Strategic Sourcing and Supplier Selection

Introduction

Strategic sourcing is the systematic design and management of an organisation’s external supply base so that purchased goods and services support competitive strategy, operational resilience, innovation, quality, and responsible business conduct. It is broader than purchasing. Purchasing executes transactions; sourcing determines what should be purchased, from whom, under what commercial and relational arrangements, and with what consequences over time.

For entrepreneurial firms, sourcing decisions are especially consequential. A start-up may lack bargaining power, technical procurement staff, and alternative suppliers. A scale-up may discover that a low-cost supplier cannot support rapid growth, regulatory scrutiny, or product customisation. Conversely, excessive supplier qualification and contract complexity can consume scarce managerial resources. Strategic sourcing therefore requires an integrated evaluation of economics, capabilities, risk, technology, sustainability, and organisational purpose.

The central decision is not simply “Which supplier offers the lowest price?” It is “Which supply arrangement creates the greatest risk-adjusted value over the relevant time horizon?” This chapter develops that question through make-or-buy analysis, sourcing-portfolio choices, category management, total cost of ownership (TCO), and weighted and multicriteria supplier-selection methods.

Learning Objectives

By the end of this chapter, readers should be able to:

1. Distinguish strategic sourcing from transactional purchasing.
2. Analyse make-or-buy decisions using relevant costs, capacity, risk, and strategic capability.
3. Evaluate single, dual, and multiple sourcing arrangements.
4. Compare local and global sourcing beyond quoted price.
5. Apply category-management principles to spend and supply markets.
6. Calculate and interpret total cost of ownership.
7. Construct a weighted-score supplier evaluation and recognise its limitations.
8. Use multicriteria methods responsibly in managerial decisions.
9. Design supplier governance that addresses resilience, ethics, sustainability, and performance.

1. Strategic Sourcing as a Value-Creation Activity

A sourcing decision has at least five dimensions:

• Commercial value: price, payment terms, working-capital effects, and contract flexibility.
• Operational performance: quality, delivery reliability, capacity, lead time, and responsiveness.
• Strategic capability: innovation, technical knowledge, scalability, and access to scarce resources.
• Risk exposure: disruption, geopolitical dependence, financial distress, cyber threats, regulatory non-compliance, and opportunistic behaviour.
• Stakeholder impact: labour conditions, environmental effects, community outcomes, data protection, and reputation.

The appropriate sourcing arrangement depends on the characteristics of the item and the market. A standard office supply bought in a competitive market should not be managed like a safety-critical component designed jointly with a supplier. A useful initial classification considers supply risk and business impact.

This two-dimensional portfolio, often associated with purchasing portfolio analysis, is not a substitute for judgement. It is a prioritisation device. Strategic items merit senior sponsorship, joint planning, technical integration, and contingency design. Routine items merit process efficiency rather than disproportionate negotiation effort.

2. Make-or-Buy Decisions

A make-or-buy decision determines whether an organisation should produce an input internally or obtain it from an external supplier. The decision should not be reduced to a comparison between internal variable cost and supplier price. It must include avoidable fixed costs, opportunity costs, transaction costs, quality effects, capital requirements, intellectual property, flexibility, and risk.

2.1 Relevant-cost logic

For a required quantity Q, a simplified comparison is:

Here, C_make is the relevant cost of making; F_a is avoidable fixed cost; v_m is variable internal cost per unit; Q is the required quantity; O_m represents other relevant internal costs; p_b is the supplier’s unit price; O_b represents relevant buying costs; and R_m and R_b represent monetised risk or expected-cost adjustments. Costs must be measured over the same period and for the same quantity and quality specification.

Fixed costs that will continue regardless of the decision are not relevant to a short-run make-or-buy comparison. However, a long-run decision may make them avoidable. Internal capacity used for production also has an opportunity cost if it could generate a contribution elsewhere.

If internal capacity is available and risks are comparable, the break-even quantity is:

This expression applies only when p_b > v_m and the cost relationships are reasonably linear. At quantities below Q*, buying may be preferable; above it, making may be preferable, subject to capacity and strategic considerations.

2.2 Worked example: make or buy

An enterprise requires 10,000 units of a component. The avoidable annual fixed cost of internal production is $18,000, and variable cost is $7.20 per unit. A supplier quotes $9.00 per unit. Buying incurs $6,000 of annual inspection and inbound coordination cost. Assume quality and risk are equivalent.

Making costs:

C_make = 18,000 + (7.20 × 10,000) = $90,000

Buying costs:

C_buy = (9.00 × 10,000) + 6,000 = $96,000

Making is cheaper by $6,000 at 10,000 units. The break-even quantity is:

Q* = (18,000 − 6,000) ÷ (9.00 − 7.20) = 12,000 ÷ 1.80 = 6,667 units approximately

Thus, if the requirement exceeds approximately 6,667 units and the assumptions remain valid, making is economically favourable. Yet the result could change if internal equipment is unreliable, supplier technology is superior, or internal capacity has a higher-value alternative use.

2.3 Strategic criteria

Managers should ask:

• Is the capability central to differentiation or likely to become central?
• Does internal production protect intellectual property or sensitive data?
• Can an external supplier achieve superior scale, technology, or quality?
• Is demand stable enough to justify dedicated assets?
• What happens if the supplier fails, is acquired, or raises prices?
• Can the organisation reverse the decision without prohibitive switching costs?

Transaction-cost economics highlights asset specificity, uncertainty, and transaction frequency. Highly specific assets and uncertain transactions can justify stronger governance or internalisation. The resource-based view, by contrast, asks whether the activity provides valuable, rare, difficult-to-imitate, and organisationally embedded capability. Neither theory dictates a universal answer; each identifies different sources of strategic advantage and exposure.

3. Single, Dual, and Multiple Sourcing

Single sourcing

Single sourcing places an item or category with one principal supplier. Benefits include volume leverage, lower qualification cost, standardisation, deeper collaboration, and simplified administration. It may support joint product development and better supplier commitment.

Risks include dependence, capacity constraints, disruption, reduced price tension, supplier complacency, and loss of market intelligence. Single sourcing is most defensible when the supplier is demonstrably superior, collaboration is strategically important, switching is costly, and continuity protections are credible.

Multiple sourcing

Multiple sourcing uses two or more suppliers, either for the same specification or for different geographic and technical segments. It can create competition, preserve continuity, benchmark performance, and support demand surges. Its costs include duplicated qualification, lower volumes per supplier, greater coordination, inconsistent quality, and possible loss of relationship depth.

A practical compromise is dual sourcing. For example, an organisation may allocate 70% to a primary supplier and 30% to a qualified secondary supplier. The secondary allocation is not wasteful if it maintains capability, validates market price, and shortens recovery time after disruption.

Sourcing allocation can be assessed using expected-cost reasoning. If supplier i has disruption probability p_i and disruption loss L_i, a simplified expected disruption cost is:

For a portfolio, independence should not be assumed automatically. Suppliers may share ports, semiconductor capacity, raw materials, energy systems, or political exposure. Correlated disruption means that geographic or legal separation does not necessarily produce operational independence.

Decision factors

4. Local versus Global Sourcing

Local sourcing can reduce transport distance, lead time, communication barriers, currency exposure, and regulatory complexity. It may improve responsiveness and support regional employment. Its disadvantages may include higher unit costs, smaller production scale, limited technical capability, or concentrated local capacity.

Global sourcing can provide access to lower production costs, specialist technology, larger capacity, and diversified supply markets. Its apparent savings can be eroded by ocean freight, customs duties, inventory in transit, longer replenishment times, currency movements, geopolitical risks, quality surveillance, and carbon impacts.

A global sourcing decision should therefore compare landed and risk-adjusted cost rather than ex-works price:

Where P is purchase price; F freight; D duties and taxes; T transaction and customs costs; I inventory carrying cost caused by pipeline stock; Q quality-related cost; H handling and administration; G costs associated with governance, audits, and compliance; and R expected risk cost. Each component must be expressed in a common currency and period.

Local versus global is not a binary choice. Firms may use regional hubs, nearshoring, supplier manufacturing in one country with final assembly locally, or a “China plus one” or equivalent diversification strategy. The appropriate configuration depends on product value density, demand uncertainty, lead-time sensitivity, regulatory requirements, and resilience objectives.

5. Category Management

Category management organises procurement around groups of goods and services with related supply markets, demand patterns, technologies, or strategic implications. It replaces fragmented, department-by-department buying with an enterprise view.

A category strategy normally includes:

1. Spend analysis: who buys what, from whom, at what price, and under which terms.
2. Demand analysis: specifications, volumes, usage patterns, demand drivers, and opportunities to eliminate unnecessary demand.
3. Supply-market analysis: supplier structure, capacity, cost drivers, innovation, regulation, and market power.
4. Portfolio positioning: risk and business impact, including criticality and substitutability.
5. Strategic options: standardisation, bundling, competition, collaboration, redesign, localisation, or vertical integration.
6. Implementation: sourcing event, negotiation, contracting, transition, and stakeholder adoption.
7. Performance management: savings validation, service levels, innovation, sustainability, and risk indicators.

Category managers must distinguish price savings from total value. A specification change that lowers purchase price but increases failure, maintenance, or warranty cost is not a genuine improvement. Likewise, aggregating volume may improve price but reduce flexibility for entrepreneurial business units.

A category strategy should include a fact base, explicit assumptions, stakeholder requirements, supplier-market intelligence, a risk register, and measurable outcomes. Cross-functional participation is essential because engineering, operations, finance, legal, sales, information security, and sustainability teams may experience different consequences from the same sourcing decision.

6. Total Cost of Ownership

Total cost of ownership evaluates the full economic consequence of acquiring, using, and retiring an item or supplier relationship. It is especially valuable when purchase price is a small portion of lifetime cost.

A general undiscounted representation is:

The terms represent acquisition, logistics, installation, operating, maintenance, quality, risk, and disposal costs; V_residual is residual or recovery value. For multi-year decisions, future costs should normally be discounted:

Here, C₀ is the initial cost, C_t is cost incurred in year t, r is the appropriate discount rate, n is the analysis horizon, and V_n is terminal value. The formula assumes costs and benefits are measured consistently and that the discount rate reflects the organisation’s opportunity cost and risk policy.

Supplier comparison using TCO

Supplier A quotes $48 per unit. Supplier B quotes $51. For 5,000 units, A has freight of $4 per unit, an expected quality cost of $2.50 per unit, and administration of $1 per unit. B has freight of $2.50, quality cost of $0.80, and administration of $1.20.

A’s TCO per unit is:

48 + 4 + 2.50 + 1 = $55.50

B’s TCO per unit is:

51 + 2.50 + 0.80 + 1.20 = $55.50

Both suppliers have equal estimated TCO of $277,500. The decision must therefore use other criteria, such as resilience, capacity, innovation, contract terms, and ethical performance. This example illustrates why list price alone is an incomplete decision measure.

Expected cost is useful but uncertain. Quality cost estimates may be based on sparse data, and disruption probabilities may be subjective. Scenario analysis should supplement point estimates. Managers can calculate TCO under optimistic, base, and adverse scenarios and examine which supplier remains acceptable across conditions.

7. Supplier Selection Models

7.1 Weighted-score method

The weighted-score method converts several criteria into a transparent composite score. Let supplier j receive a normalised score s_ij on criterion i, with criterion weights w_i, where weights sum to one. The supplier’s total score is:

Scores must be defined consistently. For example, a five-point scale may mean 1 = unacceptable and 5 = excellent. Criteria can include TCO, quality, delivery, capacity, innovation, sustainability, financial health, and information security.

Example:

Supplier A: (0.30×4)+(0.25×5)+(0.20×4)+(0.15×3)+(0.10×4)=4.05. Supplier B: (0.30×5)+(0.25×4)+(0.20×3)+(0.15×5)+(0.10×3)=4.10. B ranks slightly higher, but the narrow difference should not be treated as decisive without examining data quality and minimum requirements.

The model is compensatory: a low score on one criterion can be offset by a high score on another. That is inappropriate where a criterion is a threshold. For instance, a supplier failing a regulatory requirement should be excluded even if its price is attractive. Use eligibility gates before weighted scoring.

7.2 Normalisation and data quality

When criteria use different units, raw values cannot be added directly. For a benefit criterion, such as reliability:

For a cost criterion, such as TCO:

These min–max formulas produce scores from 0 to 1 when observed values lie within the specified range. They are sensitive to outliers and to the selected comparison set. An organisation may instead use target-based scoring or an anchored expert scale. The method should be documented and applied consistently.

7.3 Multicriteria decision analysis

Multicriteria decision analysis (MCDA) is a family of methods for decisions involving conflicting objectives. Beyond weighted sums, organisations may use the analytic hierarchy process, outranking methods, goal programming, or data-envelopment approaches. The selection of method should match the decision context.

• Weighted sum: simple, transparent, and useful when trade-offs are acceptable.
• Analytic hierarchy process: structures pairwise comparisons and can test consistency, but may become burdensome with many criteria and can reflect judgemental bias.
• Outranking methods: allow a supplier to be preferred without assuming complete compensability, but may be difficult to explain to non-specialists.
• Goal programming: evaluates alternatives against aspiration levels and constraints, useful where minimum service and budget targets are explicit.

MCDA does not remove managerial judgement. It makes assumptions visible. A robust decision tests sensitivity: how much must a weight or score change before the preferred supplier changes? If a small plausible change reverses the ranking, the decision is fragile and should be supported by negotiation, pilot testing, or dual sourcing.

8. Supplier Due Diligence and Governance

Selection is only the beginning of supplier management. Due diligence should verify legal identity, ownership, financial health, insurance, capacity, quality systems, cybersecurity, labour practices, environmental controls, sanctions exposure, and subcontracting arrangements. Evidence should be proportionate to risk; a critical medical component warrants more scrutiny than a low-value stationery item.

Contracts should define specifications, service levels, inspection rights, audit rights, change-control procedures, intellectual-property ownership, confidentiality, data protection, business continuity, remedies, termination, and transition assistance. Service-level agreements should contain measurable indicators such as defect rate, on-time-in-full delivery, response time, recovery time, and corrective-action closure.

A supplier performance scorecard should avoid excessive metrics. A compact scorecard might include:

• quality acceptance rate;
• on-time-in-full delivery;
• lead-time adherence;
• forecast and capacity responsiveness;
• cost and invoice accuracy;
• corrective-action effectiveness;
• safety, environmental, and labour indicators;
• innovation and continuous-improvement contributions.

Governance must balance control and collaboration. Excessively adversarial contracts can encourage concealment and short-term behaviour. Excessively trusting relationships can create dependency and weak accountability. Clear escalation paths, open-book costing where justified, joint risk reviews, and executive-level relationship management can support a more productive balance.

9. Ethics, Sustainability, and Regulation

Supplier selection can create ethical risks when buyers use coercive price pressure, ignore unsafe labour, conceal conflicts of interest, or shift environmental harm to less visible tiers. Ethical sourcing requires fair competition, documented evaluation criteria, segregation of duties, conflict-of-interest declarations, and reliable whistleblowing channels.

Sustainability assessment should address material issues rather than rely on unverified claims. Depending on the category, relevant factors include greenhouse-gas emissions, energy and water use, hazardous materials, circularity, human rights, modern slavery, wages, occupational safety, and community impacts. Supplier codes of conduct are insufficient without risk-based verification and remediation.

Regulatory obligations vary by jurisdiction and category. They may include competition law, anti-bribery rules, sanctions and export controls, product safety, privacy and cybersecurity, environmental disclosure, and modern-slavery reporting. Procurement professionals should involve legal and compliance specialists where obligations are material. A supplier’s certification is evidence, not proof of continuing performance.

10. Technology and AI in Sourcing

Digital procurement platforms can consolidate spend, automate purchase orders, monitor contract compliance, and provide supplier-performance dashboards. Market-intelligence tools can identify price movements and capacity signals. Artificial intelligence may assist with classification, demand analysis, contract search, risk alerts, and supplier-document review.

However, AI outputs can reproduce biased historical decisions, misclassify suppliers, expose confidential information, or generate unsupported risk conclusions. Human review is required for high-impact decisions. Organisations should document data sources, model limitations, access controls, audit trails, and escalation procedures. AI should augment—not replace—commercial judgement, stakeholder consultation, and due diligence.

11. Illustrative Case: Northstar Mobility

Background

Northstar Mobility, an illustrative electric-bicycle scale-up, sources battery-management modules from one overseas supplier. The supplier offers a low unit price and has supported early product development. Northstar is preparing to triple annual production and enter two regulated markets.

Problem

Recent port congestion caused a six-week delay. Engineering also identified inconsistent firmware documentation. The incumbent supplier proposed a price increase, citing component shortages. A local supplier can deliver faster but quotes a higher price and has limited production history.

Analysis

Northstar’s team first classified the module as a strategic item: its business impact is high, supply risk is high, and failure could create safety and regulatory exposure. It then conducted a TCO comparison including freight, pipeline inventory, quality inspection, engineering support, warranty exposure, and disruption scenarios. The team also applied eligibility gates: regulatory conformity, cybersecurity controls, traceability, and minimum capacity.

The overseas supplier scored strongly on engineering collaboration and price but weakly on lead-time resilience and documentation. The local supplier scored strongly on responsiveness and regulatory communication but weakly on capacity and financial scale. A third regional supplier was identified through market research.

Approach and solution

Northstar chose a qualified dual-sourcing arrangement: 65% of volume remained with the incumbent and 35% was allocated to the local supplier, subject to a production pilot. The contract required firmware documentation, change notification, continuity planning, and quarterly capacity reviews. Northstar funded limited tooling at the local supplier but retained ownership of the tooling. Engineering standardised the interface so that modules could be substituted without redesigning the entire product.

Outcome

The arrangement increased apparent purchase cost but reduced dependence, improved documentation, and created a validated recovery option. After the pilot, the local supplier demonstrated acceptable quality and Northstar retained the option to increase its share if geopolitical or logistics risk rose. The result was not the cheapest nominal arrangement; it was a more resilient risk-adjusted supply system.

Learning points

1. Strategic importance can justify a second source even when unit cost rises.
2. Interface standardisation reduces switching cost.
3. Qualification gates are essential for safety and regulatory items.
4. TCO and scenario analysis reveal value that price comparison misses.
5. Supplier development can be an investment in strategic flexibility.

12. Implementation Road Map and Limitations

A disciplined sourcing project can follow this sequence:

1. Define the business need and specification.
2. Analyse spend, demand, and internal capabilities.
3. Map supply-market structure and risk.
4. Decide make-or-buy and sourcing architecture.
5. Establish eligibility gates and evaluation criteria.
6. Gather supplier evidence through a request for information or proposal, audits, and technical validation.
7. Calculate TCO and conduct scenario and sensitivity analysis.
8. Negotiate commercial, operational, legal, and governance terms.
9. Pilot, qualify, and transition without disrupting operations.
10. Monitor performance and revisit the category strategy.

Important limitations remain. Cost data may be incomplete; supplier self-reporting may be optimistic; scoring weights can embed managerial bias; disruption probabilities are difficult to estimate; and rankings can create false precision. Strategic decisions also involve nonquantifiable considerations such as trust, learning, reputation, and future innovation. Quantitative models should therefore structure discussion, not conceal uncertainty or replace accountable judgement.

Chapter Summary

Strategic sourcing aligns external supply decisions with organisational strategy, operational performance, resilience, innovation, and responsible conduct. Make-or-buy analysis should use relevant costs and consider capacity, opportunity cost, transaction costs, strategic capabilities, and risk. Single sourcing can support scale and collaboration, whereas multiple sourcing can reduce dependence and improve continuity; neither is universally superior.

Local and global sourcing should be compared using landed, total, and risk-adjusted cost rather than quoted price alone. Category management integrates spend analysis, demand management, supply-market intelligence, portfolio positioning, implementation, and performance governance. Total cost of ownership captures acquisition, logistics, operating, quality, risk, and end-of-life effects, with discounting where decisions span multiple periods.

Weighted-score models and broader MCDA methods make trade-offs explicit, but they depend on valid data, defensible weights, eligibility gates, and sensitivity analysis. Effective supplier selection continues through due diligence, contracts, performance measurement, ethical oversight, sustainability verification, and resilience planning. Technology and AI can improve visibility and analysis, provided that privacy, bias, explainability, and human accountability are maintained.

Key Terms

Strategic sourcing: Designing and managing external supply to create long-term organisational value.

Purchasing: The transactional process of acquiring goods or services.

Make-or-buy decision: The choice between internal production and external supply.

Relevant cost: A future cost that differs between decision alternatives.

Opportunity cost: The value of the best alternative use of a resource.

Single sourcing: Obtaining a category or item from one principal supplier.

Multiple sourcing: Obtaining an item or category from two or more suppliers.

Dual sourcing: A multiple-sourcing arrangement involving two qualified suppliers.

Supply risk: The likelihood and consequence of interruption or adverse supplier conditions.

Category management: Managing related spend as a strategic portfolio rather than as isolated transactions.

Total cost of ownership: The full lifecycle cost of acquiring, using, managing, and disposing of an item or relationship.

Landed cost: Purchase price plus logistics, duties, handling, and related inbound costs.

Weighted-score model: A decision model that combines criterion scores using assigned weights.

Multicriteria decision analysis: A set of methods for evaluating alternatives against multiple objectives.

Eligibility gate: A mandatory requirement that must be satisfied before comparative scoring.

Supplier due diligence: Investigation of a supplier’s capability, integrity, compliance, and risk.

Supplier development: Deliberate support to improve a supplier’s capability or performance.

Resilience: The ability of a supply system to absorb disruption and recover effectively.

Supplier governance: The structures, contracts, processes, and relationships used to control and improve supplier performance.

Review Questions

Short Answer Questions

1. What distinguishes strategic sourcing from transactional purchasing?
2. Why are unavoidable fixed costs normally excluded from a short-run make-or-buy analysis?
3. State two benefits and two risks of single sourcing.
4. What cost categories should be included in total cost of ownership?
5. Why should eligibility gates be used before applying a weighted-score model?

Long Answer Questions

1. Explain how transaction-cost economics and the resource-based view can inform a make-or-buy decision.
2. Compare local and global sourcing using commercial, operational, strategic, and sustainability criteria.
3. Describe the stages of an effective category-management process.
4. Explain the strengths and limitations of weighted-score and other multicriteria supplier-selection methods.
5. Discuss how supplier contracts, performance measures, ethics, and resilience planning contribute to effective supplier governance.

Analytical / Application Questions

1. A firm can make a component for $6.80 per unit plus $25,000 avoidable fixed cost, or buy it for $8.90 per unit plus $4,000 coordination cost. Calculate the break-even quantity and explain two nonfinancial factors that could change the decision.
2. Design a supplier-selection model for a safety-critical component. Specify at least five criteria, their proposed weights, mandatory eligibility gates, and a sensitivity test.
3. An organisation relies on one low-cost overseas supplier whose location, port, and raw-material source are all exposed to the same disruption. Recommend a sourcing architecture and justify it using TCO, resilience, and governance considerations.

Multiple Choice Questions with Answers

Question 1

Which cost is normally relevant in a short-run make-or-buy decision?

A. A fixed cost that continues regardless of the decision

B. An avoidable fixed cost caused by internal production

C. A historical cost already incurred

D. The supplier’s unrelated marketing expense

Correct Answer: B. An avoidable fixed cost caused by internal production

Question 2

What is a principal advantage of multiple sourcing?

A. It always produces the lowest unit price

B. It eliminates all coordination costs

C. It can reduce dependence on a single supplier

D. It guarantees identical quality across suppliers

Correct Answer: C. It can reduce dependence on a single supplier

Question 3

Which expression best represents total cost of ownership?

A. Quoted unit price only

B. Quoted price minus supplier profit

C. Acquisition, lifecycle, quality, risk, and disposal costs less residual value

D. Annual purchase volume divided by inventory

Correct Answer: C. Acquisition, lifecycle, quality, risk, and disposal costs less residual value

Question 4

In a weighted-score model, what must the criterion weights normally sum to?

A. 0

B. 0.5

C. 1

D. 1000

Correct Answer: C. 1

Question 5

Why should a regulatory requirement often be treated as an eligibility gate?

A. It allows price to compensate for noncompliance

B. It prevents an unacceptable supplier from winning through high scores elsewhere

C. It eliminates the need for supplier audits

D. It guarantees the supplier will innovate

Correct Answer: B. It prevents an unacceptable supplier from winning through high scores elsewhere

Question 6

A supplier has a purchase price of $20, freight of $3, quality cost of $2, and administration cost of $1 per unit. What is its simplified TCO per unit?

A. $20

B. $23

C. $25

D. $26

Correct Answer: D. $26

Question 7

Which situation most strongly supports strategic collaboration with a supplier?

A. A standard commodity with many interchangeable suppliers

B. A routine office item with negligible business impact

C. A critical component requiring joint engineering and specialised assets

D. A one-time purchase with no technical requirements

Correct Answer: C. A critical component requiring joint engineering and specialised assets

Question 8

What is a major limitation of a compensatory weighted-score model?

A. It cannot use numerical information

B. A poor score on one criterion may be offset by strong scores elsewhere

C. It requires no managerial judgement

D. It can only evaluate price

Correct Answer: B. A poor score on one criterion may be offset by strong scores elsewhere

Question 9

Which statement about global sourcing is most accurate?

A. The lowest quoted price is always the lowest total cost

B. Global sourcing eliminates currency and geopolitical risk

C. Global sourcing should be assessed using landed and risk-adjusted cost

D. Global sourcing cannot support resilience

Correct Answer: C. Global sourcing should be assessed using landed and risk-adjusted cost

Question 10

What is the purpose of sensitivity analysis in supplier selection?

A. To hide uncertainty in the scoring model

B. To determine whether plausible changes alter the preferred supplier

C. To remove all qualitative criteria

D. To ensure the highest-price supplier wins

Correct Answer: B. To determine whether plausible changes alter the preferred supplier