1. Answer the questions posed at the end of this case. Quandry! When the chips a
ID: 469725 • Letter: 1
Question
1. Answer the questions posed at the end of this case.
Quandry! When the chips are down, what is the relative importance of price, delivery, and quality when a new source of supply must be selected? Don Anderson, purchasing manager at The Exeter Tractor Company, located in Shelby, Iowa, recently had to confront this perennial dilemma again. For more than twenty years, he had relied upon Universal Valve Company of Dearden, Ohio, as his only source of hydraulic lift components. Universal had proven to be a reliable source of supply for high quality products, delivered on time, at a competitive price.
Strike! Several months ago, however, an unprecedented strike interrupted production at Universal Valve. Deliveries to Exeter Tractor came to a halt. Inventories at Exeter were adequate to cover a limited interruption of parts deliveries from Universal.
As the prospects for an early end to the strike grew dimmer, Don realized that he would have to seek an alternate source of hydraulic lift components. After its long-term dependence on a single source, his department did not have any other source qualified. After consulting the internet, trade publications, directories, and professional colleagues, Don eventually came up worth three possible suppliers.
By this time, Exeter’s inventory of components was seriously depleted. Marcia McCleary, Exeter’s production manager, informed Don that a line stoppage was inevitable unless additional components were received within 30 days.
Alternate sources Don immediately contacted the three prospective suppliers asking them to quote prices and delivery times for the specified parts. He received the following quotations
1.Red Line Valve could begin deliveries within 15 days at a price of $1,800.
2.Harris Hydraulics promised deliveries of 30 days at $1,400 per unit.
3.Rollo Bearing and Valve offered continuous deliveries, commencing 45 days after contract at a price of $1200 per unit.
While the price and delivery time differentials are obvious, Exeter had no prior experience with any of the suppliers. It was therefore unclear what their actual performance would be in terms of their dependability of delivery and the quality level of their materials shipped.
a. What can Exeter do to quickly determine the delivery and quality dependability of the new suppliers?
b. If Exeter determines Red Line is the least dependable source, Harris Hydraulics is a marginal performer, what should they do?
c. Is single sourcing still a good idea?
Explanation / Answer
a. Exeter should develop a supplier scoring and assessment procedure. As the company has been using only one supplier for buying hydraulic lift components, it is almost no experience in supplier selection. It can make use of a consultant to help it develop a supplier scoring and assessment procedure. The relative importance of factors like cost, quality, delivery, dependability etc. should be evaluated with the help of a consultant. This will help Exeter to quickly determine the delivery and quality dependability of the new suppliers on the basis of the weighted score of each supplier.
Exeter should also visualize the type of relationship that it will have with each of the three suppliers. When the supply management relationship is visualized to be counterproductive (lose lose for both Exeter and the supplier) or competitive (win situation for Exeter and lose situation for the supplier) then the supplier should not be selected. Only that supplier with which Exeter can form a cooperative or a collaborative supply management relationship should be selected.
Exeter should also conduct a quick audit of all the three suppliers to make a process based evaluation and a performance based evaluation. If Exeter does not have the time and resource to perform these audits, then this audit work should be outsourced. Process based evaluation will help in assessing the production process of the supplier. Performance based evaluation will help in measuring the objective metrics of performance.
b. The least dependable source should immediately be put out of consideration as it will not augment for the company's business in the long run. We are now left with Harris Hydraulics and Rollo Bearing and Valve.
If Exeter will use the "categorical method" of evaluating the performance of the supplier, then Rollo Bearing and Valve will be preferred over Harris Hydraulics (the marginal performer). Also, Rollo Bearing and Valve offered continuous deliveries and has the lowest cost of $1,200 per unit. Thus the company should opt for Rollo Bearing and Valve on the basis of "categorical method" of vendor or supplier evaluation.
c. I think that multiple sourcing is better for Exeter and they should give it preference over single sourcing. This is due to the fact that multiple sourcing will ensure continuous supply in future. The supply will be assured and if there is a problem or a strike at the end of one of the suppliers the other supplier will continue with its delivery. Also, the competition between suppliers for the similar hydraulic lift component will drive down the procurement costs.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.