SMC is a world leader in the design and manufacturing of industrial gas turbines. SMC has been in business for over sixty years, with a great reputation for high-quality products. Its reputation is maintained by customer satisfaction with its timeliness, quality, and design. The main goal of SMC's supply management team is to maximize value at the lowest possible cost. Mutually beneficial supplier management has kept its goals a reality. SMC monitors price, quality, service, and annual improvements of each of its significant suppliers.

The supply management department is divided into two subdivisions: direct material and indirect material. Greg Barnes is an associate supply manager in the direct material division. Greg was recently contacted by his supervisor, Earl Lupton, regarding a quality problem in the procurement of sand castings. Sand castings are a very essential part of every turbine, costing between $6,000 and $10,000 per turbine, depending on the design. Sand castings are frequently purchased and, coupled with their relatively high price, represent a significant segment of SMC's total purchases. Greg was assigned the task of finding the source of the quality problem and suggesting possible solutions.

After investigating the problem, Greg discovered that only three out of ten of the sand castings received were acceptable for the production process. SMC currently uses seven different suppliers of these crucial parts. Producing the sand castings is considered an age-old process; however, it seems that the problems cannot be assigned to any one specific cause. SMC often receives parts that are too small or too large for the particular turbine into which they are to be built.

When SMC receives a faulty sand casting, it must be either sent back to the supplier for rework or completely scrapped depending on the severity of the problem. The sand castings are such an integral part of the turbine that faulty sand castings slow down or even shut down production altogether. This can lead to late deliveries, high-dollar loss on scrapped materials, and ultimately customer dissatisfaction.

Greg considered the option of buying a higher grade of materials to replace the trouble plagued sand castings. Unfortunately, prices on the better grades of material were over twice the price of the castings. SMC cannot realistically produce the sand casting itself due to extremely high tooling costs. Greg has a meeting with Earl Lupton in one week and must have a viable proposal to alleviate the problem.

Required:

Using the principles of supply management that you have studied explain the options that are available to Greg. What actions would do you recommend?