Procurement Management

Homework Chapter 2
Full name: Đỗ Đức Trí Nhân
Student ID: IELSIU17088

Case 4-1: Bright Technology International

Bob Renwick, purchasing manager at Bright Technology International (BTI), was considering a
quotation from Electronix for supply of MJ10012 transistors. This was the third time this month he had
been asked to consider a volume purchase for a component; he wondered what purchasing policies, if
any, he should establish for such situations. Bob had to respond to the supplier’s proposal before the end
of the week, and he felt that the MJ10012 transistor purchase would provide a good basis in which to
change the current approach used to acquire similar components.

Company background
The company focused exclusively on fluorescence instrumentation and distinguished itself in the
marketplace by providing exceptional product support.

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Applications included studying dynamics of the folding of proteins, measuring concentrations of ions
inside living cells, studying membrane structure and function, investigating BTIs products included

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spectrofluorometers and ratio fluorescence systems.
Management expected that approximately 50 percent of its sales for the coming year would be outside

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the United States and Canada.
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Purchasing at BTI
Although Bob worked with more than 400 vendors, many of whom were located outside North America,
approximately three-quarters of the total dollar value for his orders were for custom-designed
components, while the balance of the orders was for Basic items.
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In recent years, there had been a trend of consolidation among the manufacturers of electrical
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components and optical parts, and the remaining players were mostly big companies with significant
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bargaining power.

The MJ10012 transistor

The MJ10012 was a transistor used in the power supply Two transistors and the annual demand for this
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kind of Transistor had increased over the past few years.

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The expected demand for the coming year was estimated to be BTI had been using transistors
manufactured by Steyn Technologies.
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Conclusion
Bob had to make purchasing decisions about hundreds of different parts; and although the MJ10012
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transistor decision was a minor one in terms of dollar amount, it represented a typical issue in the
purchase of electrical and optical parts that was of growing concern to him.
If, on the other hand, he was going to buy the transistors from Electronix, how many should he order?
The controller had indicated that it cost about $50 to process an order, and besides, Bob felt his time was
best spent on other matters.

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 Case 4-2: Hemingway College
Catherine Barkley, manager of purchasing and accounts payable at Hemingway College in Fresno,
California, stared at the latest e-mail from one of her staff. Catherine was supposed to make a proposal
to her manager, Dan Kavaliers, at a meeting the next day.

Hemingway College
Hemingway College was a community college with approximately 12,000 students. All of its 78
postsecondary certificate and diploma programs remained popular and student intake was on the rise.
Catherine reported to Dan Kavaliers, the vice president of finance and corporate services. She was
responsible for a staff of 11 people, including four buyers, an accounts payable manager, four accounts
payable clerks, a traffic and customs officer, and an administrative assistant.

Resource planning system

Two years prior, senior management at Hemingway College decided to implement a new ERP system.
It was also felt that this would be a good time to integrate various areas—finance, human resources, and
student information—as well as upgrade to the latest technology in the market.

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The first group to get involved in the implementation of the new ERP system was finance, which
implemented a new general ledger, including a coding structure for the new system. The next set of

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processes to be brought on the new system were the purchasing and accounts payable systems, because
they tied in most closely with the general ledger.

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Implementing the purchasing module
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Catherine had held her first meeting with EduSoft staff the previous August to start planning the
implementation. As team lead for implementing the purchasing module, she quickly realized that there
were quite a few challenges ahead. EduSoft, however, had its own functional assumptions on policies
and department needs built into the system. From October to December of the previous year, the new
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purchasing and accounts payable system was tested for the availability of features and for access and
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security issues.
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Training
Currently, the staff training meetings typically lasted 15 to 20 minutes held every day or every second
day, focused around specific issues that had come up while using the system, rather than the broad-based
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training sessions on policy and process change matters held earlier. So far, Catherine had been receiving
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a continual flow of problems encountered by staff trying to use the new system to deliver the functions
they wanted.

Implementation schedule
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The current schedule called for purchasing and accounts payable to complete implementation of its
modules by the end of June in order that its systems would be functional for the start of the school year
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in August. The director of human resources and vice president of finance and corporate services were
adamant that they wanted to avoid running two systems for employee records. Delaying implementation
of the purchasing and accounts payable modules also would create problems.

Alternatives
This approach would require her to increase staff overtime dramatically and add temporary staff.
Catherine would need to hold a one-week workshop with her staff to clear up systems problems and
establish a new project plan. She estimated that staff overtime costs would be approximately $3,000 per
week and four temporary staff, at a cost of approximately $2,000 per week, would be required. Even
with the extra resources, Catherine remained concerned about the ability of her department to keep up
with its normal activities, and ultimately staff burnout, if this alternative was adopted.

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 The consultants would require some support from Catherine’s staff, but there would be no need for
additional overtime or temporary staff beyond the current budget. While this option was more
convenient, Catherine was concerned about its higher costs and the implications of using a third party to
implement the modules.

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 Case 4-3: Portland Bus Company
Richard Kaplan, buyer at Portland Bus Company, in Portland, Oregon, was preparing for his meeting
with Laura Henning, business consultant for Bothe US operations, on October 14. Laura would be
assisting Richard in managing a series of reverse auctions for approximately 290 components involving
seven suppliers.

Portland bus
PBC was owned by Dawe Motors, a leading global producer of passenger cars and commercial vehicles,
headquartered in the United Kingdom. The Portland plant assembled body shells for the Dawe Bus
Division. Approximately 550 people worked at the PBC plant. David McGregor, director of materials,
headed a staff of 12 people, who were responsible for materials planning, inventory control, and
purchasing. However, approximately 75 percent of purchases were set up through corporate purchasing
with strategic suppliers, leaving about $60 million to be sourced through David’s organization.

Metal components
During the last three months, Richard had analyzed the companies spend in three fabricated metal parts

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categories: hinges, brackets, and ducts. It had been more than two years since a thorough review of these
commodity categories had been conducted, and Richard felt that under current market conditions,

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significant opportunities existed for cost savings. Furthermore, Richard intended to include a new
supplier, Neelin Mfg. Inc., in the online bidding event.

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The reverse auction
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Richard decided to group components into packages as opposed to running 290 separate online bidding
events. Eventually, he settled on 21 packages of complementary components, which were similar in
terms of manufacturing processes, quality requirements, and production volumes. Located in Europe,
North America, and Asia, Bothe provided a range of consulting and technology platforms, working with
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approximately 200 companies in the automotive, construction, machinery manufacturing, and office
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supplies industries. Laura Henning, business consultant for Bothe US operations, had been assigned to
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work with Richard to manage the reverse auction project.

Preparing for the reverse auction

Consequently, he expected to review Richard’s plan before proceeding. Laura explained to Richard that
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there were a variety of methods for conducting a reverse auction, and the primary decisions included
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visibility, length of the auction, policies for extending the length of the auction, and target pricing. For
example, the Bothe system could be configured such that every bidder could see the current best price
only, a ranking of all bid prices, or the bidder’s rank only. Lastly, Richard needed to decide on what
basis the packages should be awarded and to what extent prices could be negotiated following the
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auction.
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David had indicated to Richard that he expected a 25 percent reduction in costs as an outcome of the
reverse auction project. Richard felt that other factors needed to be considered beyond price.

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