Al$-$Taawoun Company for Equipment and Machinery

Al$-$Taawoun Equipment Company won a contract to manufacture the contents of an intercontinental missile. The tender that the company entered included the purchase of $5,000$ machine casings and $100,000$ transformers. Al$-$Taawoun Company submitted its bid price to a price close to the cost in order to obtain the important contract. As a result, the administration distributed its instructions to all departments on the necessity of raising production efficiency in all fields of work in order to meet this price commitment.

The purchasing manager discovered that the contract stipulates that there will be large interim financial payments during the contract period of two years. Accordingly, the company decided to ignore the phased purchase and content itself with placing purchase orders from abroad for their needs for immediate delivery of all requirements at once now, without distributing the purchase over two years.

The company now wants to contract with suppliers for the envelopes and adapters, and it conducted price negotiations and was able to obtain prices much lower than the prices it committed to in the missile contract. The result of negotiations with competing suppliers was that the company awarded the supply of transformers to one supplier while the enclosures were supplied to two companies with which Al$-$Taawoun had strong previous contractual relationships.

It was explicitly agreed with the transformer supplier that the defective transformer would be replaced within one year from the date of delivery. The Quality Inspection and Inspection Department at Al$-$Taawoun Company was conducting another inspection of the goods based on the nature of each commodity.

When the company found that the price of transportation from the supplier$$s factory to the company$$s buildings had increased, the cooperation company decided to carry out quality inspection within the supplier$$s factories. Statistical sampling was used in the case of high$-$tech goods with short tolerance levels. As for goods bearing warranty status, inspection by the receiving department is sufficient $($usually ready$-$made goods on the shelf$).$

After $16$ months, defective transformers were discovered while $30\%$ of the transformers were under manufacturing. Because Al$-$Taawoun Company knows that all of its departments are working at full or above capacity, its contract with one of the packaging suppliers stipulates that the inspection will be carried out by Al$-$Taawoun employees inside the supplier$$s factory, and this in turn reduces the pressure on Al$-$Taawoun$$s facilities. Each envelope required $45$ minutes of examination and inspection because the tolerance level was small. As for the second supplier of envelopes, the contract with him is subject to the Al$-$Taawoun Company Purchase Orders Law, which stipulates that $$the materials are subject to examination and inspection within $75$ days from the date of delivery.$$

When the pre$-$screened materials reach the cooperation company, they go directly to the production line. The envelopes received from the other supplier were placed in the warehouses for later use. This procedure was followed by the examination and inspection department due to the large number of activities and concerns carried out by the department during the initial stages of the contract. The envelopes were delivered from both suppliers within four months. After more than seven months, the manufacturing of the envelopes received from the second supplier in the production line began. The result of examining the first $10$ envelopes was that they were rejected because the holes placed in the envelopes were in the wrong place.

As a result of this defect in the envelopes, the supplier was summoned, who in turn refused to take responsibility for replacing the envelopes. The supplier indicated that Al$-$Taawoun would have had plenty of time to discover the errors if they had conducted the inspection within the specified period and the defects would have been corrected before completing delivery of the order. Because the supplier has received all his financial rights from Al$-$Taawoun Company, it is assumed that the shipment was satisfactory. The supplier admitted, however, that the holes are a little far from their supposed location, but Al$-$Taawoun, through its long dealings with them, was setting a tolerance level in line with the defects now present in the envelopes. The supplier added that Al$-$Taawoun should have warned us in advance that the situation now is different from previous contracts and that it is subject to a different level of acceptance.

Discussion Questions:

$1.$ What steps should the purchasing manager at Al$-$Taawoun Company take regarding these two cases? What is required is to propose a solution to this problem, and this will require the company to bear a financial loss as a result of negligence.

$2.$ Could this situation have been avoided? That is$,$ what is required is to propose