Read the following case and answer the two questions that follow: Purchasing and logistics.

Specific approved suppliers were usually dictated by customers. Lead times from these global suppliers could be up to 12 weeks. Customers’ initial delivery schedules were often stable Globalcast was one of the world’s largest manufacturers of metal and plastic moulded components to almost every industry, including automotive, consumer durables, telecommunications, computers, power tools, etc. With over 100 manufacturing facilities, it operated on every continent, usually in areas of established or emerging industrialization. In Europe there were large factories in the UK, Germany, France, Spain and Italy, and smaller ones in Scandinavia, Austria, Turkey and Israel. Every factory was considered to be a semi-autonomous profit centre and was headed up by a general manager. Each reported to a regional manager of one of the divisions (for example, Plastic Division). New business was generated both by national marketing and by word-of-mouth recommendations from existing customers, but most orders were for regular repeat business or for new designs from existing customers. The role of the small technical sales team at each factory was to follow up enquiries with technical advice visits to the customer, followed by the preparation of quotations. In many cases, Globalcast provided design assistance to the customers. It was the role of the advisor to suggest ways of simplifying the overall design which would be cheaper for the customer, whilst being fast, easy and profitable to produce in the factory. Mould costs were calculated and quoted too, and in most cases the customer would pay for the moulds from the outset, retaining ownership. Globalcast organized the purchase of the moulds, costing up to 50 000 each, and could make a small profit on this activity. In the early 2000s, the market has started to change rapidly. First, major customers such as Hewlett Packard, Dell, Ford, GM and Black and Decker started building new factories in developing countries. These were being established both to exploit the benefits of lower wages and overheads and as market-entry points for these rapidly developing economies. In most cases, however, large proportions of their output would serve existing markets throughout the world. Because Globalcast was one of the most important suppliers (only about five competitors had worldwide coverage), it was often encouraged by its customers to established supply factories in the same regions, ideally on adjacent sites. Customers explained that business was, in part, being transferred to their new sites, and since Globalcast had been selected as a preferred supplier, it had the opportunity to benefit from on-going business development and growth. Attractive forecasts were provided, but not guaranteed. ‘Partnership’ would be established where Globalcast had the benefit of sole-supplier status to the customer’s local plant. The second change was the trend for customers’ products to be of globally standard designs. This allowed buyers to purchase components for their many factories around the world, from virtually any approved supplier anywhere. Therefore they were in a powerful position to restrict the number of suppliers, as well as demanding a single global, low price. For Globalcast this provided a new set of problems; its costs had varied widely around the world, depending mainly on local labour and overhead costs. Selling prices had varied according to costs and local commercial conditions, but detailed costs of production had never been disclosed to customers. However, customers would now be able to ‘shop around’ and find the lowest Globalcast price for themselves. At the same time, each Globalcast general manager had tried to defend his or her business, even if that involved buying in the components from other company sites and adding a profit before selling to the customer. This was now becoming too obvious to large customers. The third significant market trend was that customers increasingly wanted suppliers to do more assembly (‘value-added’) work. At its simplest, this could involve simply snapping together two parts. Alternatively, it could require complex purchasing, assembly and testing of major sub-assemblies. To do this, Globalcast would need to invest in assembly lines, testing equipment, storage, component and finished goods inventory, and systems to support and close to forecast levels, but could vary wildly as competitive forces affected customers’ sales. But, overall, this type of work did appear commercially attractive, typically bringing in up to 10 times the revenue of a simple moulded part. The opportunity to become a ‘first-tier’ supplier to some of the world’s leading manufacturers was hard to resist. Indeed, supplying global customers was the mainstay of the strategic plan for the new decade.

Question 1 

In responding to the third emerging trend, while also ensuring that challenges highlighted in trend 1 and trend 2 are addressed too, you, as procurement specialist at Global cast, have been approached to advise on a suitable procurement strategy, system, process and supplier selection criteria to utilize in engaging global suppliers preferred or “approved” by Global cast customers. Analyse the case extensively and prepare a strategy document for consideration by Global cast Executive Committee with your recommendations.

Question 2

Given the nature of the challenges at Global cast and your analysis in Question 1, what considerations should the organisation take when approaching contracts? Please elaborate.