Wedlock Engineered Products Cynthia Gao, procurement manager for Wedlock Enginee

Question

Wedlock Engineered Products

Cynthia Gao, procurement manager for Wedlock Engineered Products in Buffalo, New York, was reviewing a proposal recommending that the company change suppliers for a critical raw material. It was June the 3rd, and Cynthia needed to decide before the end of the day how she would respond to the proposal.

WEDLOCK ENGINEERED PRODUCTS

Wedlock Engineered Products (Wedlock) manufactured and distributed hydraulic, power-assisted, air-powered, and standard mechanical dock levelers, and dock seals and shelters, and vehicle restraints. Wedlock had profits 294 Purchasing and Supply Management of $50 million on sales of $450 million in the most recent fiscal year ending December 31. The company had enjoyed double-digit growth over the previous decade, supported mainly through an aggressive acquisition strategy. Wedlock’s growth masked cost pressures the company was facing in its key markets. The company’s annual report indicated that financial results were lower than expected due to price erosion. In February, the CEO, Dmitry Barsukov, announced a corporate cost-reduction initiative aimed at improving the company’s competitive position. As part of the announcement, Barsukov specifically mentioned “opportunities for supply chain savings through coordination of purchasing between operating units and divisions.” The Buffalo plant manufactured hydraulic dock levelers that were installed in shipping and receiving areas in manufacturing facilities, distribution centers, retail operations, and other facilities required to accommodate loading and unloading of highway transport trailers. It produced a standard product that was sold in the replacement and new construction markets under the Sloan Leveler brand. The Wedlock plant in Cleveland, Ohio, also manufactured hydraulic levelers, under the brand name Cole Dock Levelers. The Cole line of levelers targeted the customized market, for customers with unique material handling requirements.

PURCHASING AT THE BUFFALO PLANT

Cynthia Gao, along with Garett MacDonald, buyer, and Adam McEniry, materials planner, comprised the procurement group at the Wedlock plant in Buffalo. Total purchases were $23 million. Cynthia worked closely with Robert Scobie, her counterpart at the Cleveland plant, to coordinate purchases and identify opportunities for costs savings. The Cleveland plant was similar in size to the Buffalo plant, with approximately $25 million in annual purchases. Cynthia and Robert had committed to savings of $1.5 million in the current fiscal year as part of the corporate cost-reduction initiative. They had documented approximately $500,000 so far, measured by year-over-year price reductions from suppliers and based on forecasted annual usage.

STEEL TUBING

The Buffalo and Cleveland plants purchased 3-inch steel tube with a combined total value of $1.1 million annually. The tubing was used on the loading dock platform to support the hinge connected to the lip of the platform that allowed it to lay flat or unfold, in order to connect or disconnect from the transport trailer. The tubing was required to meet specific metallurgical standards or else the tubing would warp or crack, causing the loading dock to malfunction. The current supplier for 3-inch tubing was Marandi Steel (Marandi). Located near Buffalo, Marandi distributed a wide range of carbon, stainless, alloy, and aluminum tubing; pipe products in round, square, and rectangular shapes; and steel plate to manufacturing companies in the eastern United States and Canada. Marandi had been a supplier to the Wedlock Buffalo plant for approximately 15 years and provided excellent service. Cynthia had a strong working relationship with the general manager at Marandi and could recount several occasions when they reacted quickly to material shortages at the Buffalo plant that helped keep production going. Marandi currently supplied several products, including tubular steel, shapes, and plate, to both the Wedlock Buffalo and Cleveland plants. The supply arrangement with Marandi to the Buffalo plant included just-in-time delivery arrangements, which helped to keep inventory levels at a minimum. Total annual purchases from the supplier were approximately $3 million for the Buffalo plant and $2.5 million for the Cleveland plant. In order to test the pricing for 3-inch tubing, Robert Scobie issued a request for quotations (RFQ) the previous month from several steel tubing distributors, including Marandi. The RFQ indicated the expected term of the contract would be two years and include 100 percent of the requirements for both the Buffalo and Cleveland plants. The two lowest quotes were from Vergis Tubing (Vergis), located in Erie Pennsylvania, and Marandi. The quote submitted by Vergis represented an annual cost savings of approximately $24,000 compared to the incumbent supplier.

REVIEWING OPTIONS

Robert felt that Vergis should be awarded the contract to supply 3-inch tubing for the Buffalo and Cleveland plants and was urging Cynthia to accept the proposal. However, Cynthia had concerns. Vergis had attempted unsuccessfully on several other occasions to secure business from Wedlock, and she was worried that Vergis did not have any history with either the Buffalo or Cleveland plants. Delivery and quality performance for 3-inch tube was critical for the Buffalo plant, and the performance of Marandi in these areas had been outstanding. A check of Chapter 10 Price 295 Vergis’s references found that they had a good reputation and there were no problems uncovered. Cynthia was also concerned about the effect of abandoning a long-standing relationship, which might have other cost implications and jeopardize service provided by Marandi. Marandi supplied a number of other products to the Buffalo plant, and Cynthia wondered how awarding the 3-inch tube contract to Vergis would affect the relationship with Marandi. Robert was expecting a decision from Cynthia the following morning regarding which supplier she felt should be awarded the contract for 3-inch tubing. Cynthia knew that she would need strong arguments if she decided not to support his recommendation to switch to Vergis.

Q. Is using an RFQ the right approach in this situation?

Explanation / Answer

This is a situation many procurement managers, especially the ones who deal with strategic sourcing, face on a regular basis. Strategic purchases typically have a high dollar value, directly impact production, and more often than not are dependent on the relationships with a supplier.

I can give you information regarding this case which will help you develop your own perspective and then take a stand.

In the given case, simply put, the current supplier Marandi has consistently proven themselves in terms of quality, reliability and responsiveness. It has been given that many a time, during times of urgent requirements, Marandi has stepped up and supplied (note that many times this happens without a formal purchase order/intent to buy). All of this has a much bigger value associated to it, not just the simple dollar value of the goods being procured.

In this case, switching the entire supply to another supplier would be disastrous. Firstly, though Vergis might be a proven player in this field, the quality of their supplies with respect to Wedlock's requirements has not been put to test. It, so far, has all been on paper. What if we switch 100% of the procurement to Vergis and if the quality fails (note that the input raw material is very critical to quality).

Instead, it is recommended that they follow a share of business model: Try routing 10% of the raw material requirement to Vergis. Marandi still continues to supply bulk of the inputs, but you also get a chance to "sample" Vergis' inputs. If they fail, your entire production isn't hampered. It gives you a fair chance to evaluate the new supplier and then take a call. Instead of switching suppliers 100%, it is recommended that they do a 10-90 or a 20-80 approach. The majority of the input material sourcing should lie with Marandi, but they can shift a slight share of business to a new supplier - not only does this maintain relationships with Marandi, but also sends across a subtle signsl that you are on the lookout for better players in the market, and Marandi better not take Wedlock for granted.

Hence, yes, an RFQ is acceptable, but the way it should be implemented should be very gradual and not a complete shift of suppliers.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.