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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?
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