Supplier selection


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    General
    Hospital (GH) is looking to identify a suitable supplier for the disposal of
    hazardous waste generated by the daily running of the facility for the next 12
    months.

    GH
    operates 52 weeks/year, 7 days/week. For the next 12 months, GH forecasts
    producing an estimated average of 5 kg of waste per day. Based on historical
    data, you are aware that GH has a poor forecasting process and data, resulting
    in an 80% yearly forecast accuracy. (Note: for the sake of this exercise, let’s
    assume that the impact of forecasting errors is evenly spread across the year,
    months, weeks, and days.)

    Three
    suppliers (namely Supplier A, B, and C) have responded to GH’s Invitation To
    Tender (ITT), supplying the details of the service that they will be able to
    provide.

    Supplier
    A and Supplier B have suggested similar service models, based on the following
    assumptions (for specific data please see the table below):

    Each supplier will charge a fixed price
    for the actual pick-up operation of each container (partly or fully filled) and
    for their replacement with empty ones (Cost/Container Pick-up).

    Each supplier will charge a fixed price
    per each kilogram of waste to be disposed (Cost/Kg Waste).

    Both suppliers will use special waste
    containers with a specified maximum weight (Waste Weight/Container).

    Both suppliers will activate the pick-up,
    replacement, and disposal operation following a call-off from the
    hospital.

    Supplier
    C, on the other hand, is proposing monthly pick-up of whatever waste GH
    generates during the month. Supplier C does not require the use of special
    containers but does require a minimum of 5 days notice to start planning and
    complete the waste disposal operation.

    Supplier

    Cost/Container Pick-up

    Cost/Kg Waste

    Waste Weight/
    Container

    Pick-Up Frequency

    A

    33

    0.61

    100

    Not Specified

    B

    10

    0.45

    50

    Not Specified

    C

    38

    0.73

    Not specified

    Monthly

    Supplier
    A has indicated a willingness to negotiate, although limiting negotiation to
    the cost per container pick-up. Without adjusting the cost per kg of waste
    disposal, at what price does Supplier A become the lowest cost provider? If you
    are not successful in getting your desired cost from Supplier A, what is your
    best alternative to the negotiated agreement, or the BATNA?

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