This is the cost criteria → We have to
reverse the matrix

Supplier X 1 1/7 1/5
Supplier Y 7 1 2
Supplier Z 5 1/2 1

Supplier X 1 1/7 1/5
Supplier Y 7 1 2
Supplier Z 5 1/2 1
SUM 13 23/14 16/5
AVERAGE
(Priority Vector)
Supplier X 1/13 2/23 1/16 0.075
Supplier Y 7/13 14/23 5/8 0.591
Supplier Z 5/13 7/23 5/16 0.334
SUM 1
SUM Priority Vector

13 23/14 16/5 X 0.075 = 3.02
0.591
6
0.334

𝜆𝑚𝑎𝑥 −𝑛 3.02−3
𝑛−1 3−1
CI 0.01
𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜: 𝐶𝑅 = = = 0.017 = 1.7% < 10% → 𝐴𝑐𝑐𝑒𝑝𝑡𝑎𝑏𝑙𝑒
𝑅𝐼 0.58
Priority
Priority Vector for All Alternatives X Vector of = Weights Ranking
Criteria
Supplier X 0.283 0.182 0.075 0.083 0.11 3
Supplier Y 0.643 0.703 0.591 0.193 0.62 1
Supplier Z 0.074 0.115 0.334 0.724 0.27 2
→ For the AHP method, the best alternative is Supplier Y.
Q2: Global Sourcing: Why? Benefits? Barrier of GS? Incoterms

1. Why?: (Explain and give examples)
 Cost/price benefits
 Access to product/process technology
 Quality
 Access to only source available
 Introduce competition to domestic suppliers
 React to buying patterns of competitors
 Establish a presence in a foreign market
2. Benefits?: (Explain and give examples)
 Lower purchase price/cost
 Greater access to product technology
 Improved supplier relationships
7
 Greater access to process technology

 Greater supplier responsiveness
 Greater appreciation of purchasing
 Better management of supply chain inventory
 Greater standardization of the sourcing process
 Higher material, component, or service quality
 Improved information sharing
3. Barrier of GS?: (Explain and give examples, solutions)
 Lack of knowledge and skills concerning global sourcing
 Resistance to change
 Longer lead times
 Different business customs, language, and culture
 Hidden costs
 Currency fluctuations
4. Incoterms: List and explain 4 incoterms mostly used: EXW, FOB, CIF, DAP (buyer
and seller’s responsibility)
Incoterms 2020 is divided into 4 groups:
 Group E: EXW
 Group F: FCA, FAS, FOB
 Group C: CFR, CIF, CPT, CIP
 Group D: DAP, DDU, DDP
Q3: Cost: TCO (interest rate …%). TCO components?

• What is TCO? List down TCO components + Explain + Example?
- The interest rate of 10% per year
8
Interest payments associated with Year n = Year n * 10%
Cost of using supplier X taking interest payments into account
Year 1 Year 2 Year 3 Year 4 Total cost
Year 1 cost $60,000 $60,000
$27,846
$6,000 $6,600 $7,260 $7,986
Interest payments (6,000+
(60,000*10 (6,000 + (6,600 + (7,260 +
associated with Year 1 6,600+7,260
%) 6,000*10%) 6,600*10%) 7,260*10%)
+7,986)
Year 2 cost $5,000 $5,000
Interest payments
$500 $550 $605 $1,655
associated with Year 2
Year 3 cost $20,000 $20,000
Interest payments
$2,000 $2,200 $4,200
Year 4 cost $5,000 $5,000
Interest payments
$500 $500
Total $124,201
Cost of using supplier Y taking interest payments into account
Year 1 Year 2 Year 3 Year 4 Total cost
Year 1 cost $80,000 $80,000
Interest payments associated with

$8,000 $8,800 $9,680 $10,648 $37,128
Year 1
Year 2 cost $3,000 $3,000

$300 $330 $363 $993
Year 2
Year 3 cost $3,000 $3,000

$300 $330 $630
Year 3
9
Year 4 cost $4,000 $4,000

$400 $400
Year 4
Total $129,151
From the calculation of total cost for Supplier X and Supplier Y, it is highly recommended to
select supplier X to save cost ($124,201).
Q4: Price: Selling price? 5 methods of discount? HW1

• Definition selling price? Example?
[Selling price = Total cost + profit]
• List down at least 3 factors that impact the “price”, and “explain why”?
➔ Demand, supply, government policy (ceiling, floor price)
• List down 5 methods of discount. Explain, example? (Example của các bài tập
tính dựa trên method có trong slide)
10
. In this case, the cost to the retailer would be 0.9 * $30,000 = $27,000.
. The original price was $1.00 at 0.65, so the discount is $1.00 - $0.65 = $0.35.
In this case, the discount is $0.35 and the original price is $1.00, so the percentage discount is
$0.35 / $1.00 x 100% = 35%.
Q5: Quality planning process, Quality control process
Quality planning process: Explain + Example
Quality control process: Explain + Example
11
Q6: MRP, EOQ (standard packing size → mua bao nhiêu thùng) or Discount
MRP: Redraw MRP figure and explain each component in the MRP diagram and give examples
Exercise:
12
EOQ WITH STANDARD PACKING SIZE
A company requires a specific type of part for its production process. The annual
demand for this part is 15,000 units. The ordering cost per order is $80, and the holding
cost per unit per year is $5. The parts are supplied in standard packing sizes of 250
units per box.
Determine the optimal number of boxes to order that minimizes the total cost, considering the
constraint of the standard packing size.
2𝐶𝑜 𝐷 2(80)(15,000)
𝐸𝑂𝑄 = √ =√ ≈ 692.82 𝑢𝑛𝑖𝑡𝑠
𝐶𝑐 5
Since the parts are supplied in standard packing sizes of 250 units per box, we need to round
the EOQ to the nearest multiple of 250 units.
The nearest packing sizes to 692.82 units are 750 units (3 boxes)
𝐶𝑜 𝐷 𝐶𝑐 𝑄 (80)(15,000) (5)(750)
𝑇𝐶 = + = + = $3,475
𝑄 2 750 2
The minimum total cost is $3,475 for 750 units (3 boxes). Thus, the optimal number of boxes
to order, considering the standard packing size, is 3 boxes.
EOQ WITH QUANTITY DISCOUNT
• Purchase mới cộng PD, sản xuất thì KHÔNG cộng PD
13
14
QUIZ (2 bonus)
Q1: A manufacturing company uses a specific type of component in its production
process. The annual demand for this component is 20,000 units. The ordering cost per
order is $100, and the holding cost per unit per year is $4. The components are supplied
in standard packing sizes of 400 units per box.
Additionally, the supplier offers a discount of 5% on the price of each unit if the
company orders 2,000 units or more in a single order. The price per unit is $10 without
the discount. Determine the optimal number of boxes to order that minimizes the total
cost, considering the constraint of the standard packing size and the potential discount.
Q2:
Given an AHP problem with the hierarchy presented in the figure below and the alternatives’
weights are shown in the table 1. It is known that the lower score given in criterion Price, the
better alternative is.
Skincare clinic selection problem hierarchy
15
Table 1: Alternatives’ weight

Price Technology Qualified staffs Promotion
O2 0.26 0.26 0.12
Zakka 0.56 0.56 0.06
Miss Ba 0.06 0.12 0.25
Ga Spa 0.12 0.06 0.57
Table 2: Comparison of criteria

Price 1 3
Technology 3 1 3
Qualified staffs 5 3 1 5
Promotion 1
Table 3: Alternatives’ score toward Price criterion
Price O2 Skin Zakka Miss Ba Ga Spa

O2 Skin 1 3
Zakka 1
Miss Ba 5 7 1 2
Ga Spa 3 5 1
(a) Develop the weight of alternatives for the criteria Price to complete table 1 (Hint: Use
table 3 to calculate first).
(b) Develop the weight of criteria and check consistency of the pair – wise comparison in
table 2.
16
Q1:
2𝐶𝑜 𝐷 2(100)(20,000)
𝐸𝑂𝑄 = √ =√ ≈ 1,000 𝑢𝑛𝑖𝑡𝑠
𝐶𝑐 4
Since the parts are supplied in standard packing sizes of 400 units per box, we need to round
the EOQ to the nearest multiple of 400 units.
The nearest packing sizes to 1,000 units are 1,200 units (3 boxes). We also need to consider
ordering at least 2,000 units (5 boxes) to get the discount.
𝐶𝑜 𝐷 𝐶𝑐 𝑄 (100)(20,000) (4)(1,200)
𝑇𝐶 (1,200) = + + 𝑃𝐷 = + + (10)(20,000)
𝑄 2 1,200 2
= $204,067
𝐶𝑜 𝐷 𝐶𝑐 𝑄 (100)(20,000) (4)(2,000)
𝑇𝐶 (2,000) = + + 𝑃𝐷 = + + (10)(95%)(20,000)
𝑄 2 2,000 2
= $195,000
The minimum total cost is $195,000 for 2,000 units (5 boxes with discount). Thus, the optimal
number of boxes to order, considering the standard packing size and the discount, is 5 boxes.
Q2:
(a) Develop the weight of alternatives for the criteria Price to complete table 1.
* First, we use table 3 to calculate the weight for the criteria
Price
Table 3: Alternatives’ score toward Price criterion
O2 Skin 1 3 1/5 1/3
Zakka 1/3 1 1/7 1/5
Miss Ba 5 7 1 2
Ga Spa 3 5 1/2 1

O2 Skin 1 1/3 5 3
Zakka 3 1 7 5
Miss Ba 1/5 1/7 1 1/2
Ga Spa 1/3 1/5 2 1
SUM 68/15 176/105 15 19/2
Price O2 Skin Zakka Miss Ba Ga Spa AVG

O2 Skin 15/68 35/176 1/3 6/19 0.267
Zakka 45/68 105/176 7/15 10/19 0.563
Miss Ba 3/68 15/176 1/15 1/19 0.062
17
Ga Spa 5/68 21/176 2/15 2/19 0.108
→ The more score of Price is, the worse criterion is → This is the cost criteria → We have to reverse
the matrix
Check the consistency

RI 0.90
𝝀𝒎𝒂𝒙 4.11
n 4
CI 0.04
CR 4.13% <10% -> Accepted
* Second, we plug the numbers into the table 1

Table 1: Alternatives’ weight
O2 0.27 0.26 0.26 0.12
Zakka 0.56 0.56 0.56 0.06
Miss Ba 0.06 0.06 0.12 0.25
Ga Spa 0.11 0.12 0.06 0.57
(b) Develop the weight of criteria and check consistency of the pair – wise
comparison in table 2.
Table 2: Comparison of criteria
Price 1 1/3 1/5 3
Technology 3 1 1/3 3
Qualified staffs 5 3 1 5
Promotion 1/3 1/3 1/5 1
SUM 28/3 14/3 26/15 12
Qualified
Price Price Technology Promotion AVG
staffs
O2 Skin 3/28 1/14 3/26 1/4 0.136
Zakka 9/28 3/14 5/26 1/4 0.245
Miss Ba 15/28 9/14 15/26 5/12 0.543
Ga Spa 1/28 1/14 3/26 1/12 0.076
Check the consistency

RI 0.90
𝝀𝒎𝒂𝒙 4.27
18
n 4
CI 0.09
CR 9.97% <10% -> Accepted
(c) Use AHP method to determine the best alternative

for this problem
Priority
Priority vector of alternatives x vector of = Weights Ranking
criteria
Qualified
Price Technology Promotion
staffs
O2 0.27 0.26 0.26 0.12 0.14 0.25 2
Zakka 0.56 0.56 0.56 0.06 0.24 0.52 1
Miss Ba 0.06 0.06 0.12 0.25 0.54 0.11 4
Ga Spa 0.11 0.12 0.06 0.57 0.08 0.12 3
→ For the AHP method, the best alternative

is Zakka.
19

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Procurement Management

Lecturer: Duong Vo Nhi Anh

REVIEW FINAL EXAMINATION

→ We should choose supplier C (with the highest weighted score 633)

Pairwise Comparisons of Criteria:

Cost Quality Circle Time

Pairwise Comparisons of Alternatives:

Cost Supplier X Supplier Y Supplier Z

Quality Supplier X Supplier Y Supplier Z

• Circle Time Criteria:

Circle Time Supplier X Supplier Y Supplier Z

→ The more score of Circle Time is, the worse criterion is

(a) First, we fill all the blank in the criteria table:

Cost Quality Circle Time

Next, let’s sum up the score of each criteria:

Cost Quality Circle Time

Next, let’s check the consistency:

Eigen value: 𝜆𝑚𝑎𝑥 = 𝑆 ∗ 𝑊

SUM Priority Vector

• Size of comparison matrix: n = 3

• 𝑅𝑎𝑛𝑑𝑜𝑚 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝐼𝑛𝑑𝑒𝑥: 𝑅𝐼 = 0.58

Cost Supplier X Supplier Y Supplier Z

Cost Supplier X Supplier Y Supplier Z

Cost Supplier X Supplier Y Supplier Z

Next, let’s check the consistency:

Eigen value: 𝜆𝑚𝑎𝑥 = 𝑆 ∗ 𝑊

SUM Priority Vector

• Size of comparison matrix: n = 3

• 𝑅𝑎𝑛𝑑𝑜𝑚 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝐼𝑛𝑑𝑒𝑥: 𝑅𝐼 = 0.58

Quality Supplier X Supplier Y Supplier Z

Quality Supplier X Supplier Y Supplier Z

Next, let’s check the consistency:

Eigen value: 𝜆𝑚𝑎𝑥 = 𝑆 ∗ 𝑊

SUM Priority Vector

• Size of comparison matrix: n = 3

• 𝑅𝑎𝑛𝑑𝑜𝑚 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝐼𝑛𝑑𝑒𝑥: 𝑅𝐼 = 0.58

➢ Circle Time Criteria:

Circle Time Supplier X Supplier Y Supplier Z

Circle Time Supplier X Supplier Y Supplier Z

Circle Time Supplier X Supplier Y Supplier Z

Next, let’s check the consistency:

Eigen value: 𝜆𝑚𝑎𝑥 = 𝑆 ∗ 𝑊

SUM Priority Vector

• Size of comparison matrix: n = 3

• 𝑅𝑎𝑛𝑑𝑜𝑚 𝐶𝑜𝑛𝑠𝑖𝑠𝑡𝑒𝑛𝑐𝑦 𝐼𝑛𝑑𝑒𝑥: 𝑅𝐼 = 0.58

→ For the AHP method, the best alternative is Supplier Y.

Q2: Global Sourcing: Why? Benefits? Barrier of GS? Incoterms

 Greater access to process technology

Q3: Cost: TCO (interest rate …%). TCO components?

Interest payments associated with Year n = Year n * 10%

Cost of using supplier X taking interest payments into account

Year 1 Year 2 Year 3 Year 4 Total cost

Year 1 cost $60,000 $60,000

Year 2 cost $5,000 $5,000

Year 3 cost $20,000 $20,000

Year 4 cost $5,000 $5,000

Cost of using supplier Y taking interest payments into account

Year 1 Year 2 Year 3 Year 4 Total cost

Year 1 cost $80,000 $80,000

Interest payments associated with

Year 2 cost $3,000 $3,000

Interest payments associated with

Year 3 cost $3,000 $3,000

Interest payments associated with