CID3001: Supply Chain Management

Semester 1 2021/2022

Lecturer: Dr. Marini Nurbanum Mohamad

Case Study 1: 3 Bees Buttermilk Corporation & Supplier Selection

Group 1; Wednesday 9-12

Members:

Olivia Crowther 17200860/1

CID3001: SCM CASE STUDY 1 Report

Contents
1.0. Introduction...............................................................................................................................1
2.0. Solution to Question 1...............................................................................................................1
2.1. Location.................................................................................................................................2
2.1.1. Delivery Lead Time.......................................................................................................2
2.1.2. Transportation................................................................................................................3
2.2. Quality...................................................................................................................................5
2.2.1. Flexible..........................................................................................................................5
2.2.2. Up-to-date......................................................................................................................5
2.2.3. Compliant......................................................................................................................6
2.2.4. Continuous Improvement...............................................................................................6
3.0. Solution to Question 2...............................................................................................................7
3.1. ESI Activities.........................................................................................................................7
3.1.1. Defining Needs and Goals.............................................................................................7
3.1.2. Outline the Program Requirement & Share Project’s Technical Information................7
3.1.3. Vendor-managed Inventory...........................................................................................8
3.1.4. Supplier Co-location......................................................................................................8
3.2. Benefits of ESI.......................................................................................................................8
3.2.1. Simplified Project Logistics...........................................................................................8
3.2.2. Creative Solutions..........................................................................................................8
3.2.3. Reduce Lead Times........................................................................................................9
3.2.4. Reduce Costs.................................................................................................................9
4.0. Solution to Question 3...............................................................................................................9
4.1. Definition...............................................................................................................................9
4.2. Application in SCM.............................................................................................................10
4.3. Factors.................................................................................................................................10
4.4. Qualitative...........................................................................................................................10
4.4.1. Pre-transaction Costs....................................................................................................10
4.4.2. Transaction Costs.........................................................................................................11
4.4.3. Post-transaction Costs..................................................................................................11
4.5. Quantitative.........................................................................................................................12
4.5.1. Pre-transaction Costs....................................................................................................12
4.5.2. Transaction Costs.........................................................................................................13
4.5.3. Post-transaction Costs..................................................................................................14
5.0. Conclusion...............................................................................................................................15
6.0. References...............................................................................................................................16
CID3001: SCM CASE STUDY 1 Report

1.0. Introduction
3 Bees Buttermilk Corporation is a large multinational corporation operating in the food
industry. The company originally started out selling Buttermilk, but have expanded their
food offerings. They source their supplies from around the globe, and as the company is
pursuing a low-cost leadership strategy, they are seeking to find the best suppliers to
acquire raw materials at competitive prices and with capabilities that can enhance efficiency
and effectiveness throughout the company’s value chain. Supplier selection has thus become
a major concern for 3 Bees Buttermilk Corporation.

Supplier selection is a process carried out to determine the best supplier(s) when making
a purchase. Supplier selection plays a significant role in decision making related to supply
chain management (SCM) field issues. When engaging in supplier selection, the objectives of
3 Bees Buttermilk Corporation dictates the types of suppliers chosen. The directors of the
company prioritise communication capabilities, reliability, Total cost of Ownership,
supplier process, product technology & sharing, and supplier involvement. The use of
proper supplier selection can increase the efficiency and effectiveness of sales activities, and
can reduce costs, increase profitability, reduce production times, and time to market. In
addition, the wrong selection of suppliers can cause losses.

Selecting the best supplier is a major challenge due to the numerous activities that need to be
conducted in the selection process. An effective way to select the best supplier is to determine
the method of subcontracting, set the initial qualifications of the prospective supplier,
prepare a request for a quote and analyse the offers received. Following this, the
supplier(s) will be selected. 3 Bees Buttermilk corporation’s policies on supplier selection
requires that they source suppliers that have desired dimensions such as production capacity
and flexibility, technical capabilities and support, information and communication
systems, financial status, innovation and R&D. Their scope on selecting the best supplier
is that they need suppliers who can facilitate short lead times or methods of preservation to
maintain quality and reduce wastage of food products at the lowest possible cost.

2.0. Solution to Question 1

Obtaining the right suppliers for a company is critical to establishing a strong supply chain.
Choosing the incorrect supplier might result in delays, substandard goods, and excessive
product returns.

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2.1. Location
One of the important factors in selecting a supplier is location. Location is a big factor to
consider, as it impacts delivery lead-time, transportation, and logistical costs. If the
corporation is a local venture that has established its branding on expertise in the local
region and sets a greater emphasis on the local market, it is best to focus on selecting a
supplier that is close and supports the business principles that the company promotes. If
the business looking to expand internationally and approach a broader market like 3
Bees Buttermilk Corporation, then supplier selection becomes a global matter. For 3 Bees to
succeed in global sourcing for their brand expansion, the impact of supplier location has to
be critically analysed so that it can mitigate risks to their business and enhance the
sustainability of their production. Delivery lead-time and mode of transportations are the
primary components in determining the suitable supplier to procure materials for 3 Bees
production. 

2.1.1. Delivery Lead Time 

According to the Dictionary of International Trade, delivery lead time is defined as “the
time from the receipt of a customer order to the delivery of the product.” Lead time is a
key performance indicator (KPI) used in supply chain management (SCM) to identify if there
are any errors in the purchasing, handling, and selling of items. Companies need to shorten
lead times through improving operations and increasing efficiency to increase sales. Longer
lead times might have an adverse impact on purchasing, production, and sales. Precise
understanding of supplier lead time advises companies on how much stock they should hold
at any given time to avoid imprecise inventory management and documentation, delays
in the production process, and logistics difficulties that can halt production. Shorter lead
times allow companies to hold less inventory, is indicative of higher turnover, and reduces
time-to-market, leading to higher revenues, better reputation, and more efficient
operations.

It is essential for 3 Bees to understand their supplier lead-time to receive all of the benefits
mentioned and reduce their operating costs. With shortened lead time, the corporation can
save inventory costs if the supplier can quickly deliver the goods. Inventory costs included
the costs of processing, storing, and managing stored commodities before they are sold. As
a result, less inventory implies more cash available. To reduce lead time, 3 Bees can
consider sourcing locally or near their factories. It is more efficient if the location of the

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supplier is near the production site to achieve a faster lead time. If they outsource most of
their materials, the supplier may ship across states or borders, which may result in additional
delays, customs processes, and lengthier transit time, all of which result in a longer lead
time.

2.1.2. Transportation 

Transportation in a supply chain translates to the movement of items from one point to
another, which starts at the beginning of the supply chain with commodities finding their
way to the warehouse and continues all the way to the end-user with the customer's order
delivered at the door. Transportation is a crucial factor to consider when choosing the
proper supplier. Businesses must assess the transportation function based on a mix of
transportation costs, additional costs such as inventory influenced by logistics options,
and customer response. Since 3 Bees does a lot of outsourcing, it is even more important for
the corporation to utilise transportation resources in the right way. Road, maritime, rail and
air shipments are the four basic modes of transportation in logistics. While each of these
forms of transportation has its advantages, determining which is best for 3 Bees necessitates
careful analysis.

2.1.2.1. Road Transportation

Truck freight is the most important mode of road transportation. Truck transportation is
suitable for sectors that demand swift, modest shipments right to the door of a business,
warehouse, or customer, and it is suited to handle potential delays. 3 Bees have a variety of
alternatives when it comes to truck freight. There are numerous specialised trucking
companies that can transport perishable, dangerous, or oversized products that are
appropriate for their manufacturing process. As opposed to other kinds of transportation,
truck freight has fewer restrictions and is more cost-effective due to lower fuel and
maintenance costs. Road transportation is also easily available since most businesses have
free access to the main road. However, truck freight takes longer and is more subject to
shipping delays than other modes of transportation, and road driving can be hazardous at
times.

2.1.2.2. Marine Transportation 

Ship transportation is typically the best option for firms that need to carry huge, bulky
cargo or ship internationally. Compared to air transportation, ships can carry far bigger

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cargoes at a fraction of the expense. It is the primary mode of transport for big objects being
sent in bulk. Marine transportation can help improve shipment safety since ships follow a
predetermined route and schedule. Although ships can carry considerably heavier loads
and may be safer for delivering fragile items than other modes of transportation, maritime
shipping takes significantly longer. It is not often the ideal shipping option for firms that
require quick service.

2.1.2.3. Rail Transportation 

Rail transportation is great for businesses that need quick, scheduled ground freight.
Trains follow a set timetable, rendering trains a predictable and dependable mode of
transportation. Train shipments are frequently less sensitive to delays that afflict truck
freight, such as traffic congestion or poor weather because railways run independently. Rail
transit, on the other hand, is slower than truck and air freight, and it frequently necessitates
many transfers along the transportation process. Furthermore, not every place has access to
train tracks, so rail transit nearly always necessitates the use of other modes of
transportation to transfer items.

2.1.2.4. Air Transportation 

Air freight is the greatest option for firms that want quick, uncomplicated delivery. Air
transport is available across much of the world and is perfect for items that must be carried
promptly over vast distances, particularly internationally. Under most conditions, air
transport is substantially faster than ship and truck delivery, despite the likelihood of
occasional flight delays. Furthermore, aircraft follow a strict timetable. This dependability
comes in handy when it comes to shipping, especially for perishable commodities that require
frequently overnight delivery. Planes provide this speed with little to no sacrifice in product
quality, giving ideal protection and safe handling, and minimal intervention during flight.
However, because of the greater cost of fuel and extra charges such as tickets, maintenance,
inspections, special handling fees for particular products, and shipping containers, air
transport is more expensive than other transport.

The ideal mode of transportation for 3 Bees would be road transportation if most of their
preferred suppliers are local, and air transportation if they source internationally.
Trucks are the most cost-effective alternative for 3 Bees when ground logistics are a
possibility and assured speedy delivery is not necessary. However, looking at the global

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expansion they are moving towards, the corporation needs to think about the cost as an
investment to rely on fast shipments, which air transport is ideal for. For food-related items
such as dairy products, it is better to have speedy transportation as it will help to maintain
the quality of the ingredients. 3 Bees can utilise a responsive transportation system that
employs cross-docking—the exchange of a product between trucks so that each vehicle
delivers items from various suppliers to the set locations. 3 Bees can reduce overall
expenses while increasing performance and dependability by employing this strategy.

2.2. Quality
The quality of the supplies must be consistent since customers associate low quality with
the business, not the suppliers, and quality is critical in the food industry. There are four
components in finding quality suppliers - they should be flexible, current, compliant, and
continuously improving. 

2.2.1. Flexible
Good suppliers can adjust to changes. It is important for 3 Bees Buttermilk Corporation to
find flexible suppliers to meet an accommodate their expansionary activities.
Digitalisation can enable flexibility. Company business models are altering as a result of
digitalisation, which provides new profit prospects. For example, through Big Data
Analytics and cloud computing, 3 Bees Buttermilk Corporation can develop an
interconnected real-time centralised platform to share information throughout the supply
chain related to demand orders, and changes in delivery destinations, reducing the
occurrence of the bullwhip effect and increasing supplier responsiveness (Alicke, K. et
al., 2020).

2.2.2. Up-to-date
A good supplier is cognizant of current trends for adaptation and current information.
Records should be current, such as insurance certificates, financial performance, health and
safety, environmental policy, or completed training courses. This allows the supplier to keep
track of regulations and documentation, and allows the buyer to make more informed
selections. Within the food industry, customers engage with food based on trends such as
boba milk tea and cheesy foods, and food regulators, such as the FDA, are constantly
updating their guidelines and requirements. 3 Bees Buttermilk and its suppliers should
coordinate to capitalise on new food trends to attract customers. Currently, salted egg

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buttermilk is very popular. Suppliers and 3 bees can arrange to produce instant salted egg
buttermilk powder products for customer ease and affordability. 

2.2.3. Compliant
Buyers must be confident that suppliers will not introduce more risk to company risk
profiles. The primary approach to accomplish this is to confirm that the supplier is
functioning in accordance with the law. Ethical compliance is insufficient on its own. The
supplier must be able to comply with the legislation of the nation where the items are
manufactured and shipped. Working with a supplier that is not compliant may result in legal
issues. A reputable supplier should operate lawfully, with all necessary permits and
accreditation. Food regulations include minimum quality requirements to guarantee that the
foods are not employing any fraudulent methods designed to fool the customer. Food
legislation should encompass the whole supply chain, starting with rules for animal feed,
on-farm restrictions, early processing, and finally distribution and customer use. For
example, the supplier of 3 Bees Buttermilk should follow food regulations by FDA such as
Final Food Labelling Regulations. The FDA releases uniform compliance dates for new
food labelling rules on a regular basis in order to reduce the economic burden on the food
business of having to respond independently to each labelling change.

2.2.4. Continuous Improvement

If a business is pursuing a long-term supplier relationship, those suppliers should prioritise
continuous improvement. A great supplier should be quality-conscious with a quality
control system meeting required standards. 3 Bees should consider the supplier’s efforts
towards reducing waste and enhancing efficiency in their production, and whether the
supplier takes adequate measures to prevent mistakes from occurring in the future. Reviewing
feedback from other businesses using these suppliers can provide answers to these
considerations. The suppliers should demonstrate to buyers that their organisation is
committed to continual improvement by learning from the audit results and achieving
better audit scores year-on-year. For example, in the food industry, an innovation for food
preservation called Isochoric freezing is a revolutionary method with minimal energy needs
that keeps food at subfreezing temperatures without causing harm through ice crystal
development within the product. It has a lot of promise for application in higher-quality food
production and preservation. Future work will most likely concentrate on the design and
production of industrial-scale isochoric freezing chambers that can meet industrial

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demands while being cost-effective. Since 3 Bees wants to increase their food product
offerings, they may consider seeking suppliers using or pursuing this innovative technology
for more efficient production related to buttermilk and frozen food offerings.

3.0. Solution to Question 2

The concept of Early Supplier Involvement (ESI) is widely used by businesses and is best
described as a vertical collaboration between supply chain partners in which the
organisation involves the supplier at the early stage of its product development process.
(Mikkola and Skjott-Larsen, 2006; Van Weele, 2010). Involving suppliers in cross-
functional teams at early stages of product development could create significant long-term
benefits for both production and supply chain management. Typical ESI activities, can be
seen with Vendor-managed inventories and Supplier co-location.
3.1. ESI Activities
3.1.1. Vendor-managed Inventory

Vendor managed inventory (VMI) is a supply chain agreement between the

manufacturer/supplier and its customers where the supplier takes control of the inventory
management decision on behalf of its customers (seller or retailer) (Chartered Institutes of
Procurement & Supply, 2021). However, for this activity to be applied successfully in a
business, they have to provide sufficient data on sold items to the distributor. To enhance the
success of VMI, upstream and downstream agents need to plan collaboratively.
Subsequently, 3 Bees should seek suppliers who focus on quality forecasting such as safety
stocks and lead time, to enhance 3 Bees time to market, while reducing the potential impact
of the bullwhip effect. VMI would ensure timely delivery of perishable goods, thus reducing
food wastage costs.
3.1.2. Supplier Co-location

Supplier colocation is the process of permanently placing a supplier employee in the

business purchasing department, granting them access to inventory and demand data, and
allowing them to make purchasing decisions. By doing so, suppliers are able to get real
time inventory data from 3 Bees, enhancing communication capabilities, response times,
and transparency. This can reduce time to market, and facilitate JIT inventory
management – leading to cost reduction and greater efficiency.

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3.2. Benefits of ESI

3.2.1. Simplified Project Logistics

Arranging for a product to reach a certain location within a limited timeframe can be a major
problem and logistical nightmare. 3 bees would be most prone to needing deliveries to be
expedient and avoid delays due to the perishable nature of their raw materials, so having a
supplier involved who can help to minimise traffic interruptions is important. Utilising a
supplier who conducts night deliveries can help in avoiding traffic. Similarly, ESI related
to communications of delivery timetables, warehouse locations, and storage policies can
enhance preservation activities and avoid delays.
3.2.2. Creative Solutions & Response Times
With ESI, there is a greater sharing of expertise and skills. As a global company, 3 Bees is
faced with various market forces and changing consumer expectations that require adaptive
solutions. In the case of 3 Bees, who are sourcing raw materials, their major concern would
be in relation to logistics disruptions. Having ESI can provide solutions and response times
to delivery delays. For example, during the pandemic, shipping and delivery operations were
halted. With ESI, 3 Bees could adapt delivery schedules, routes, and inventory demand to
accommodate the unexpected change.

3.2.3. Reduce Lead Times

ESI can enhance logistics decisions and operations through communication and
transparency. As seen with activities like VMI and Supplier Colocation, JIT inventory
management can be adopted for lean processes, while ensuring that all parties are aware of
delivery deadlines and storage locations. This reduces lead time and time to market.
This is especially important for 3 Bees, as it reduces costs through lean operations, reduces
wastage through spoilage of goods, and enhances value creation through meeting
customer demand in a timely manner.
3.2.4. Reduce Costs & Enhance Profit Margins

ESI can assist in reducing various costs of production. For 3 Bees, this would be in relation to
storage, wastage, and logistics costs, as the company can coordinate their inventory demand
with the supplier in real time, utilising JIT inventory management, reducing storage costs
and the risk of spoilage. With reduced costs and leaner management, 3 bees may also
experience better profit margins, as the coordination facilitates shorter lead times and time

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to market, thus meeting greater consumer demand, generating higher revenues. Coupled with
lower costs, this leads to enhanced profit margins.
3.2.5. Increase Quality
Increased product quality is a staple of ESI. As suppliers are able to access real time
inventory management data, and thus reduce lead times through coordinated logistics
activities, 3 bees will be able to produce goods from fresher raw materials – due to fewer
delays in delivery and shorter storage periods – raising the quality of their products without
necessarily incurring extra costs. 3 Bees could also pursue potential preservation practices
with their suppliers, such as newer preservation techniques like isochoric freezing to reduce
spoilage of raw materials and mutually benefit both parties.

4.0. Solution to Question 3

Identify qualitative and quantitative factors that are taken into consideration when looking at
the total cost of ownership.
4.1. Definition
Total Cost of Ownership (TCO) refers to all the costs associated with a product purchased
from a supplier, and is a performance metric utilised by businesses in determining costs and
measuring supplier performance related to cost reduction. TCO is comprised of the
purchase price of goods plus any other costs incurred prior to and after the delivery of
the goods [1]. These costs can be defined as pre-transaction, transaction, and post-
transaction costs. Pre-transaction costs are all the costs incurred prior to goods and services
being ordered. Transaction costs are the costs incurred when fulfilling orders of the good or
service. Post-transaction costs are the costs incurred when the goods or services have been
provided to the customer [6].

4.2. Application in SCM

TCO within Supply Chain Management (SCM) is an important performance metric and
evaluation tool when selecting suppliers. TCO highlights the costs that may be incurred with
certain suppliers, and thus provides information that allows for more efficient and cost-
effective purchase decisions. It is also likely to help in supplier relationship management,
as pre-emptively considering qualitative factors, such as reputation and quality, can lead to
selected suppliers being more reliable, thus fostering a culture of transparency,
communication, and trust, enhancing the value creation of their global supply chain [11].

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4.3. Factors
TCO has both qualitative and qualitative factors that need to be considered when determining
TCO [1,2,3,5,6].

4.4. Qualitative
Qualitative factors are the factors that are more difficult to assess and cannot be easily
measured. These factors are in relation to supplier qualification, time costs, and problem
solving.

4.4.1. Pre-transaction Costs

4.4.1.1. Supplier certification
Supplier certification refers to the process of determining the level of quality, experience,
and reputation of a supplier. This is important, as the reliability and quality of a supplier
directly translates to value creation for a business in its supplier relationships, while
reducing the risk cost [19]. 3 Bees needs to ensure their suppliers are certified, as the benefits
of certified supplier selection has shown to result in “a general reduction in costs incurred by
discards and external defects, and a growth in both inspection and prevention costs”,
punctuality and on-time delivery [30]. Supplier certification for 3 Bees is also important as
an international company, and are likely to possess a complex supply chain due to numerous
suppliers, but as [30] has shown, with greater certification comes greater trust and
information exchange. This will subsequently enhance value creation within their global
supply chain, so 3 Bees should prioritise efforts to select certified suppliers.

4.4.2. Transaction Costs

4.4.2.1. Deadline & Product quality
Deadline quality refers to the ability of the supplier to meet delivery deadlines of the
product. The product quality of suppliers refers to the condition of purchases. Both costs
are important components in supply chain quality management, with interconnectivity being
noted by [31] between JIT, Total Quality Management (TQM) and SCM generating
value through “integrated material flow system”, quality through SCM and SC capabilities,
and enhancing product development through SC integration. [31] highlights that managing
the SC is assisted by “rationalizing the supplier base and focusing on suppliers committed to
the ideals of lean production.” The reliability of a supplier is important in ensuring trust
in supplier relationships, and is necessary to maintain efficiency and reduce potential spoilage
of raw materials or time wastage in production that can negatively impact lead times [28]. For

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3 Bees, the company should ideally employ JIT inventory management to reduce storage
and wastage costs [29] and should select suppliers who prioritises time management,
communication, and product quality for a cost-efficient supply chain and value creation in
their global supply chain.

4.4.3. Post-transaction Costs

4.4.3.1. After-sales services
After-sales services are the additional services provided by the supplier once the product has
been delivered. These services include follow-up communication, warranty services, training
services, and replacement practices [10]. In relation to 3 Bees, the most important after-sales
service will be in relation to replacement practices, in the event of food spoilage. This is an
important factor to consider for TCO, as these after-sales services provide more SC member
interactivity and quality management practices, with extensive after-sales services
allowing for greater supplier collaboration and integration [34], ensuring quick
replacements, reducing time wastage costs, product innovation involvement and
improving the value of their global supply chain.

4.4.3.2. Reputation of firm

A business can have their reputation impacted if they are unable to meet orders on time,
provide sub-par goods, or are deemed to lack Corporate Social Responsibility (CSR).
All 3 components can be contributed to by inefficient supply chain members and
management, and subsequently reduce income. This emphasises the importance of
Responsible Supply Chain Management (RSCM), which is the process of conducting
SCM in line with CSR, and selecting suppliers who similarly incorporate CSR in their
practices. RSCM is important in protecting and enhancing corporate reputation and
providing competitive advantages [35]. 3 bees should prioritise companies with good
reputations and CSR capabilities, related to their values, strategies and tactics [36], as 3 Bees
is a prominent public entity, and thus will be under greater scrutiny, so selecting good-
reputation suppliers could result in fewer costs of reputation management, supplier
education on CSR, while increasing potential sales, thus generating value in their global
supply chain.

4.5. Quantitative
Quantitative factors refer to costs that can be measured monetarily, for instance ordering
and delivery costs.

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4.5.1. Pre-transaction Costs

4.5.1.1. Supplier Selection costs
Supplier selection refers to the processes undertaken to determine the quality of available
suppliers in the market that can fulfil the need of the business and selecting them. These
processes generate costs in relation to research costs, administrative costs, and bidding
costs [19]. 3 Bees is likely to source agricultural goods for their food product offerings, and
must engage in supplier research into foreign and domestic producers, determining their
history, market share, reputation, additional services. 3 Bees should be willing to conduct
proper selection practices, as this can reduce additional costs arising from supplier
deficiencies, such as spoilage costs from low quality, deadline costs, or replacement costs
[22]. Efficient Supplier selection is important for maximising value creation in their global
supply chain.

4.5.1.2. Supplier Integration costs

Supplier integration costs refer to the induction costs related to educating the supplier
on business standards, policies, and structures. It establishes proper communication
channels, collaboration efforts, and synchronicity, reducing operational costs through
alignment of business decisions [23]. For 3 Bees, the company needs to prioritise integration
efforts, as process integration has been seen to reduce costs, and would enhance supplier
involvement in product development through greater quality and reduced cycle times [24].
Proper integration will ensure that suppliers also understand 3 Bees emphasis on technology
sharing, communication, reliability, supplier involvement, and cost structures,
contributing to value-added activities within their global supply chain.

4.5.2. Transaction Costs

4.5.2.1. Purchase Cost
Purchase cost refers to the actual cost of the product being purchased from the supplier.
This is a focal cost when considering TCO, and is what businesses will be most concerned
by, as it is important for budgeting purposes. For instance, as the 3 Bees are pursuing a cost-
leadership strategy, knowing the product price is important for cost efficiency, and maintain
competitive advantage.

4.5.2.2. Payment Terms

Payment terms are the conditions related to payment for a sale, and provides necessary
information related to actual cost, methods of payment, potential discounts, or other

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specified terms. Cash discounts are the discounts provided by a supplier to the business for
paying the supplier within a set period of time [13]. Payment terms are important,
primarily in relation to cash-flow cycle, allowing a business to be able to maximise payment
periods while capitalising on cash discounts. For the 3 Bees, this could be ideal, as food
production has fairly short lead times due to the perishable nature of their products,
maximising cash-flow cycle is important for inventory management and cost leadership.
Paying suppliers earlier also grants them more liquidity and cash flow for growth, while
generating greater trust between the business and the supplier [17][25].

4.5.2.3. Ordering Costs

Ordering costs are the costs of placing an order with the supplier. This includes labour costs
for inspection, storing of the product, and the administrative labour costs of invoicing
and paying the supplier [12]. Ordering costs can be very large, so for 3 Bees, estimating
supplier ordering costs is important for supplier selection related to cost efficiency.

4.5.2.4. Tariffs & Duties

Tariffs and duties are the costs incurred when transporting goods across borders [27].
Depending on the contract between the business and the supplier, either one may be required
to bear these taxes directly, however, these expenses will be added to the purchase price of
the product, and thus can inflate what the company will actually be paying. Global supply
chain literature views tariffs and duties as issues to SC operations [26]. As 3 Bees is an
international company, they will be sourcing their raw materials from a variety of
international markets, thus making tariffs and duties important to consider when calculating
TCO as it can lead to higher prices depending on what region they are sourcing from.
Ideally, the company should seek to source their purchases from areas with lower trade
barriers, or with friendly relationships between nations, reducing the complexity of their
supply chain transactions.

4.5.2.5. Foreign Exchange fees

Foreign exchange fees are the processing fees that arise when converting currencies, and
the potential losses that may arise from the conversion. Currency conversion fees are
charged either by a bank or a foreign exchange broker, and currency fluctuations that can
lead to a business paying more money due to depreciation of the domestic currency, or
appreciation of the foreign currency [9]. 3 Bees runs the risk of incurring currency losses,
and will need to know the rate charged for currency conversion with their bank or broker.

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Within global supply chain literature, exchange rate fluctuations are noted as a major issue,
“To influence the timing and volume of purchases as well as the financial performance of the
supply chain” [26]. Greater awareness of these costs can increase the cost efficiency of
their global supply chain operations.

4.5.2.6. Fulfilment Costs

Fulfilment costs refer to the logistics, carrying, and storage costs of a business, including
costs related to packaging and returns [14]. In relation to SCM, the primary concern is
logistics, as whether the business pays for freight or the supplier does can affect the overall
cost borne by the business. For 3 Bees their supply chain operations would likely benefit
from either outsourcing logistics operations or choosing suppliers with robust logistics
services, reducing costs of shipping and allowing them to enhance their global supply chain
through utilising logistics providers familiar with the region and who have economies of
scale due to their volume of orders, while potentially decreasing delivery times,
streamlining supply chain operations and generating value-added activities [20][21].

4.5.3. Post-transaction Costs

4.5.3.1. Disposal & Replacement Costs

Disposal costs refer to the costs of disposing of spoiled stock, and Replacement costs are
the costs incurred with having to replace spoiled or damaged products. These costs involve
transport and labour costs [5]. Disposal costs are a sign of waste, and are indicative of
inefficiencies in a business and within the supply chain, whereas replacement costs can
increase lead times due to disruptions of material flows. Processes to reduce waste, such as
just-in-time inventory are important for cost efficiency, and Lean Supply Chain
Management (LSCM) activities have advantages in increasing SC efficiencies related to
cost, communication, and integration [29]. For 3 Bees, ensuring LSCM is necessary for their
cost leadership and improving supply chain performance [32].

Short Food Supply Chains (SFSC) can also increase the responsiveness of suppliers in
providing replacement product, while granting additional benefits such as “higher
margins/lower overheads, improved product range, resource sharing, local food chain
infrastructure, increased negotiating power, and mutual support through collaboration.” [33].
This refers to selecting domestic suppliers of the regions 3 Bees are targeting. When
considering TCO, disposal and replacement costs are important due to their impact on lead
times and cost efficiency, and 3 Bees should seek to select suppliers who focus on lean

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production practices, communication, and are domestically located in their international

markets to reduce the occurrence of spoilage and thus reduce the amount of disposal and
replacement costs.

5.0. Conclusion
Supplier selection is an important process in supply chain management. For 3 bees
Buttermilk Corporation, if they want to achieve effective low-cost leadership, they need to
prioritise other dimensions along with the ones they currently consider most important.
Quality, and location factors are majorly relevant for a multinational food company, as they
enhance lead times, time to market, and customer value creation.

3 Bees buttermilk should enhance their Early Supplier Involvement activities in the supply
chain, practicing transparency and mutual exchange of reliable and consistent information
with their suppliers to get the best deals in purchasing product. 3 bees could consider
potentially utilising vendor-managed inventories or supplier co-location to generate greater
transparency and communication between them and their suppliers, allowing for JIT
inventory management and efficient logistics operations. This would benefit them with
reduced costs and lead time, better profit margins and quality, and creative solutions and
responsiveness.

Lastly, cost is the main primary issue for 3 Bees in supplier selection and supply chain
management. The qualitative and quantitative costs of Total cost of ownership are sub-
divided into pre-transaction costs, transaction costs, and post transaction costs. The
qualitative factors are non-monetary, but are a major contributor in supplier selection, and
can be seen in supplier certification, deadline and product quality, after-sales services, and
reputation of a firm. These are important so that 3 Bees can determine supplier qualification,
the potential time cost, responsiveness, and risk. Quantitative factors also need to be
measured such as supplier selection cost, supplier integration costs, purchase cost, payment
terms, ordering costs, tariff and duties, foreign exchange fees, fulfilment cost, and disposal &
replacement costs to maximise value creation, increase more involvement in technology and
supplier relationship, transparent communication, achieve effective and efficient low-cost
leadership, reduce complexity of supply chain transactions, decrease delivery times, and
improve supply chain management.

3 Bees Buttermilk corporation is already knowledgeable on the elements of supplier selection

and involvement that enhance their operations and support their low-cost strategy. Their

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emphasis on communication, reliability, information sharing, and cost are major contributors
to effective supply chain management. However, there are always other factors to consider,
and as the company expands their international reach, they should prioritise suppliers who are
capable of enhancing logistics operations at the lowest possible cost, without sacrificing
quality, while maintaining transparent communication and collaborative processes through
cross-functional teams and digitalisation practices.

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