As you will see in this case, competitive bidding was used, and it really was not appropriate. It was not achieving the best results for the company. Below are some general facts about the case to help you start thinking about the answers.

The industry profit is about 10%.

The contract is short-term (1 year).

Chicago amortized the setup costs during the first year of successful bidding.

Setup costs are approximately $750,000.00.

Chicago Chemical Company (Chicago) has been a low bidder for five years in a row and makes a large profit each year.

When you put the item out for bid, you received five different bids. Four of the bids need to include the setup costs (or tooling) while Chicago's bid does not include the setup, it is already amortized.

BIDS SUBMITTED

Company	Price Per Drum (S)	Total Annual Price ($): Annual Usage 10,000 Drums
Greater Sandusky	312	3,120,000
Chicago Chemical	297	2,970,000
Tri-Cities	323	3,230,000
St. Louis	332	3,320,000
St. Paul	340	3,400,000

Chicago is not acting in the buyer's best interest and is actually price gouging you to increase its profit.

Chicago has been a good supplier for the past five years, delivering on time and complete. However, you are stuck in a competitive bidding trap. You need to find a way to get out of this competitive bidding trap and reduce the price of this chemical.

Answer the following questions as part of your preparation for the live session, and submit to this page.

• What are three ways that you might overcome this competitive bidding trap and save money for the company?
• How could you quantify these three options?