3. Major Facts (Part- 1)
FLINT SEALANTS AND EQUIPMENT - is a chemical company
Specialized in production of sealants, a particular type of adhesives used in
construction & glass industry
The top selling product is “Thioseal”, a formula based on Thiosulphate
Sue Jones (Supply Manager)
Confused in procuring Thiosulphate due to price finalization
She got five bids for supplying Thiosulphate (Total quantity – 10.000 drums per year)
Same supplier given lower bid for fifth the straight year
Got information from the other bidders why their price is high (due to set-up cost for
every year)
for last five years other bidders included particular set-up cost in their bid, is the
reason for not being competitive.
from the past purchase history, she notices that lowest bitter always has differences
from 3 to 15 euro from second lowest bidder.
4. Question # 1 – Reason for Uneasiness
1. Information from sales representative, she noticed that supplier didn’t know that future
orders(follow-on) or long-term plan from the customer.
2. If she analyses every quote without set-up cost, she would have understood the real
product cost.
Analysis as follows
1. By now she realized that real product cost is much lower than lowest bidder, so she
understood that the firm adopted wrong strategy or supplier relationship based on the
Kraljic matrix, which she learned from Sourcing and purchasing course.
2. More importantly they paid more cost than required for last five years
5. Question #1 – Strange Part
1. After first year, the buyer from Flint didn’t shared how long they are going to procure this
material or some long term plan with all suppliers before asking for quotation. If he/she
does, the other supplier would have removed the Set-up cost from the calculation and quoted
the real price, the Flint would have saved more cost from second year.
2. The lowest bidder (S.I.R) even after first year didn’t reduced his profit margin. The supplier
continuously increased the price in proportional to material cost increase and increased his
profit year on year. They didn’t come forward to share the profit, they simply exploited their
customer.
3. Even from third year the Flint should have changed the procurement strategy because of the
continuous demand year on year, from transactional to collaborative.
4. The supplier didn’t asked how long they(Flint) will buy or how many years they(Flint) are
going to buy the same component, without going one step further they also quoting price
with same calculation and losing the order
6. Question #1 – I would have done following things
1. Analyze the strategic Importance:
From the fact, this raw material being used in the Top selling product of the
company, so it has high strategic importance of the purchase. Every savings I do in this
material will give high amount of total margin to the company.
2. Analyze the supplier market complexity :
There are enough suppliers are available to supply firm annual requirement, so it has low
supplier market complexity.
3. Based on this fact I will use KRALJIC Matrix to find Purchasing Portfolio
So based on the above
analysis this item
(Thiosulphate) fall under
leverage category, so I
should explore every option
to establish purchasing
power.
7. Question #1 – I would have done following things
Supplier Positioning:
Using Kraljic matrix, will identify supplier
positioning
Security Critical
Acquisition Profit
Strategic Importance of the Purchase
SupplyMarketRisk
High
Low High
Client & Supplier Integration
Three Faces of Integration
1. Bow Tie
2. Diamond
3. Star
From Purchasing portfolio management, it
is better to have Diamond integration with
supplier to optimize the product cost and
increase the profit.
Intermediate type relationship with stronger
integration along one or more dimensions.
Collaborative AllianceTransactional
8. Question #1 – I would have done following things
Price Analysis :
Types of Market structure & Competition for sourcing and Negotiating strategy
From following analysis, Flint will collaborate with supplier in the production process and
will optimize overall cost of the product. By providing long term business plan and assuring
the continuous business from flint, will take the supplier relation to next level.
9. Sue’s estimation is based on the general supplier, it means any new supplier or one year
old supplier can supply at this cost.
But De Longhi’s is special supplier, who is large producer of equipment and it also very
similar to Flint equipment. So they have all tools and technology to produce the Flint
product at lowest price.
The Main factor of variance is Overhead, it is 73% lower than Sue’s estimate, since they
are large producer of equipment, their overhead is distributed to all the product so it will
have less impact on each product.
Tooling cost , their might be specialized tool because they are producing and supplying
large number of equipment's, own design or specialized product line all are possible.
Less Profit, since the quantity of business is high and being new supplier to attract
customer would have kept low margin.
Difference between De Longhi and Krupps is Tooling cost & Labor cost, it’s also possible
that they might not developed specialized tool which operates more efficiently and
required less labor force, so it can add up the extra cost on each product.
Question #2 – Variance between De Longhi’s Quote & Sue’s
estimate
10. Question #2 – Conclusion about Sue’s Estimation
o It lacks the market analysis, significantly the market structure and type of competition the
product has, this estimation only useful for non critical items.
o It focus only on short –Term, she failed to consider the long term business and profit
supplier going to make.
o As a buyer should explore different type of supplier to get the best price, in this case Sue’s
failed to consider the large equipment manufacture, who is more efficient and competitive
than others.
Question #3 – Recommended action being supply Manager
• From the fact that the product demand is increasing year on year, so it is better to have
collaborative supplier relationship than transactional.
• Reduce overhead cost by providing high quantity of ordered to one supplier who is
agreed to collaborate with you on the process development.
• Revising the price every year based on the quantity of business and improvement in the
process.
• Providing financial assistance to supplier to set-up separate line or specialized process
or technology to optimize the overall product cost.
