Supplier selection strategy – NPV comparison

Abstract

The supply chain has gained prominence in recent years, both in specialized literature and in economic practice, being defined and analysed as an operational component of the behaviour of economic actors, both those with global activities and those with localized activities. The main aspects related to this thematic area are associated with complex concepts that have a quantifiable economic impact in terms of money, time, quality, and competitiveness. Supplier selection has become a matter of strategic partnership within global supply chains enabling customer performance and competitiveness, thus increasing supply chain leaders’ awareness to develop and implement complex tools and metrics for supplier comparison before business award, one of the representative being net present value comparison. Net Present Value is defined as the sum of the investment's expected cash inflows and outflows discounted back to their present value at a company-agreed risk-adjusted rate. This study is focused on showing how an assessment of comparative net present values can clarify a business case and improve the decision making process towards a particular supplier selection, together with meeting project budget, internal targets, financial risk assessment, and strategic planning.

Keywords

• supply chain
• risk management
• risk mitigation strategies
• supply base management
• supplier selection