ISM CORE Questions Answers

Identify the Change Requirement: The engineering department wants to replace a highly regulated imported chemical with a domestic, non-hazardous alternative.

Evaluate the Impact:

Assess the cost implications of switching chemicals, including sourcing, handling, and compliance costs.

Consider the impact on production processes, product quality, and customer acceptance.

Total Cost Analysis: Performing a comprehensive total cost analysis will provide a clear picture of all associated costs, ensuring that the decision is financially sound and aligns with the company’s strategic objectives.

Subsequent Steps: If the cost analysis is favorable, update project timelines, check supplier certifications, and notify customers. References:

Total Cost of Ownership (TCO) Analysis Frameworks

Chemical Supply Chain Management

Best Practices in Supplier Evaluation and Selection

The supply manager is looking for the supplier that is most efficient in its use of assets, which is measured by the return on assets (ROA). ROA is calculated as net income divided by total assets.

For each supplier:

Supplier A: ROA = 100 / 100 = 1.0

Supplier B: ROA = 200 / 100 = 2.0

Supplier C: ROA = 200 / 400 = 0.5

Supplier D: ROA = 50 / 20 = 2.5

Supplier D has the highest ROA, indicating it is the most efficient in its use of assets.

References

Financial Management for Supply Chain Management by Michael D. Waters

Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, and Franklin Allen

To calculate the simple Return on Investment (ROI), we use the formula:

ROI = \left( \frac{\text{Net Return on Investment}}{\text{Cost of Investment}} \right) \times 100\%ROI=(Cost of InvestmentNet Return on Investment​)×100%

Given that the cost of the machine is $200,000 and the expected annual savings (which can be considered as the net return) is $35,000, we can plug these values into the formula:

ROI = \left( \frac{35,000}{200,000} \right) \times 100\% = 17.5\%ROI=(200,00035,000​)×100%=17.5%

Therefore, the simple ROI for this piece of equipment is 17.5%1.

Negotiation Tactics: Suppliers can use various tactics to gain an advantage in negotiations.

Power Position: DEF is the primary source for the material and is aware that XYZ has limited alternatives due to lead time constraints.

Delays and Postponements: By delaying negotiations, DEF might be trying to leverage its power position, knowing XYZ cannot easily switch suppliers.

Implications for XYZ: XYZ may feel pressured to concede to DEF’s terms due to the urgency of their need for the materials.

Strategic Response: XYZ needs to consider strategies to mitigate DEF's leverage, such as seeking alternative suppliers in the long term or negotiating better terms to manage future risks. References

Fisher, Ury, and Patton’s "Getting to Yes: Negotiating Agreement Without Giving In".