COLLIER COMPANY I

1. What are the weaknesses inherent in the competitive bidding process that are illustrated by this case?

2. Who do you think should have received the award? Discuss.

3. You are the purchasing manager. What do you do now? Why? Assume that the statement "making the award" means that a purchase order has been sent to vendor D. Assume that you plan to remain as purchasing manager; quitting, retiring, or changing careers are not options here.

The Collier Company is a large electrical manufacturer. Recently, a new division of the company

was started, and entirely new facilities were required. In equipping the new plant, it was decided

that for certain subassembly operations it would be desirable to have production employees

seated at high stools instead of standing at their work benches. Eight hundred and fifty employees

were to be so seated in the new plant.

After investigating many possible stool designs, the plant engineering department and the

personnel department agreed on a certain style of stool that was easily described to the trade as

Carters 816 or equal. Supply management requested bids from most major fabricators of this

type of item, and bids from nine suppliers were received more than ten days before the announced

closing date.

Several days before the final bid date these suppliers started to call the supply manager to

see how they ranked. The supply manager answered their questions honestly with phrases like:

You are not low bidder, but you are fairly competitive.

You are not low bidder. You are way out of line.

You are presently low bidder, but others seem to be revising their bids.

By April 23, the day originally chosen to close bidding, every supplier except supplier C

had submitted at least one revised quotation. (See Exhibit 1.) In most cases, the prices quoted

were substantially below the initial bids.

EXHIBIT 1

UNIT PRICES QUOTED BY SUPPLIERS

Original bid April 23 bid May 7 bid

Supplier A $55.92 $41.10 $34.08

Supplier B 44.70 37.50 31.62

Supplier C 39.48 39.48 39.48

Supplier D 45.36 35.88 30.06

Supplier E 43.86 38.58 31.98

Supplier F 38.70* 37.92 29.88*

Supplier G 39.00 35.40* 30.60

Supplier H 42.78 39.60 31.50

Supplier I 48.60 41.34 33.18

*Indicates low bid.

Late in the afternoon on April 23, two suppliers asked for special permission to make a

final bid on April 24. Since these two firms had been satisfactory suppliers of the Collier

Company for years, the supply manager was anxious to give them any opportunity to keep their

facilities operating in the depressed conditions that then characterized their industry. He gave

them a special extension of one day. By the next afternoon, the supply manager had heard from

three more firms who wanted the same privileges as the two concerns who had rebid. Firms kept

asking for special extensions or equal bid privileges until the supply manager finally said to all

who called that May 7 was the last day he would entertain bids. On May 7 several suppliers asked

for special permission to bid late and were refused. Supplier C still had not called in to change its

original bid.

By May 7, the supply manager felt that all the firms were bidding at less than their total

costs in order to keep their facilities operating at the highest possible volume in this slack period.

He also felt that further price adjustments would be negligible. However, not wanting any

supplier to go out of pocket on the order, the supply manager asked the plant engineers to make

a cost estimate on the chairs. The engineers estimated costs as follows:

Labor $12.00

Materials 13.62

Overhead: 150% of direct labor 18.00

Total cost (excluding profit) $43.62

Having satisfied himself that all suppliers were making some contribution to overhead at

the quoted prices, the supply manager awarded the order to supplier D, who had done business

with the Collier Company in the past and was considered one of the best fabricators in its field.

On May 9, two days after making the award, the supply manager heard from both

supplier C and supplier F.

Supplier C was extremely angry that he had not been told of the acceptance of new bids.

He said that he would write a letter to the vice president of material requesting a review of this

entire deplorable situation. The supply manager informed supplier C that reasonable follow-up

on the latters part would have given him any information available to other potential suppliers.

Supplier C was not at all satisfied with this answer and again expressed his intention to contact

the vice president of material.

Supplier F asked why the supply manager had requested bids at all if his mind had been

made up all along. Supplier F said that the order should have gone to the lowest bidder who

could provide the object desired. He said he could meet the specifications and could deliver to

any schedule supplier D could meet. He demanded the order, and when the supply manager

informed supplier F that final selection of the supplier is entirely my province, the supplier

raged that he would spread the word to the trade and would write the Collier Company

president, who should know of such favoritism and incompetence. He further stated that he

even suspected that money had passed hands for this order

COLLIER COMPANY I

1. What are the weaknesses inherent in the competitive bidding process that are illustrated by this case?

2. Who do you think should have received the award? Discuss.

3. You are the purchasing manager. What do you do now? Why? Assume that the statement "making the award" means that a purchase order has been sent to vendor D. Assume that you plan to remain as purchasing manager; quitting, retiring, or changing careers are not options here.

The Collier Company is a large electrical manufacturer. Recently, a new division of the company

was started, and entirely new facilities were required. In equipping the new plant, it was decided

that for certain subassembly operations it would be desirable to have production employees

seated at high stools instead of standing at their work benches. Eight hundred and fifty employees

were to be so seated in the new plant.

After investigating many possible stool designs, the plant engineering department and the

personnel department agreed on a certain style of stool that was easily described to the trade as

Carters 816 or equal. Supply management requested bids from most major fabricators of this

type of item, and bids from nine suppliers were received more than ten days before the announced

closing date.

Several days before the final bid date these suppliers started to call the supply manager to

see how they ranked. The supply manager answered their questions honestly with phrases like:

You are not low bidder, but you are fairly competitive.

You are not low bidder. You are way out of line.

You are presently low bidder, but others seem to be revising their bids.

By April 23, the day originally chosen to close bidding, every supplier except supplier C

had submitted at least one revised quotation. (See Exhibit 1.) In most cases, the prices quoted

were substantially below the initial bids.

EXHIBIT 1

UNIT PRICES QUOTED BY SUPPLIERS

Original bid April 23 bid May 7 bid

Supplier A $55.92 $41.10 $34.08

Supplier B 44.70 37.50 31.62

Supplier C 39.48 39.48 39.48

Supplier D 45.36 35.88 30.06

Supplier E 43.86 38.58 31.98

Supplier F 38.70* 37.92 29.88*

Supplier G 39.00 35.40* 30.60

Supplier H 42.78 39.60 31.50

Supplier I 48.60 41.34 33.18

*Indicates low bid.

Late in the afternoon on April 23, two suppliers asked for special permission to make a

final bid on April 24. Since these two firms had been satisfactory suppliers of the Collier

Company for years, the supply manager was anxious to give them any opportunity to keep their

facilities operating in the depressed conditions that then characterized their industry. He gave

them a special extension of one day. By the next afternoon, the supply manager had heard from

three more firms who wanted the same privileges as the two concerns who had rebid. Firms kept

asking for special extensions or equal bid privileges until the supply manager finally said to all

who called that May 7 was the last day he would entertain bids. On May 7 several suppliers asked

for special permission to bid late and were refused. Supplier C still had not called in to change its

original bid.

By May 7, the supply manager felt that all the firms were bidding at less than their total

costs in order to keep their facilities operating at the highest possible volume in this slack period.

He also felt that further price adjustments would be negligible. However, not wanting any

supplier to go out of pocket on the order, the supply manager asked the plant engineers to make

a cost estimate on the chairs. The engineers estimated costs as follows:

Labor $12.00

Materials 13.62

Overhead: 150% of direct labor 18.00

Total cost (excluding profit) $43.62

Having satisfied himself that all suppliers were making some contribution to overhead at

the quoted prices, the supply manager awarded the order to supplier D, who had done business

with the Collier Company in the past and was considered one of the best fabricators in its field.

On May 9, two days after making the award, the supply manager heard from both

supplier C and supplier F.

Supplier C was extremely angry that he had not been told of the acceptance of new bids.

He said that he would write a letter to the vice president of material requesting a review of this

entire deplorable situation. The supply manager informed supplier C that reasonable follow-up

on the latters part would have given him any information available to other potential suppliers.

Supplier C was not at all satisfied with this answer and again expressed his intention to contact

the vice president of material.

Supplier F asked why the supply manager had requested bids at all if his mind had been

made up all along. Supplier F said that the order should have gone to the lowest bidder who

could provide the object desired. He said he could meet the specifications and could deliver to

any schedule supplier D could meet. He demanded the order, and when the supply manager

informed supplier F that final selection of the supplier is entirely my province, the supplier

raged that he would spread the word to the trade and would write the Collier Company

president, who should know of such favoritism and incompetence. He further stated that he

even suspected that money had passed hands for this order