I need help answering questions for this case study Wedlock Engineered Products Cynthia Gao, procurement manager for Wedlock Engineered Products in

I need help answering questions for this case study

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.

1. How much weight should be placed on previous supplier performance when selecting a supplier?

2. Is $24,000 in savings worth the trouble of switching suppliers?

3. What will the response be from Vergis if you stay with Marandi, after they provided a lower bid?

4. Do you want to split the business between the two suppliers?

5. If you switch to Vergis for the 3-inch tubes, how will that affect your relationship with Marandi for the rest of your business with them?

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

7. As Cynthia Gao, what recommendation would you make to Robert Scobie regarding supply for the 3-inch tubes?