The Newgreen Corporation, Hotel division case study

Frederick Gainer, the C.O.O. of the Newgreen Corporation Hotel division, has been getting complaints from various hotels in his chain regarding the quality of the televisions that are currently in use. The complaints seem to center around the size, age, reliability and picture quality. He has asked Amy, the head of Procurement to bring him some details regarding what it might cost to replace and maintain new smart televisions for his top three hotels. Frederick believes that this new technology can be utilized to return more profits for the Hotel division. He would like to see a yearly cleaning and check-up on each TV and would like to see them replaced again at the end of the warranty period to alleviate future problems with these televisions. Amy found that they will require 1,000 SMART TVs and got written quotes from three suppliers. She has narrowed the choices to two finalists; Supplier A which is in her own city and Supplier B which is in a different province. Amy had asked that each supplier quote on installation, removal, maintenance and disposal of the old televisions. Amy found that delivery costs for Supplier A would cost her $45 per TV and the out-of-town TVs from Supplier B would cost her $50 each to have them delivered to the hotels as required. Amy knew that two of her staff had each used two months to gather all of the quotes and data that she needed to proceed. One of her staff earned $70,000.00 per year, and the other earned $85,000.00 per year. For administrative costs she had incurred $95.00 to issue the PO and estimates further administrative costs to be $360.00 per each year thereafter. Dave Brenner, on behalf of Supplier A, was very keen on getting her business and quoted a base price of $675 per television, mounting hardware would be extra at $65 ea. Dave offered an extended warranty for three years at a cost of $135 ea. Supplier A would be on call with equipment support to handle emergencies for a fee of $25/month/TV and would supply the network for these smart TVs at $80/month/TV. Each TV would take one hour to install at a rate of $125/hour

Amy wanted 100 extra remotes to ensure she can quickly replace those that are lost or damaged. Dave says he can sell her 100 remotes at a cost of $20 each. Dave says that his company would go to each hotel on a yearly basis to clean the vents etc. on each unit and test it electronically for any problems. Amy has estimated the cost of this downtime to be $50/hour. Since this is actually downtime on the units, he maintained that he could limit this downtime to 5 hours/TV/year. The supplier would provide a salvage value of $42 per TV and would be done locally. Julia Rawlings from Supplier B quoted a base price of $685 per television, mounting hardware would be extra at only $55 ea. and an extended warranty for three years would cost $130 ea. Julia says her company would be available with equipment support to handle emergencies for a fee of $20/month/TV and would supply the network for these smart TVs at $70/month/TV. Each TV would cost Newgreen only $100 to have them installed as their crew is very proficient at installations. Since Amy wanted 100 extra remotes, Julia says she will give her 50 extra remotes at no extra cost but will have to charge Amy $20 each for the other 50. Julia says that her company would not need to go to each hotel on a yearly basis to clean the vents etc. She says that her company would limit Newgreens downtime to only 1 hour/TV/year by simply swapping each unit annually with a pre-cleaned and tested unit. Amy has estimated the cost of this downtime to be $50,000.00 per year. Old televisions would have a salvage value of $30 per TV and would be done at a reputable recycling facility in her neighboring province.

1. Prepare calculations for the TCO for each of the two purchase options for the Newgreen

Corporation, Hotel division. The money market account for Newgreen Corporation is

currently earning 8% simple interest.

2. Determine from your calculations which is the best purchase option based on this data

alone. Remember; this is not the only criteria for a purchase option. In order to do a

complete assessment, you would need to determine other factors such as supplier capacity,

financial health, ISO certification, etc.

3. Explain, and support, your choice for the best option.

4. Determine from your calculations which are the best possibilities for immediate cost

savings.

5. Explain, and support, your choice for the best possibilities for immediate cost savings