Decision Library
Price the late lot before you price the unit
A supplier is chosen on a quote and judged on the day a shipment fails to arrive. The cheaper source can cost more once expedited freight, idle lines and lost orders are counted. A Decision Room compares staying, dual-sourcing and switching on delivered reliability, quality history and the cost of each failure.
The sourcing options
Stay with the incumbent supplier. Move all volume to a new one. Split volume, for example 70 percent and 30 percent, so a second source stays qualified. Keep a second supplier approved but idle, ready to take orders. Bring a component in-house.
The split is often the strongest option and the most underrated, because it buys insurance with ordinary orders.
Two measures that settle most arguments
The first is on-time-in-full: the share of orders that arrive by the agreed date with the full quantity. The second is the defect rate, often counted in parts per million for components or as a percentage of units for finished goods. Together, over twelve months of history, they say more about a supplier than any visit or presentation.
Then price failure. Estimate what a late lot costs in expedited freight, overtime, idle production and missed customer orders, and multiply by how often each supplier is late. That figure belongs in the same comparison as the unit price.
Evidence worth gathering
Lot and delivery records from your own receiving system, quality reports from incoming inspection, a supplier's financial health where it can be checked, its other major customers and how much capacity they take, and whether a second qualified source exists for its key materials. Internal quality data you provide is kept and labeled as your own figures.
How the room argues a supplier
Each option gets a Champion, the incumbent included. The Gray Wolf hunts concentration: one plant, one material, one larger customer that could take the line in a busy season. The Inspector separates what a factory tour showed from what the records prove. The Red Teamer runs the quarter in which the chosen supplier misses two lots in a row.
The engine works the cost of lateness from your figures. The Verdict names the leading option, the delivery record it rests on, and what would change it, and purchasing records the Human Decision.
What to weigh
Delivered reliability
On-time-in-full rate over the last twelve months, and how much it varies.
Quality history
Defect and return rates from incoming inspection, not from brochures.
Cost of failure
Expedite, overtime and lost-sales cost per late or rejected lot, times its frequency.
Supply concentration
How much of your supply depends on one site, material or region.
Switching labor
Qualification time, samples and engineering attention needed to approve a source.
Where it goes wrong
Relationship fog
Personal trust in a supplier stands in for measured performance.
Capacity surprise
A larger customer of the supplier takes the line in your peak season.
Single qualification
Only one source is approved, so any failure stops production.
A cheaper source with a weaker record
A manufacturer buys 200,000 housings a year in 24 lots. The incumbent charges $4.10 each and delivered 96 percent of lots on time, while a new supplier quotes $3.70 and, across its sample customers, delivered 81 percent on time. The lower price saves $80,000 a year. At the new supplier's record, about 4.6 of 24 lots would arrive late, against about one from the incumbent. Each late lot costs roughly $14,000 in air freight and overtime, so the extra lateness costs about $50,000, leaving a real saving near $30,000 rather than $80,000. With weights of delivered reliability 30, cost of failure 25, quality 20, concentration 15 and switching labor 10, the Verdict favors moving 30 percent of volume to the new supplier for two quarters. It names what would justify moving more: on-time delivery above 92 percent across those lots.
Questions
- Can we include a supplier we have never used?
- Yes. With no delivery history of your own, its reliability claims start as unverified, and the room weighs references and sample lots accordingly. The Verdict will usually name the evidence a trial order should produce.
- Who awards the business?
- Purchasing and operations do. The Verdict explains which option the evidence supports, and the award itself is kept on the record beside it.
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