Frich Turbo Engines: Using Cost Plus Analysis to inform Purchasing Decisions You are the new purchasing manager for Frich Turbo Engine Company, Frich makes engines that use a forced induction device to increase airflow to the engine combustion chamber. This forced induction, created through the use of turbines, means more air-and more fuel - moves through the combustion chambet as compared to simple atmospheric pressure intake alone. As a result, Frich's turbo engines yield a high level of performance for customers. Last year, Frich requested bids for valves that go into the assemblies of the company's engines. They received the following bids from three suppliers: Materials Direct Labor Overhead Factory Cost SGA Product Cost Profit Product Price Tooling Total Price Last Year Bids Bayfleet Union 0.414 0.408 0.288 0.400 0.317 110% 0.300 75% 1.019 1.108 0.061 6X 0.022 2% 1.080 1.130 0.054 5% 0.102 9% 1.134 1.232 0.104 0.232 $ 1.238 $1.064 Fingold 0.448 0.334 0.516 150% 1.308 0.065 5% 1.373 0.137 10% 1.511 0.192 $1.703 Last year, Frich decided to dual source with both Bayfleet and Union. At the end of last year, both suppliers called to tell you they needed a 25% price increase moving forward. Bayfleet explained the increase was because their material costs had increased 25%. Union told you that their labor costs had increased by 25% Fingold didn't submit a new cost plus, but told you that they would like your business and will give Frich a 5% reduction from last year's quote Note that last year, both Bayfleet and Union were very good suppliers, Both graded in the 90's on their supplier scorecards while your predecessor quoted Fingold 5% 9% 10% Product Cost Profit Product Price Tooling Total Price 1.080 0.054 1.134 0.104 $ 1.238 1.130 0.102 1.232 0.232 $1.464 1:37 0.137 1.511 0.192 $1.703 Last year, Frich decided to dual source with both Bayfleet and Union. At the end of tast year, both suppliers called to tell you they needed a 25% price increase moving forward. Bayfleet explained the increase was because their material costs had increased 25%. Union told you that their labor costs had increased by 25% Fingold didn't submit a new cost plus, but told you that they would like your business and will give Pricha 5% reduction from last year's quote. Note that last year, both Bayfleet and Union were very good suppliers. Both graded in the So's on their supplier scorecards. While your predecessor quoted Fingold last year, Frich has not purchased any products from Fingold in the past year, Given the three bids that Frich received last year, and the new information from Baytleet, Union, and Fingold develop a sourcing strategy as outlined on the next page: 1. Use cost plus analysis to gain a better understanding of what factors are driving the price for each supplier. a. What are the new quoted prices from Bayfleet, Union and Fingold? b. What is the highest price that you are willing to pay Bayfieet, Union and Fingold given your cost plus analysis? 2. Complete a 90% Learning Curve for Bayfleet and Union, assuming that the material (Baytleet) or labor (Union) increases are real. Assume that Baytleet and Union had 10 runs of valves last year 3. With the information from your analyses in #1 and 2 above how would you position your negotiation with each supplier to achieve the best results for Frich? Develop a well-reasoned strategy that is supported by specific evidence from your cost plus and learning curve analyses