As Sarah Jenkins, what recommendations would you make regarding the selection of a gearbox supplier? Be prepared to justify your recommendation.

Case 7-2 Caledon Concrete Mixers As Sarnh Jenkins, materials manager a Caledon Concrete was in supply, where combining purchases between the two Mixers, ended her conference call with Jon Del Rosario Operations for some products had yielded significant savings. from corporate purchasing, she wondered what recommen o n Del Rosario, purchasing manager in the corporate pur- dations she should make regarding the selection of a bearbox chasing group in Chiapa, was responsible for coordinating supplier. The carparme purchasing group in Chicago w purchasing between the Caledon and St Louis plants. advocaine switching to a new supplier, but Sarah remind Sarah Jenkins was responsible for materials manage- concemned about the risks of ending a long term supply ar- ment a CCM An MBA graduate from the Ivey Business rangement with a key supplier. It was a December the School, Sarah had worked at CCM for more than 20 years. 3rd and she wanted to make a final recommendation before Reporting to the general manager, her responsibilities in the plam shundown for the annual Christmas holiday break cluded logistics and transportation, purchasing, mentory control and production planning. Her counterparts in fi- CALEDON CONCRETE MIXERS nance and accounting, quality, operations, sales, HR. and Located worth of Toronto, Canada, in Calestan, Ontario engineering rounded out the senior management team en Caledon Concrete Mixers (CCM w a manufacturer THE GEARBOX of track-mounted concrete mixers Founded in 1910, the company employed 110 people in its 1500 square foot while the concrete mixer truck was in operation, it was plan, includine 10 unionized hourly workers and had decesary to continuously rotate the load to prepare the annual sales of a nimately $35 million Newly per concreted and consolidation. The gearbox was locat Set of m y sales were exposed mainly to the United ed at the bottom of the large mixing drum and was used States to tramit true from the hydraulic coor die shan CCM had a sing reputation for quality and sense in which notated the drums The gearbox also permitted the the industry. It wented a private business til 2003. adjust the s ame direction of the station when it was purchased by llinois Machinery Co tion The box was one of approximately 150) compe- IMC IMC was a global manufacturer and marketer of hers that CCM used for the ceny of their concrete acce equipment special vehicles and truck hadist ers. The you used by CCM ume in two in the defensarele placement, rosehing t on depending on the model of the crete miserach imately and mes al CCM Tire and emergency markets Annual reves in the meta l cost RODOK De 2 T urching dones Type here to search w Management 211/561 for the ceremse, Concrete pe r seming, and ons, opening cere TLC TITET fire and emergency markets. Annual revenues in the most rearbox Sto mately 53.600 and volumes CCM current fiscal year were 59 billion and IMC had approxi- ranged from 950 to 1.100 units per year. mately 18,000 employees. Concrete mixer transport trucks were designed to mix CURRENT SUPPLY ARRANGEMENT concrete and haul it to the construction site. Customers typically specified the truck model, which was ordered CCM and the St. Louis operation both used ROK GmbH from the original equipment manufacturer. CCM fitted the as the single source for pearbores. BGK was a large diver vehicle with the concrete mixing equipment, which includ ified German manufacturing company with annual rev ed a large drum and discharge system. Systems were cusenues of 12 billion cunos. The division that supplied CCM tomized based on vehicle size 8.26 axles, discharge produced gearboxes for industrial applications in a wide system front or rear), and capacity (maximum capacity to range of industries, such as material handling equipment carry 14 cubic yards of payload). energy and mining. The company had a reputation for high IMC had an operation in St. Louis that manufactured a quality and reliability, although its products were typically similar product line to CCM under a different brand nume, more expensive than those of their competitors, with annual revenues approximately double the Canadian The relationship with CCM and BGK doted back more plant. Although IMC operated under a decentralized model than 30 years. BGK offered in standard one year warranty on CCM and the St. Louis operation cooperated in areas ofenel is gearboxes, but Sarah was not aware a CCM had ever neering, purchasing, and sales while operating autonomously experienced any notable quality problems and customers with separate leadership teams One key area for synern were generally satisfied with performance of the p lace Chapter 7 Quality 195 IMC had th e supplier for distribution call including lead times and North IMC had also used RGK as their single supplier for many distribution capabilities, including lead times and North years. At the time of the acquisition of CCM, the IMC American warehousing arrangements. Delivery would be chasing group was surprised to learn that CCM had a better FOR the London and St. Louis facilities. price for its gearboxes Prices for both CCM and IMC were GR Industries was an Italian company, but its manu- aligned folkowing the completion of the acquisition in 2003. facturing operations were mainly in Eastern Europe and Despite the long history with BOK, both CCM and IMC Asia. Revenues for IGR were approximately 1.5 billion had become increasingly unhappy with the rice and recurons, with sales concentrated primarily in Europe and sponsiveness of the supplier and its apparent unwillingness Asia. It had a good reputation for quality, claiming that to react to their concerns. Strong cunomie expansion in its failure mate was 1.0 percent. IGR did not currently sup- Asia created increased demand for BGK gearboxes and the ply prodext to North America, but proposed setting up a company was unable to expand capacity to keep pace with distribution facility in the Missouri region as part of their increasing sales. It had been hampered by a combination of proposal. Under this arrangement, IGR promised just-in- restrictive labor rules in Germany regarding overtime and a time delivery to IMC and two-day delivery to CCM IGR steel shortage two vears prior quoted a price of $3,400, with an annual adjustment for Second, BGK did not have distribution operations in currency fluctuations, between the US dollar and the cuno. North America Gearboxes were shipped via em freight and Meel pricing. It also offered a five year warranty and and lead times to the Caledon plant ranged from three to five ay payment terms. months. As a result, CCM was forced to keep a three- Moretti SpA was also an Italian manufacturer with supply of safety stock inventory on hand. Even with this pre- sales of approximately I billion cox had operations in caution supply shortages had threatened plant shutdowns I countries, including the United States. Approximately co several occasicers during the previous two years with five years ago Moretti had experienced a quality problem 50 percent of CCM sales coming from our customers, with its gearbox, involving an oil leak. The oil leak prol changes in customer orders could have a significant effect lem became a majce I c tors had become in- on demand and inventories to add to Sarah's frustration creasingly sensitive to potential environmental problems BGK shipped only full contain loads od Sunil whereas at cestruction sites. However, according to company of production in some months w as kwas 20 units ficials the oil leak problem had since benadressed and Lastly, custom estacions for warranty and service the company claimed that del testing indicated a were increasing, yet BGK was unwilling to extend its wat delectate of 1.5 percent of its product after three years of ranty Curve without an increase the supplace r at Morcil kiled a price of SINI, with an an- referenced its quality data which the knot fail- adjustment for currency fixtuations between the US urere in the industry at 0.5 percent. However, as mais dollar and the eura. The company also offered a five-year 5 PM Type here to search oe e W P Purchasing Caleden AB 4* W econ X + OF C/Users/user/Downloads/P.9.20Fraser.20ohnson20Anna 20 2 0-N20Purchasing. 20and%20Supply%20Management McGraw-His20decale d Supply Management 212/561 referenced its quality data, which boasted the lowest fail mual adjustment for currency fluctuations between the U.S. ure mite in the industry at 0.5 percent. However, as margins dollar and the curo. The company also offered a five-year on CCM's products shrank and customer demands grew, warranty and a consignment inventory arrangement. Under Sana and her peers in the purchasing organizntion at IMC the consignment inventory system, Moretti would own the had become frustrated by the lack of responsiveness from inventory at CCM and IMC until the gearboxes were as- their supplier and decided to test the marketplace sembled into the vehicle, at which point an invoice would be issued, with a 30 day payment term. SUPPLY OPTIONS BGK's proposal was to extend the current supply ar- rangement, which included a price of $3.600 that was sub- The decision was made in September to solicit RFOs forject to annual adjustments and a standard one-year war the combined gearbox volumes of CCM and IMC. Sarah ranty. Lennart Wagner, the sales representative for BGK led the RFO process and identified five potential suppliers indicated that the company was not prepared to set up a including BGK, two of which were not invited to partici- North American distribution facility. He indicated to Sarah pate because they currently supplied product exclusively to that BGK was the world leader in gearboxes, and the high Asia. The two new firms asked to participate were Moretti quality of their product should represent a significant sell- SpA and IGR Industries ing feature of CCM's concrete mixers "The RFQ S cited a five year contract for 100 percent of volumes for CCM and IMC representing an annual vol THE SUPPLIER SELECTION DECISION ume of 200 1 330) units per year. Ech uplier was asked to submit qorxes in U.S. funds that included stable Sarah bad developed a supplier evaluation framework pricing for the term of the contract. Warranty termis, and that anked each supplier in ihrens price, warranty EXHIBIT 1 Supplier Evnluntions Value BGK IGRS Moretti Rating Score Rating Score Rating Score 10581209135 25735 609 180 35 Evaluation Criteria Price Warranty Lead time Inventory cost Logistic Distribution Order flexibility Payment terms Supplier financial stability a on N w a 35 380 750 680 reg., length of warranty lead time inventory costs te holding costs and need for safety stocks logistics distribution North American distribution capabili Test under flexibility fee ability to make changes to orders payment terms and supplier financial stability Each criterion was assigned a weight and suppliers were evaluated on scale of poor to excellenti. Exbibit provides a breakdown of Sarah's rankings for the three Suppliers As Sarah reviewed the data in the supplier evaluation franchork, she wondered if it adequately represented the trade-offs among the three supply alternatives. Based on her analysis, ICR Industries would become the new year buix supplier, which would mean snding their relationship with supplier that had lasted more than three decades. She needed to finalide her recommendation before planned conference call with Joni Del Rosann and the head of purchasing at the IMC in St. Louis the following week Case 7-3 Wentworth Hospital 2 . Piching. Caledon C B D Case 7-2 Caledon Concrete Mixers As Sarnh Jenkins, materials manager a Caledon Concrete was in supply, where combining purchases between the two Mixers, ended her conference call with Jon Del Rosario Operations for some products had yielded significant savings. from corporate purchasing, she wondered what recommen o n Del Rosario, purchasing manager in the corporate pur- dations she should make regarding the selection of a bearbox chasing group in Chiapa, was responsible for coordinating supplier. The carparme purchasing group in Chicago w purchasing between the Caledon and St Louis plants. advocaine switching to a new supplier, but Sarah remind Sarah Jenkins was responsible for materials manage- concemned about the risks of ending a long term supply ar- ment a CCM An MBA graduate from the Ivey Business rangement with a key supplier. It was a December the School, Sarah had worked at CCM for more than 20 years. 3rd and she wanted to make a final recommendation before Reporting to the general manager, her responsibilities in the plam shundown for the annual Christmas holiday break cluded logistics and transportation, purchasing, mentory control and production planning. Her counterparts in fi- CALEDON CONCRETE MIXERS nance and accounting, quality, operations, sales, HR. and Located worth of Toronto, Canada, in Calestan, Ontario engineering rounded out the senior management team en Caledon Concrete Mixers (CCM w a manufacturer THE GEARBOX of track-mounted concrete mixers Founded in 1910, the company employed 110 people in its 1500 square foot while the concrete mixer truck was in operation, it was plan, includine 10 unionized hourly workers and had decesary to continuously rotate the load to prepare the annual sales of a nimately $35 million Newly per concreted and consolidation. The gearbox was locat Set of m y sales were exposed mainly to the United ed at the bottom of the large mixing drum and was used States to tramit true from the hydraulic coor die shan CCM had a sing reputation for quality and sense in which notated the drums The gearbox also permitted the the industry. It wented a private business til 2003. adjust the s ame direction of the station when it was purchased by llinois Machinery Co tion The box was one of approximately 150) compe- IMC IMC was a global manufacturer and marketer of hers that CCM used for the ceny of their concrete acce equipment special vehicles and truck hadist ers. The you used by CCM ume in two in the defensarele placement, rosehing t on depending on the model of the crete miserach imately and mes al CCM Tire and emergency markets Annual reves in the meta l cost RODOK De 2 T urching dones Type here to search w Management 211/561 for the ceremse, Concrete pe r seming, and ons, opening cere TLC TITET fire and emergency markets. Annual revenues in the most rearbox Sto mately 53.600 and volumes CCM current fiscal year were 59 billion and IMC had approxi- ranged from 950 to 1.100 units per year. mately 18,000 employees. Concrete mixer transport trucks were designed to mix CURRENT SUPPLY ARRANGEMENT concrete and haul it to the construction site. Customers typically specified the truck model, which was ordered CCM and the St. Louis operation both used ROK GmbH from the original equipment manufacturer. CCM fitted the as the single source for pearbores. BGK was a large diver vehicle with the concrete mixing equipment, which includ ified German manufacturing company with annual rev ed a large drum and discharge system. Systems were cusenues of 12 billion cunos. The division that supplied CCM tomized based on vehicle size 8.26 axles, discharge produced gearboxes for industrial applications in a wide system front or rear), and capacity (maximum capacity to range of industries, such as material handling equipment carry 14 cubic yards of payload). energy and mining. The company had a reputation for high IMC had an operation in St. Louis that manufactured a quality and reliability, although its products were typically similar product line to CCM under a different brand nume, more expensive than those of their competitors, with annual revenues approximately double the Canadian The relationship with CCM and BGK doted back more plant. Although IMC operated under a decentralized model than 30 years. BGK offered in standard one year warranty on CCM and the St. Louis operation cooperated in areas ofenel is gearboxes, but Sarah was not aware a CCM had ever neering, purchasing, and sales while operating autonomously experienced any notable quality problems and customers with separate leadership teams One key area for synern were generally satisfied with performance of the p lace Chapter 7 Quality 195 IMC had th e supplier for distribution call including lead times and North IMC had also used RGK as their single supplier for many distribution capabilities, including lead times and North years. At the time of the acquisition of CCM, the IMC American warehousing arrangements. Delivery would be chasing group was surprised to learn that CCM had a better FOR the London and St. Louis facilities. price for its gearboxes Prices for both CCM and IMC were GR Industries was an Italian company, but its manu- aligned folkowing the completion of the acquisition in 2003. facturing operations were mainly in Eastern Europe and Despite the long history with BOK, both CCM and IMC Asia. Revenues for IGR were approximately 1.5 billion had become increasingly unhappy with the rice and recurons, with sales concentrated primarily in Europe and sponsiveness of the supplier and its apparent unwillingness Asia. It had a good reputation for quality, claiming that to react to their concerns. Strong cunomie expansion in its failure mate was 1.0 percent. IGR did not currently sup- Asia created increased demand for BGK gearboxes and the ply prodext to North America, but proposed setting up a company was unable to expand capacity to keep pace with distribution facility in the Missouri region as part of their increasing sales. It had been hampered by a combination of proposal. Under this arrangement, IGR promised just-in- restrictive labor rules in Germany regarding overtime and a time delivery to IMC and two-day delivery to CCM IGR steel shortage two vears prior quoted a price of $3,400, with an annual adjustment for Second, BGK did not have distribution operations in currency fluctuations, between the US dollar and the cuno. North America Gearboxes were shipped via em freight and Meel pricing. It also offered a five year warranty and and lead times to the Caledon plant ranged from three to five ay payment terms. months. As a result, CCM was forced to keep a three- Moretti SpA was also an Italian manufacturer with supply of safety stock inventory on hand. Even with this pre- sales of approximately I billion cox had operations in caution supply shortages had threatened plant shutdowns I countries, including the United States. Approximately co several occasicers during the previous two years with five years ago Moretti had experienced a quality problem 50 percent of CCM sales coming from our customers, with its gearbox, involving an oil leak. The oil leak prol changes in customer orders could have a significant effect lem became a majce I c tors had become in- on demand and inventories to add to Sarah's frustration creasingly sensitive to potential environmental problems BGK shipped only full contain loads od Sunil whereas at cestruction sites. However, according to company of production in some months w as kwas 20 units ficials the oil leak problem had since benadressed and Lastly, custom estacions for warranty and service the company claimed that del testing indicated a were increasing, yet BGK was unwilling to extend its wat delectate of 1.5 percent of its product after three years of ranty Curve without an increase the supplace r at Morcil kiled a price of SINI, with an an- referenced its quality data which the knot fail- adjustment for currency fixtuations between the US urere in the industry at 0.5 percent. However, as mais dollar and the eura. The company also offered a five-year 5 PM Type here to search oe e W P Purchasing Caleden AB 4* W econ X + OF C/Users/user/Downloads/P.9.20Fraser.20ohnson20Anna 20 2 0-N20Purchasing. 20and%20Supply%20Management McGraw-His20decale d Supply Management 212/561 referenced its quality data, which boasted the lowest fail mual adjustment for currency fluctuations between the U.S. ure mite in the industry at 0.5 percent. However, as margins dollar and the curo. The company also offered a five-year on CCM's products shrank and customer demands grew, warranty and a consignment inventory arrangement. Under Sana and her peers in the purchasing organizntion at IMC the consignment inventory system, Moretti would own the had become frustrated by the lack of responsiveness from inventory at CCM and IMC until the gearboxes were as- their supplier and decided to test the marketplace sembled into the vehicle, at which point an invoice would be issued, with a 30 day payment term. SUPPLY OPTIONS BGK's proposal was to extend the current supply ar- rangement, which included a price of $3.600 that was sub- The decision was made in September to solicit RFOs forject to annual adjustments and a standard one-year war the combined gearbox volumes of CCM and IMC. Sarah ranty. Lennart Wagner, the sales representative for BGK led the RFO process and identified five potential suppliers indicated that the company was not prepared to set up a including BGK, two of which were not invited to partici- North American distribution facility. He indicated to Sarah pate because they currently supplied product exclusively to that BGK was the world leader in gearboxes, and the high Asia. The two new firms asked to participate were Moretti quality of their product should represent a significant sell- SpA and IGR Industries ing feature of CCM's concrete mixers "The RFQ S cited a five year contract for 100 percent of volumes for CCM and IMC representing an annual vol THE SUPPLIER SELECTION DECISION ume of 200 1 330) units per year. Ech uplier was asked to submit qorxes in U.S. funds that included stable Sarah bad developed a supplier evaluation framework pricing for the term of the contract. Warranty termis, and that anked each supplier in ihrens price, warranty EXHIBIT 1 Supplier Evnluntions Value BGK IGRS Moretti Rating Score Rating Score Rating Score 10581209135 25735 609 180 35 Evaluation Criteria Price Warranty Lead time Inventory cost Logistic Distribution Order flexibility Payment terms Supplier financial stability a on N w a 35 380 750 680 reg., length of warranty lead time inventory costs te holding costs and need for safety stocks logistics distribution North American distribution capabili Test under flexibility fee ability to make changes to orders payment terms and supplier financial stability Each criterion was assigned a weight and suppliers were evaluated on scale of poor to excellenti. Exbibit provides a breakdown of Sarah's rankings for the three Suppliers As Sarah reviewed the data in the supplier evaluation franchork, she wondered if it adequately represented the trade-offs among the three supply alternatives. Based on her analysis, ICR Industries would become the new year buix supplier, which would mean snding their relationship with supplier that had lasted more than three decades. She needed to finalide her recommendation before planned conference call with Joni Del Rosann and the head of purchasing at the IMC in St. Louis the following week Case 7-3 Wentworth Hospital 2 . Piching. Caledon C B D