156 Purchasing and Supply Management 5. What are some effective supply methods for dealing with maintenance, repair, and operating (MRO) requirements? 6. Compare the acquisition of resale requirements to the acquisition of parts, components, or packaging. 7. Why should a supply professional acquire by “brand”? 8. What are the disadvantages of specifying by performance? What are the advantages? 9. What is the difference between standardization and simplification? 10. How does a supply professional know that a certain requirement is strategic? 11. How would you determine the environmental impact of a particular acquisition? American National Standards Institute, www.ansi.org. Askin, Ronald G., and Jeffrey B. Goldberg. Design and Analysis of Lean Production Systems, New York: Wiley, 2001. Axelsson, Bjorn, and Finn Wynstra. Buying Business Services. West Sussex, U.K.: John Wiley & Sons, 2002. Contino, Richard. The Complete Equipment-Leasing Handbook. New York: AMACOM, 2002. Duffy, Roberta J., and Anna E. Flynn. “Services Purchases: Not Your Typical Grind.” Inside Supply Management 14, no 9, September 2003, p. 28. Ellram, L. M.; W. L.; Tate and C. Billington. “Understanding and Managing the Services Supply Chain.” Journal of Supply Chain Management 40, no. 3 (2004), pp. 17–32. Managing Your “Service Spend” in Today’s Service Economy. CAPS Research, July 22, 2003. Ritzman, Larry P.; Lee J. Krajewski; and Robert D Klassen. Foundations of Operations Management. Pearson Prentice Hall: Toronto, 2004. Smeltzer, Larry A., and Jeffrey A. Ogden. “Purchasing Professions’ Perceived Differences between Purchasing Materials and Purchasing Services.” Journal of Supply Chain Management 38, no. 1, Winter 2002, p. 54. Wade, D. S. Managing Your “Services Spend” in Today’s Services Economy. Tempe, AZ: CAPS Research, 2003. References Case 6–1 Moren Corporation (A) Moren Corporation was building three additional generation stations to serve its rapidly expanding energy market. To link these stations with a total area grid, a new method of car- rying the power lines using ornamental tubular poles instead of towers had been adopted. Moren had had no previous op- erating experience with poles and decided to subcontract the design engineering, fabrication, and erection of the new line. For the first phase of engineering design, Mr. Carter, the vice president of supply, faced the responsibility of de- ciding with which supplier the business was to be placed after his staff had developed the information needed. He was aware that Moren had only three years in which to complete the entire project, and yet he had to ensure high- quality work. joh77899_ch06_135-164.indd 156 6/9/10 9:40 PM Chapter 6 Need Identifi cation and Specifi cation 157 COMPANY BACKGROUND Moren Corporation, established in 1895, was one of the largest power utilities in the eastern United States. It serviced a highly industrialized area of 1 ...

1. 156 Purchasing and Supply Management
5. What are some effective supply methods for dealing with
maintenance, repair, and
operating (MRO) requirements?
6. Compare the acquisition of resale requirements to the
acquisition of parts, components,
or packaging.
7. Why should a supply professional acquire by “brand”?
8. What are the disadvantages of specifying by performance?
What are the advantages?
9. What is the difference between standardization and
simplification?
10. How does a supply professional know that a certain
requirement is strategic?
11. How would you determine the environmental impact of a
particular acquisition?
American National Standards Institute, www.ansi.org.
Askin, Ronald G., and Jeffrey B. Goldberg. Design and Analysis
of Lean Production
Systems, New York: Wiley, 2001.
Axelsson, Bjorn, and Finn Wynstra. Buying Business Services.
West Sussex, U.K.: John

2. Wiley & Sons, 2002.
Contino, Richard. The Complete Equipment-Leasing Handbook.
New York: AMACOM,
2002.
Duffy, Roberta J., and Anna E. Flynn. “Services Purchases: Not
Your Typical Grind.”
Inside Supply Management 14, no 9, September 2003, p. 28.
Ellram, L. M.; W. L.; Tate and C. Billington. “Understanding
and Managing the Services
Supply Chain.” Journal of Supply Chain Management 40, no. 3
(2004), pp. 17–32.
Managing Your “Service Spend” in Today’s Service Economy.
CAPS Research, July 22,
2003.
Ritzman, Larry P.; Lee J. Krajewski; and Robert D Klassen.
Foundations of Operations
Management. Pearson Prentice Hall: Toronto, 2004.
Smeltzer, Larry A., and Jeffrey A. Ogden. “Purchasing
Professions’ Perceived Differences
between Purchasing Materials and Purchasing Services.”
Journal of Supply Chain
Management 38, no. 1, Winter 2002, p. 54.
Wade, D. S. Managing Your “Services Spend” in Today’s
Services Economy. Tempe, AZ:
CAPS Research, 2003.
References
Case 6–1

3. Moren Corporation (A)
Moren Corporation was building three additional generation
stations to serve its rapidly expanding energy market. To
link these stations with a total area grid, a new method of car-
rying the power lines using ornamental tubular poles instead
of towers had been adopted. Moren had had no previous op-
erating experience with poles and decided to subcontract the
design engineering, fabrication, and erection of the new line.
For the first phase of engineering design, Mr. Carter,
the vice president of supply, faced the responsibility of de -
ciding with which supplier the business was to be placed
after his staff had developed the information needed. He
was aware that Moren had only three years in which to
complete the entire project, and yet he had to ensure high-
quality work.
joh77899_ch06_135-164.indd 156 6/9/10 9:40 PM
Chapter 6 Need Identifi cation and Specifi cation 157
COMPANY BACKGROUND
Moren Corporation, established in 1895, was one of the
largest power utilities in the eastern United States. It
serviced a highly industrialized area of 10 fossil -fueled
plants. With assets of over $19 billion and demand dou-
bling every decade, it had already earmarked funds to in-
crease its kilowatt capacity from 8.4 million to 13 million
over a four-year period.
The company was well known for its advanced tech-
nology and its good public relations. Both purchasing and

4. engineering departments were centralized and located in
the head office in the area’s largest city. The new con-
struction program was a heavy strain on both the profes-
sional and financial resources of the company, placing
increased emphasis on the use of qualified people and
suppliers outside the corporation.
TRANSMISSION LINE BACKGROUND
Although Moren was stepping up its older lines to 230 kV,
by management decision and in accordance with the tech-
nological trend, 345 kV was adopted for the new line.
It was to link the new generating stations in Addison,
Smithfield, and Mesa Valley with the area grid, some
140 miles in total.
Until now, Moren had used structural steel towers ex-
clusively for carrying its power line. These were strong
but visually prominent and attracted adverse comments
from a public daily growing more aesthetically sophisti-
cated. A relatively new development in the transmission
field was the introduction of the ornamental tubular power
pole. Approximately 2,000 miles of line using these poles
had been installed with good success in various parts of
the country. Most installations were relatively short sec-
tions in densely populated areas. A line using poles costs
twice as much as the conventional towers but is still sub-
stantially cheaper than underground installation. Con-
scious of the great strides made in power pole design and
use, Moren management decided to specify poles for the
new lines.
Because of the volume of conversion and projected ex-
pansion work, Mr. Carter and the project engineers knew
that the tower manufacturers and erection companies with
whom they had dealt in the past would not have the ca-
pacity to handle all the elements of the new pole concept.

5. Furthermore, with no experience in 345 kV or pole sus-
pension, Moren had to reply on the know-how of others
for the new line and needed the services and guidance of
competent subcontractors.
The total job involved three major phases.
1. Engineering design called for layout as well as a func-
tional pole specification and project guidance.
2. Pole manufacture involved a manufacturing proposal
consisting of a specific design to meet the functional
specifications as well as manufacturing volume and
schedule deadline capabilities.
3. Pole installation involved excavation, foundation set-
ting, pole erection, and line stringing. Preliminary cost
estimates for the total project were as follows:
a. Phase 1—Engineering: $1,500,000–$1,800,000
b. Phase 2—Pole manufacture: $90 million
c. Phase 3—Installation: $78 million
Mr. Carter and the chief engineer were not satisfied
that any individual supplier could handle the total contract
well. They decided, therefore, to subcontract each phase
to a reliable source of high expertise within that phase, so
that optimum overall benefits would accrue to Moren. The
first sourcing decision dealt with the engineering phase.
DESIGN ENGINEERING SELECTION
All through the spring and half of the summer Oliver
Dunn, the buyer, worked with the transmission engineer-
ing section of the system engineering department of the
company to establish parameters and locate a suitable de-
sign source. By late July he was able to make his recom-

6. mendation to the director of purchases (see Exhibit 1).
It was normal practice at Moren to provide a very brief
summary for the director of purchases on all major con-
tracts. A large file containing detailed information was
built up by the buyers and purchasing agents involved.
Normally, some preliminary discussions were held as the
project progressed, so that Mr. Carter was reasonably in-
formed by the time the official recommendation was pre-
pared. Should he wish to see more information he could
request the file at any time.
All three of the engineering firms considered were
large and engaged in a wide variety of engineering con-
sulting services. Travers & Bolton (T&B) and Crown
Engineering (CE) had both done considerable work
for Moren in the past and had performed satisfactorily.
Pettigrew Associates had its head office in New York and
maintained branches in 10 American cities. Pettigrew
employed over 3,800 people, had a good credit rating,
and had annual sales in excess of $480 million per year.
Moren had never used Pettigrew in any of its projects.
All three engineering firms had some tubular pole experi-
ence with short-line sections in other parts of the country.
joh77899_ch06_135-164.indd 157 6/9/10 9:40 PM
158 Purchasing and Supply Management
Moren Corporation was building three additional gen-
erating stations to serve the rapidly expanding energy
market. To link these stations with the total area grid, a
new method of carrying the power lines using ornamental

7. tubular poles instead of towers had been adopted. Moren
lacked experience with poles and decided to subcontract
the design engineering, fabrication, and erection of the
new line. [For company background and line projection
Aside from the design requirements, the consulting engi-
neering firm was also expected to evaluate the bids from
pole manufacturing and erection subcontractors.
Additional Information
1. The transmission section of our general engineering
department is unable to perform the design work of all
the planned transmission work for the next three years,
and it is necessary to contract some portion of this work.
Travers & Bolton are already assigned the conversion
of the 120kV to 230, and it is recommended that this
140-mile Addison-Smithfield-Mesa Valley 345 kV be
contracted to some competent engineering firm.
2. We had sessions with each of the three below men-
tioned engineering firms to acquaint them with our
needs and learn of their capabilities. The work they
will perform is as follows: Make routine sections;
make subsurface investigations; make electrical hard-
ware and general project designs; and furnish miscel-
laneous specifications, drawings, and technical data
required to procure the right of way, hardware, struc-
tural steel, and the awarding of contracts for construc-
tion. It is estimated this work will total 12,300 labor-
hours. There will also be approximately $144,000
worth of computer services and general out-of-pocket
expenses in addition to the labor-hours.
3. Bid comparison is:

8. EXHIBIT 1
Quotation
Summary
Description Design 140 miles 345 kV transmission line for
Addison-Smithfield-Mesa Valley
Recommended vendor: Pettigrew Associates, New York, N.Y.
Location: Their premises Using department: General
engineering
Buyer: O. Dunn Total value: Established $1,740,000
salaries � burden
P.O. No.: Date Approval:
Supplier
Estimated
Labor-Hours
Basic Average
Cost per
Labor-Hour
(w/o fringes)
Approximately
Fringes
(assumed
same for all)
Overhead and
Profit
Estimated
$/hour

9. Travers & Bolton 14,350 $60.00 20% 65.5% $120.00
Crown Engineering – $60.00 20 80.0 $129.60
Pettigrew Associates 12,190 $60.00 20 85.0 $133.20
It is recommended that this contract be awarded to
Pettigrew even though their cost per hour is higher than
the others. Total cost will be influenced by the capabilities
and productivity of the company chosen, and, therefore,
Pettigrew may not cost us any more; it is the desire of
Moren management to have Pettigrew perform such a job
with Moren as our first experience with them. Both T&B
and CE have done considerable work for Moren.
Case 6–2
Moren Corporation (B)
joh77899_ch06_135-164.indd 158 6/9/10 9:40 PM