Case 7 Email Exercise
Consider the following email that was sent to you by a Global Procurement Office representative from your satellite office located in New Delhi, who is passing on information he has received on conditions for a new major supplier. Based on the facts provided by this individual, complete a supply risk evaluation, and estimate the dollar impact associated with this supplier. If there is no information available for a particular variable in the model, enter a “1,” meaning that it does not pose a significant risk.
To access the Risk Evaluation, go to www.cengage.com/decisionsciences/monczka and select “Risk Evaluation” from the left-hand navigation.
To: Victor Kliossis From: Anil Patel Victor,
I was following up on your request to explore sourcing from a castings supplier located in India. I have identified a suitable candidate, the Golden Elephant castings company. As you stated, this is an important decision, as this supplier will be a single source providing castings for your entire new line of product in the C-series. As you know, the C-series forecast is $50M in revenue during the first year, growing to $75M in the second year. Based on your process specifications, this is the only available castings supplier in our supply base with the required heat treat ovens capable of meeting your specifications as well as the cost and price targets you specified. Essentially, this supplier has the lock on this business for the C-series. He seems to know this.
We visited the supplier’s location, and were greeted by the company’s owner. He was very pleased with the results that our negotiating team came to terms with, and afterwards boasted with some pleasure that this was going to be a very profitable business deal for Golden Elephant. He noted that the firm was under new management as of six months ago, and that he was taking over management of the factory from the previous owner, who had sold out and gone into retirement. Upon taking a tour of the facility, we found it was well-lit, and workers seemed to know what they were doing. In private, the owner told us that he felt these workers were overpaid, but that he was trying to keep labor costs below the average for New Delhi, and tried to keep his workers in the dark. We did not see evidence of any statistical quality control charts, but the owner assured us that workers were well-trained in these methods. The owner also noted that they are anxious for this business, as this will represent an order that will double their current business volume. We met with some of their technical engineers, and they seemed very young. In fact, one of them shared with us that he had just started the day before, and was replacing someone who had lasted only two months in that role.
We met with their purchasing group. Their office was full of paper piled up high to the ceiling, and they emphasized how busy they were processing PO’s with their vendors. When we asked who their primary steel suppliers were, we were told that they liked to shop around for the cheapest price, and rarely bought any steel except at spot prices through intensive negotiations. They also noted that there had been some problems in getting steel in some cases, due to the recent shortages being driven by the high demand for steel.
We then identified how shipments would get to your factory location in Omaha, NE. Golden Elephant will arrange for in-land transportation, as the owner’s brotherin-law has a trucking company. The shipment would then go through the Indian port. There have been some rumors of union problems with the dockworkers at this location, but our sources believe that these are only rumors. Once the shipment arrives in the port of Los Angeles, it will be unloaded, put onto a trailer, and driven to the Omaha location. We are still waiting for quotes for shipment times, as the recent hike in fuel prices means the shipping companies will not commit to a firm transoceanic shipping cost. This is the first time this supplier has exported products to the United States, but the owner has assured me that his administrative assistant has worked on shipping documentation in her former job, so this shouldn’t be a problem.
Let me know what your decision is on whether to proceed.
Anil