132 Purchasing and Supply Management
Brian expected that B&L would have to arrange for B&L was operating in a competitive environment and
extra storage space if he decided to outsource the outrig-
ger bracket to Mayes, who had quoted delivery lead time
of four weeks. Because Mayes was local and had a good
track record, Brian didn’t expect the need to carry much
safety stock, but the order quantity issue still needed to
be resolved.
Case 5–2
Rondot Automotive
It was September 28 and Glenn Northcott, purchasing
planner at Rondot Automotive in Jackson, Mississippi,
was evaluating an important outsourcing opportunity. For
the past three months, Glenn had been working on a proj-
ect that involved evaluating the feasibility of outsourcing
the plant’s painting requirements, and he had just finished
collecting much of the necessary technical and cost infor-
mation. Glenn had to complete his evaluation in advance
of a meeting scheduled with his boss, Terry Gibson, pur-
chasing manager, and the plant manager, Dick Taylor, in
one week’s time to discuss this matter and to decide what
action, if any, needed to be taken next.
RONDOT WORLDWIDE
Rondot Automotive was a wholly owned subsidiary of
Rondot Worldwide, a leading global designer and manu-
facturer of electrical and electronic components. Rondot
Worldwide operated in more than 100 countries, employ-
ing more than 200,000 people. It was a key player in the
information and communications, automation and control,
power, transportation, medical, and lighting industries.
Rondot Automotive operated 85 plants in 25 countries.
It was known for providing high-quality, innovative prod-
ucts in automotive electronics, electrics, and mechatron-
ics. The Jackson, Mississippi, plant manufactured small
motors for a number of applications, including engine
cooling, HVAC (heating, ventilation, and cooling), and
antilock brake systems. The plant produced approximately
7 million motors per year, which were shipped directly to
OEM assembly facilities for customers such as Ford, GM,
DaimlerChrysler, Honda, Toyota, and BMW.
Rondot Automotive was facing considerable global
competition and significant pressures from its customers
for price reductions. As a result, total sales and employ-
ment at the Jackson plant had steadily declined over the
past five years. The number of employees at the plant had
joh77899_ch05_120-134.indd 132
Brian had been asked by the division general manager to
look for opportunities to reduce costs. As he sat down to
review the information, Brian knew that he should make
a decision quickly if it was possible to cut costs by out-
sourcing the outrigger bracket.
dropped from 1,450 to 600, and plant management was
under pressure to lower costs and regain market share.
The purchasing organization at Rondot Automotive
was a hybrid structure. The corporate strategic purchas-
ing group operated from the company’s head office in
Troy, Michigan, and was responsible for negotiating ma-
jor contracts with suppliers and working on new product
development initiatives. Plant-level purchasing organiza-
tions reported to the plant managers on a solid-line basis
and corporate purchasing on a dotted-line basis. Plant
purchasing managers were responsible for materials man-
agement, negotiating contracts for local requirements and
small-value purchases. The purchasing department at the
Jackson plant consisted of four people, including two buy-
ers, a planner (Glenn), and Terry Gibson. Glenn had joined
Rondot right out of college the previous year.
OUTSOURCING OPPORTUNITY
A steel housing was manufactured for each of the six
different families of motors manufactured at the Jackson
plant. The housings were “deep drawn” in large stamp-
ing presses in a batch operation. Following stamping, the
housings were processed through a zinc phosphate treat-
ment for cleaning and then painted. Quality specifica-
tions stipulated that the coating on the housing had to be
capable of withstanding 240 hours of salt spray testing.
The cleaning and painting process involved a
continuous-flow wet paint system that had been installed
in a 20,000-square-foot section of the plant approximately
17 years prior. The system had undergone a number of up-
grades and modifications, in part to comply with evolving
environmental regulations.
Based on data from the plant controller, Ken Lee, Glenn
had learned that the cleaning and painting operations cost
25¢ for each housing. Ken commented to Glenn: “We
estimate our costs to include 10¢ in material, 3¢ in labor,
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 Chapter 5
and the rest in overhead, including expenses such as taxes,
energy, maintenance, and charges from corporate office.”
GREVEN E-COATING
Glenn had been approached by an enterprising local ven-
dor several months back, inquiring about Rondot’s paint-
ing requirements. Cathy Stirling, representing Greven
E-Coating Company (Greven) proposed that she prepare
samples for each family of housings and provide cost esti-
mates to Glenn. Eager to explore cost savings opportuni-
ties, Glenn readily agreed.
Electrocoating, or e-coating, uses a system whereby a
DC electrical charge is applied to a metal part immersed
in a bath of oppositely charged paint particles. The metal
part attracts the paint particles, forming an even film over
the entire surface, until the coating reaches the desired
thickness. E-coating was generally considered more cost
efficient compared to traditional wet paint systems.
Samples from Greven were sent to Rondot’s quality
control department for testing and the results seemed
encouraging. The tests indicated that parts for five of
the six families of housings, representing approximately
60 percent of the Jackson plant’s housing volume, could
be converted to e-coating using Greven at a cost of 15¢
each. One family of housings failed the tests because of
problems with the method of adhering a magnet to the
housing. Rondot’s assembly process required a magnet
to be attached to the top inner portion of each housing
using either a cold or hot bonding adhesion process. The
use of either method was dependent on product design,
Case 5–3
Alicia Wong
Alicia Wong, Corporate Supply Manager, Thain Foods
Limited, wanted to prepare a proposal to manufacture
mustard in-house. Mustard, an important ingredient in
many of the company’s products, was currently purchased
from an outside supplier. She hoped a comprehensive
proposal could be prepared in one-month’s time for the
CEO’s approval.
GENERAL COMPANY BACKGROUND
Thain Foods Limited (TFL) had been in business for
more than 30 years. Its products included a wide range of
syrups, fudges, cone dips, sauces, mayonnaise, and salad
joh77899_ch05_120-134.indd 133
Make or Buy, Insourcing, and Outsourcing 133
and engineering specified the adhesion method used. The
one family of housings that used a cold-bond adhesion
process had failed the test, while the other five fami-
lies, which used a hot-bond process, passed the testing
process.
As part of the data-gathering process for this project,
Glenn also talked to Betty McKinley, from production
planning, and John Underwood, in manufacturing engi-
neering. Betty figured that she would need to add another
two weeks’ worth of inventory if painting operations were
to be outsourced. She reminded Glenn to expect to pay
3¢ per part for transportation and packaging.
John was delighted at the prospects of eliminating the
paint line, indicating: “In the not-too-distant future, we are
going to have to spend some money to upgrade our sys-
tem or pull the line out completely. These old wet-based
systems are less efficient compared to other technologies
available today, in terms of both cost and environmental
performance.”
PREPARING FOR THE MEETING
Glenn was aware that Terry Gibson and Dick Taylor were
under significant pressure to reduce costs at the Jackson
plant and he felt that outsourcing painting operations rep-
resented a good opportunity. However, this was his first
major project and Glenn wanted to make sure that he had
taken all the necessary issues into account and developed
a strong case for his recommendations before his meeting
the following week.
dressings. Its customers were major food chains, hotels,
and restaurants in North America and Europe.
TFL believed in continuous improvement to its
operations. Over the last two years, it invested more than
$2 million in plant facilities, the bulk of it new, state-of-
the-art process equipment and process control. All pro-
duction and process control functions were computerized
for maximum efficiency.
TFL employed about 120 people. It had a corporate
structure of CEO; president; executive vice president,
domestic sales; and national account manager and used
a network of food brokers who sold and promoted its
products.
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