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Question: required question 1 what factors should be considered in...

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Quotech Inc. operations. Cost reduction and containment were identified Should we go with Castle Metals lower quote, or favor Marmon Keystones proven reliability? pondered Emily as key components of the PEP initiative, responsible for the Trent, purchasing agent for Quotech Inc., a Cleveland minteance of HHs competitive position. based manufacturer of materials handling equipment. It was May 1 as she prepared for her meeting the next dayPURCHASING AT QUOTECH with Larry Pilon, sales representative from Marmon Keystone. At stake was an order for up to $700,000 of In addition to Emily, the Purchasing Department at tubing that needed a decision within a week Quotech comprised Frank Wilson, director of purchasing, and Rhonda Bates, buyer. Together, they were responsible r deciding on Quotechs S17 million in manufacturing component purchases. HHs company structure and its PEP initiative called for close coordination between operating nits within a division. As such, the purchasing personnel UNITED DOMINION INDUSTRIES AND QUOTECH INC Quotech Inc. was one of three companies comprising the Materials Handling Division (MHD) of at (HH). HH total sales for last year were $2.15 billion, producing S98.4 mon in net income. The Materials a purchase consolidation measures and the consequent Handling Division represented approximately 18 percent of HHs sales. lalgus Holdings at Quotech were in close touch with their counter Canada and Virginia. Doing so had proven a good strateg increase in volume-based buying power had squeezed savings of S500,000 in the first quarter of 2000 alone and the success in achieving Last year, the MHD reported a profit of S42 mlion on Given company objectives, a sales of S388 million, compared to the preceding years figures of S38.9 milion and S349 million respectively. Most of the growth in sales and earnings was attributable however, to recent acquisitions. According to the company THE SOURCING SELECTION ISSUE annual report, last year had been a disappointing year for HH, despite double-digit sales growth from its existing The issue currently demanding Emilys attention was the operations as well as from newly acquired companies. HH ing of the divisions requirement for 2 7/8 tubing. had suffered price erosion in its markets. The situation She was the lead buyer for the division. The tubing in made cost-reduction measures vitalor HH. Nicholas question was a standard material for a variety of products. Whitehead, the president of HH, had gone on record as While not a mission-critical component, tubing that did saying. There are definitely opportunities for supply not meet vendor specifications could cause equipment chain savings. s reduction in costs, the reliance on a consolidated purchase ordering process was expected to continue malfunction. Furthermore, like most manufacturing components, the suppliers inability to meet production Last year, HH adopted the PEP program designed to achieve additional improvement in the companys demands on a timely basis could result in costly assembly

line shutdowns. As such, the role of the supplier was not and vendor satisfaction that his predecessor had trivial. While each of the three companies comprising the displayed. This prompted Emily to attribute Marmon division had historically sourced its purchase Keystones success as a supplier to institutional rather pendently, top managements cost reduction imperative had than person-specific reasons. With annual sales of almost changed this practice. As such, the current order was worth up S300,000 to Quotech, t was not surprising that Marmon to $700,000 and represented a consolidated purchase meant to Keystone was among its top 20 suppliers, while Quotech satisfy all companies tubing requirements for the coming was probably among Marmon Keystones top 0 year customers. CASTLE METALS QUOTECHS CURRENT SUPPLIER: MARMON KEYSTONE Castle Metals had come to the attention of Emily through John Stevenson, the purchasing manager at the Canadiarn armoncompany. Emily knew very little about Castle Metals. Marmon Keystone was part of the U.S.-based Group of companies. Its local arm was based in Akron Records indicated that the firm did not appear among the and had been a supplier of components to Quotech for the past decade. Emily had been very satisfied with M Keystone, hanks to Doug Elliott, its sales representative. 300,000 from Marmon Keystone. Doug made it a point to visit with Emily at appropriate intervals, inquiring about Quotechs sourcing needs, if amy. hsry of dealing with Castle Metals. However, both firms Over the course of their relationship, Doug had become a had different sourcing needs in that the Canadian company trusted partner supplier to Emily, making good on Marmon was more of a specialty shop requiring multiple Keystones promises of reliable product quality and on variations of basic components in small quantities. In time delivery, two attributes that were very important to contrast, Quotech had standard sourcing requirements and Quotech larmon top 50 suppliers to the Toronto plant. Further investigation into the Canadian companys purchases last year indicated Neither Quotech nor the Canadian company had any tended to purchase higher quantities of more standardized As it was not possible to develop detailed product com specifications for every component, and a lot depended both on the suppliers ability to provide components based on Ontario, plant. Moreover, Castle Metals bid for the an cyeball evaluation at the vendors plant premises, tubing had undercut Marmon Keystones by $18,000. To Doug Elliott had built an enviable record for himself and Emilys surprise, John Stevenson and her Virginia his frm. Quotechs Supplier Performance Tracking System indicated that over the last three years, there was supplier for the 2 7/8 tubing. While surprised by the evidence of just one MGA (product return) to Marmon decision, she nevertheless realized that it could be based Keystone, which was rectified immediately. Furthermore, on the need to source products from multiple suppliers to Marmon Keystone had, in effect, taken on Quotechs keep them honest. inventory handling by performing the warehousing function on behalf of Quotech. This service spared Emily ponents. It was felt that Castle Metals could serve companies diverse needs fos Mississauga, counterparts believed Castle Metals should be the ig headache and saved Quotech a significant amount annually. One incident, particularly, stood out in Emilys mind as she evaluated Marmon Keystone. On one of his visits, Doug had noted the low inventory on an unrelated component and suggested filling the order. This proactive commitment to Quotechs interest on his part was yet to be imitated by any other suppliers CONCLUSION Emily considered the sourcing decision as well as the consolation she could award the losing firm. Her records indicated that the Canadian location sourced S240,000 in components and the Virginia plant also had further tubing requirements. Given that both Castle Two years ago, when Doug Elliott was promoted o Metals and Marmon Keystone had branches in all three the position of general manager at Marmon Keystone, he locatins, the possibility existed that she could use specifically instructed his replacement, Larry Pilon, to either as a supplier for those requirements. What do I take special care of this account. Larry had been true to Larry? thought Emily, as she planned for the his word and had continued the tradition of value creation meeting.


Required Question:

1. what factors should be considered in making this supplier selection decision?

2. how is this purchasing decision influenced by other firms in the Loading Dock Division?

3. it is necessary to "console" the firm losing the order?

4. What role should past performance play in supplier selection?

5. what should be the total role of a "lead" buyer?

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