Critical material groups based on Mitchell’s formula: the probability and impact of

The first step within this research is to determine what the critical non-metal components at Company X are. This has to be done, because it is not possible to assess all the suppliers of Company X with the risk model. This will be too time consuming and also not all suppliers are even important for Company X So a distinction should be made between critical and non- critical suppliers. Therefore, a list of critical material groups has been drawn up, see table 7. Where these material groups are considered as critical and therefore, the suppliers in these groups are seen as critical suppliers and will possibly be assessed with the supplier risk model. In the row ‘Critical because:’ the reason why the material group is critical is mentioned. This is based on the results, stated in chapter 4.1.

Critical material groups Company X

Material group Sub-material group Critical because:

Packaging Pallets and cases  High amount of

deviations  Key supplier

Company Y/Z  Direct contact with

final product Tubes

Machines and spare parts Knives and cutting blades  High amount of deviations  Key supplier

Company Y/Z  Direct contact with

final product

Rolls  High amount of

deviations  Key supplier of

Company Y/Z  Direct contact with

final product

Casting  Key supplier of

Company Y/Z  Direct contact with

final product

Lubricant and oils  Key supplier

 Direct contact with final product

Mechanical services  High amount of

deviations

 Mentioned several times during interviews

Table 7. Critical material groups Company X Source: Table invented by the author.

This list has been drawn up based on the three different research approaches which have been conducted, which are the interviews with the employees of Company X, the deviation reports of Company X and the business documentation of Company Y and Company Z. Chapter 3.2 have described the methods of these three approaches and in chapter 4.1 the results have been discussed. The formula out of the study of Mitchell, chapter 2.2, has been used as a basis to determine the level of risk of each material group. The level of risk is according to Mitchell the probability of loss multiplied with the significance of loss.137 With this definition in mind the empirical research findings have been analysed. As mentioned in chapter 4.1, it was difficult to select the critical material groups based on the interviews with the employees of Company X, due to the broad answers which have been given. Therefore, additional research, deviation reports of Company X and business documentation of Company Y and Company Z, has taken place and the analysis of the research findings of the deviations reports have given new insights in the material groups of Company X These findings of the deviation reports of the suppliers and the deviation reports of each material group can be considered as the probability of loss. These research findings give a good overview of the probability of a quality, logistical or service problem of each material group. So the first step of the formula of Mitchell is filled in based on the findings in the deviations reports.

The current definition of a supplier who is seen as critical by Company X is as follows: “The product of the supplier comes into contact with the (finished) product of Company X”. Direct contact means in this case that a component, material or substance directly in contact is with the final product which has been produced. For instance a pallet where the final product is placed on, oil which is being sprayed onto the final product or a roll with which the final product is rolled. From this definition it can be considered that the significance of loss is the impact of bad quality products delivered by suppliers, which can cause problems on (finished)

products of Company X This is the second step in the formula of Mitchell and therefore, this definition will still be used. Also three employees of Company X have mentioned that in their opinion critical materials are the ones with are directly in contact with the final product, see chapter 4.1. So the defined material groups consist of suppliers who are delivering products which are in contact with the (finished) product of Company X

A spend analysis have not been conducted as method to define which are the most critical material groups, as this only give information about the amount purchased. This method is used at Company Y, as can be seen in chapter 4.3. The purpose of this research is to develop a risk model which evaluates the suppliers on the availability and quality of the products and services they deliver. This with the goal of ensuring maximum production output as have been mentioned in chapter 1.3.

With Mitchell’s formula and the research findings a way to define the critical material groups of Company X have been established. So the critical material groups are the ones that are causing the most problems and also can do the most damage to the finished product of Company X Based on this definition the critical material groups for Company X has been drawn up, as can be seen in table 7.

As can be seen in table 7 there are seven critical material groups defined. For the material group packaging two sub-material groups are established. This has been done, because out of the interviews it appears that there are quite some differences between pallets and cases and tubes. Also a sub-group, knives and cutting blades, is made up under the material group machines and spare parts. The material group machines and spare parts is rather large and out of this group knives and cutter blades are the ones that are directly in contact with the

(finished) product of Company X Chapter 5.3 will go further in detail about the need for these different critical material groups.

5.2 Self-assessment model established to assess the level of risk of suppliers on