Examples of Student Developed Case Analyses

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A STUDENT-DEVELOPED ANALYSIS FOR THE MUENSTER PUMP COMPANY

I. Major Facts 1. The Muenster Pump Company has manufactured high quality agricultural pumps for over forty years. 2. The companys only plant is located in the small midwestern city of Muenster. 3. The company is Muensters largest employer. 4. Bob Dorf, president of the firm, is the grandson of the founder, Emil Doff. 5. Bob and his family, along with key personnel, live in or near the city. 6. Cordial relations exist between the firm and the city fathers. 7. Since its founding, the company has always been as self-sufficient as possible. 8. Shortly after setting up business, Emil Dorf had established a foundry to cast pump housings and related items. 9. The foundry provides virtually all of the required pump housings. 10. Bob Dorfs cousin, Terry, is the supply manager for Muenster Pump. 11. After graduating from State University, Terry had worked as a supply manager at a large appliance manufacturer in the southwest corner of the state. After two years of this work, Terry had returned to Muenster. 12. Bob had been delighted to have her back and established the position of supply manager by consolidating the buying functions previously performed by him and other members of the firm. 13. The internal organization of The Muenster Pump Company is the following:

President and Chief Executive Officer Robert A. Dorf

V.P. Engineering Samuel Dorf

V.P. Manufacturing Ned Dorf

Comptroller Judy Dorf

V.P. Sales James Dorf

Operations Theodore Dorf

Purchasing Terry Dorf

Receiving Judy Dorf

Quality Anneta Dorf

14. 15.

Terry reports to her Uncle Ned, who is the vice president for manufacturing. Terry is an aggressive and conscientious supply manager. She has reduced material costs from 60 percent of cost of sales to 50 percent in the two years since she assumed responsibility for purchasing.

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16.

17. 18. 19. 20. 21. 22. 23. 24. 25.

26.

27. 28.

29.

Recently a representative of Union Foundry, a firm located in the southeast part of the state, called on Terry. The representative knew that Muenster Pump made its own cast pump housings. He claimed that new developments in casting pouring allowed his firm to offer extremely attractive prices. Terry requested a price on the L-1012 casting housing, Muensters popular size. The L-1012 represents 60 percent of Muensters demand for casting housings. The pump which incorporates the L-1012 is sold to distributors for $500. In a week a letter arrived from Union Foundry quoting a price of $90 FOB Muenster. Delivery would be 120 days after receipt of the first order, and 60 days after receipt of all additional orders. Minimum orders were established as 100 units. Terry contacted two other foundries and obtained quotations for the L-1012 housing. The quotes were $94 and $98 FOB Muenster. Terry met with her Uncle Ned, discussed her findings with him and asked how much it cost Muenster to produce the casting housings in its own foundry. Ned was not enthusiastic about Terrys efforts in this area of the business. Ned informs Terry that there is more to this situation than is apparent. The company produces a quality housing that is not equaled in the industry. He feels this is one of the primary keys to the firms success! He also feels that the firm can respond to requirements much quicker than those city boys. Terry asks Ned if they assume all his doubts could be overcome, how much does it cost the firm to make the housing? Ned replies that there is something else involved. There are 16 men working in their foundry, and if they stop making their own housings, they would have to close down the foundry. There is no place, he feels, in the company where these men could work. At this point, Terry decides to end the discussion with her Uncle Ned and to return to her office. Later that day Bob Dorf stopped by to see Terry. She learned from him that the L-1012 housing cost Muenster about $180. Total overhead was calculated to be approximately 200 percent therefore, direct costs for materials and labor for the housings would be about $60. Approximately 70 percent of the OH is for fixed costs such as depreciation, taxes and executive salaries. Comparison of Relevant Costs: Make Buy D.L & Materials Variable OH Fixed OH that can be avoided by not making TOTAL RELEVANT COSTS $60 36 __0 $96 __ $90

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II.

Major Problem The Muenster Pump Company wants to maintain or increase profits by reducing production costs. One factor to consider is whether to continue making in-house or to buy outside the cast pump housings for the agricultural pumps. Ill. Alternatives 1. The Muenster Pump Company can continue to operate exactly as in the pastmaintain the status quo. 2. The Muenster Pump-Company can buy the cast pump housings from Union Foundry and close its own foundry, laying off the foundry workers. 3. The Muenster Pump Company can buy the cast pump housings from Union Foundry and close its own foundry, but keep the foundry workers and retrain them. 4. The Muenster Pump Company can continue to make its own cast pump housings but with new equipment and technology. 5. The Muenster Pump Company can buy the L-1012 cast pump housings from Union Foundry, which is 60 percent of its housing requirements, and keep its foundry to make the other 40 percent. It can use the foundrys unused capacity to do subcontract work for other firms. 6. The Muenster Pump Company can buy the L-1012 cast pump housings from Union Foundry, which is 60 percent of its housing requirements. It can keep its foundry to make the other 40 percent with the idea that over a certain period of time it will lower the production of the foundry with the intention of eventually closing it. 7. Independent of the make-or-buy decision taken on the cast pump housings, the Muenster Pump Company should reorganize in order to create an integrated supply management system.

Assumptions
1. The decision to make or buy the cast pump housings will be a decision for top management with input from several departments such as production, supply management, engineering, finance and marketing. Terry, the supply manager, has performed an in-depth analysis or preaward survey of the prospective suppliers, including Union Foundry, and has found that these firms meet Muensters standards. The company is in a strong financial position. Sales are high and the company has little debt. The foundry equipment is old. It has not been updated. The company has good labor relations. There is no union. Some of the foundry workers have been with the company a long time and are near retirement. The $6 difference between the make and buy decisions represents 6.25 percent ($6/$96) of the cost of production. This is a significant percent of costs. Ned Dorf, vice president of manufacturing, resents Terry Dorf the supply manager, because she was given some of his previous functions. Muenster has not made a quality analysis to determine if its cast pump housings are over qualified. Why is it that no other foundry supposedly produces housings of this quality? Is this level of quality necessary?

2.

3. 4. 5. 6. 7. 8. 9.

Alternative 1
The Muenster Pump Company can continue to operate exactly as in the pastmaintain the status quo.

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Advantages
+ + + + + + + + + + Save jobs in the short run Not relying on outside suppliers No capital investment Maintain cordial community relations Maintain pride in self-sufficiency Assurance of present quality No time and money spent on contract expediting Maintain good labor relations with workers No decision on what to do with idle foundry Low position on learning curve

Disadvantages
More expensive. It costs Muenster $6 more to make the cast housings than to buy them. Loss of competitiveness. Muenster is not taking advantage of latest technological advances; therefore, it will fall behind in technology and possibly not be able to lower production costs.

Alternative 2
The Muenster Pump Company can buy the cast pump housings from Union Foundry and close its own foundry, laying off the foundry workers.

Advantages
+ + + + The cost of the pump housings will be $6 less than if it makes them. More competitive. Muenster will be taking advantage of the latest technological advances. No capital investment Save jobs in the long run

Disadvantages
Bad labor relations Loss of community goodwill Expense of expediting contract Finding backup source in order not to rely solely on Union Foundry Loss of pride in self-sufficiency Lack of experience in negotiating contracts Internal staff problemsfamily feud Decision on what to do with idle foundry Expense of laying off the foundry workers

Alternative 3
The Muenster Pump Company can buy the pump housings from Union Foundry and close its own foundry, but keep the foundry workers and retrain them.

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Advantages
+ + + All the same advantages as with Alternative 2, plus Maintain good labor relations Maintain good community relations

Disadvantages
Some workers might not want to retrain, and this would result in some bad labor relations and loss of community goodwill. Expense of training workers Problems due to breaking up a group of employees that have worked together a long time Lack of facilities to absorb foundry workers Disadvantages mentioned in Alternative 2 related to dealing with supplier

Alternative 4
The Muenster Pump Company can continue to make its own cast pump housings but with new equipment and technology.

Advantages
+ + + + + + Remain competitive in the long run Maintain and possibly increase quality Decrease production costs in the long run Less waste All of the same advantages as with Alternative 1, except that capital investment will have to be made and High position on learning curve overcome

Disadvantages
Expense of acquiring capital equipment and new technology Expense of retraining workers High position on learning curve Risk that overhead at Muenster is so much higher than Union that in spite of new equipment and technology, Muenster might not be able to make it cheaper Worker resentment of new technology

Alternative 5
The Muenster Pump Company can buy the L-1012 cast pump housings (60 percent of its housing requirements) from Union Foundry and keep its foundry to make the other 40 percent. It could then use the foundrys unused capacity to subcontract work for other firms.

Advantages
+ + + + Additional revenue from foundry sales Increase expense Hire additional workers No capital investment

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+ + +

Maintain good community relations Maintain good labor relations All of the same advantages as Alternatives 2 and 3 in relation to the L-1012 cast pump housing

Disadvantages
Workers might still resist changes. Expense of changing over to customer-oriented foundry New image from lack of self-sufficiency Deplete managerial and financial resources Disadvantages mentioned in Alternative 2 related to dealing with supplier

Alternative 6
The Muenster Pump Company can buy the L.1012 cast pump housings from Union Foundry, which is 60 percent of its housing requirements. It can keep its foundry to make the other 40 percent with the idea that over a certain period of time it will lower the production of the foundry with the intention of eventually closing it.

Advantages
+ + + + All the same advantages of Alternative 5 with the exception that there would not be any foundry revenue or increased expertise in foundry work or additional hiring of workers More competitive agricultural pumps Acquire experience in negotiating and expediting contracts Less workerssome workers would be retired and jobs would be found for others

Disadvantages
Some workers might still resent change Community relations might suffer in short run Expense of retraining some of the workers Expense of expediting contract Lack of experience in negotiating contracts Internal staff problemsUncle Ned Lack of experience in dealing with suppliers Expense in retiring some workers before time

Alternative 7
Independent of the make-or-buy decision taken on the cast pump housings, the Muenster Pump Company should reorganize its supply management department in order to create an Integrated Supply Chain Management System.

Supply Chain Management System

To develop an Integrated Supply Management System, Muenster should create a supply chain management department that would be on the same line level as engineering, manufacturing, comptroller and sales. Operations, supply management and receiving would report to supply chain management. Quality would be a staff activity on a separate level, as shown in the following diagram.

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President and Chief Executive Officer Robert A. Dorf

Quality

V.P. Engineering Supply Chain Samuel Dorf Management Terry Dorf

V.P. Comptroller V.P. Sales Manufacturing Judy Dorf James Dorf Ned Dorf

Operations Theodore Dorf

Supply ?

Distribution & Traffic ?*

*Muenster should consider having two different people as Comptroller and Distribution & Traffic. At present, Judy Doff covers both positions. An organization has the best degree of control over the cost of purchased goods and services when the various departments involved in the process operate as an interdependent, integrated system. The Integrated Supply Chain System begins in design engineering when concepts calling for alternative materials are being considered for the products. It continues as specifications are adopted. Before the first item is manufactured or purchased, the most critical make-or-buy analysis should take place. There should be further analysis of the make-or-buy decision during the manufacturing process or purchasing of an item. Make-or-buy decisions should be part of the continuing strategic planning process. Value analysis techniques should be incorporated into the Integrated Supply Chain System since this allows the elimination or modification of anything that contributes to the cost of an item or task but is not necessary for required performance, quality maintainability, reliability or interchangeability. It is at this point that Muenster should make a decision on the quality of the cast pump housings to ensure that they are of required quality. Too low a quality will lose customers, and too much quality might increase costs unnecessarily. The other departments will also feed their inputs to supply chain management, and supply chain management will return their ideas to these departments. It is an interactive process. It is a broad, pervasive, united effort that involves all the major departments of the firm. There is usually some resistance to change in any organization, and in this case, it is safe to assume that Ned Dorf will be one of the individuals who will offer resistance. He has assumed the position that the way the company is performing is the only way for it to perform successfully, and any changes he sees as threats to its success. Resistance from him and anyone else must be dealt with in the best manner possible. This is not an easy task. It is of course necessary that the president, Bob Dorf, support the Integrated Supply Chain System. Without his support, it would be very difficult to implement it. If he supports it, this will serve as an example to the other employees. The positive effects of the Integrated Supply Chain System could be

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shown with examples, such as the fact that a 10 percent decrease in material costs is one of the most feasible ways to double the profits of the firm. The implementation of an Integrated Supply Chain System should be handled very carefully. Muenster is a successful company. Changes should be made in order to create a more successful company, not to adversely affect its performance. IV. Choice and Rationale

Alternative 1
The Muenster Pump Company can continue to operate exactly as in the pastmaintain the status quo. For the Muenster Pump Company to continue to operate as it has in the past is a potentially very dangerous situation. In the first place, it seems to be more expensive for Muenster to make its own cast pump housings than to buy them from Union Foundry. The $6.00 difference in the make-or-buy alternatives would have to be weighed against the other expenses that would be incurred by no longer making them in the firm, such as laying off workers, retraining workers, expediting contracts, loss of community goodwill, etc. It is possible that these costs would lower the $6.00 difference significantly. However, what seems to be the deciding factor against choosing this alternative is the fact that Muenster will become less competitive if it does not take advantage of the technological developments in its field. Some other company might do so and begin to produce a better quality pump at a lower price. This would affect Muensters sales, market share and therefore profit. In the long run this could threaten the survival of the company. It is too great a risk for Muenster to take.

Alternative 2
The Muenster Pump Company can buy the cast pump housings from Union Foundry and close its own foundry, laying off the foundry workers. This alternative has some attractive points. Muenster would be taking advantage of lower costs, and it would continue or increase its competitive base with the new technology. There would be some expense in negotiating and expediting the contract, which might reduce the $6.00 difference somewhat, but it would probably still be profitable. The negative factor that must be considered in this alternative is the effect that this decision would have on the workers, townspeople and family members. To what extent would this decision affect the relations between Muenster and its workers and neighbors? The reaction against Muenster might be very negative. It is possible that this negative reaction could be overcome or countered with the implementation of a worker incentive program, such as a profit-sharing plan, or some other similar idea. This decision would create problems between the Dorf family members who run the company, and it very possibly could be a serious threat to the proper functioning of the company. For these reasons and the fact that the Dorf family has lived in this town for at least three generations, Muenster would probably not want to take this kind of action against the workers unless there were no other alternatives, which there does seem to be.

Alternative 3
The Muenster Pump Company can buy the pump housings from Union Foundry and close its foundry, but keep the foundry workers and retrain them. This alternative sounds like the ideal alternative. Muenster would get the best of both worlds: new technology, lower costs, the ability to maintain or increase competitiveness, avoidance of unpleasant labor and community relations. The only expenses would be that of retraining the workers and the expense of negotiating and expediting the contract. However, this alternative is dependent on whether it is actually possible for Muenster to retrain and keep the displaced workers. Ned Dorfs statement as to the fact that there was no other place in the

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company to use these workers might possibly be true. Or it might be that the company can find a place for some of the workers but not all sixteen of them. Since ideal situations do not usually occur in reality, it is safe to assume that it would probably not be possible to retrain and keep all sixteen workers. Muenster would have to lay off most of them, and then the company would be back in the same situation as in Alternative 2.

Alternative 4
The Muenster Pump Company can continue to make its own cast pump housings but with new equipment and technology. In choosing this alternative, Muenster would remain competitive in the long run. The workers would have to be retrained to use the new equipment and the new technology, but eventually they would maintain or better the quality of the housings and lower the cost of production. Muenster would avoid the problems associated with laying off the workers.

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However, many problems would develop in choosing this alternative. Muenster would have the expense of retraining the workers plus substantial capital and technological investments to make. The workers might resent the changes and put up barriers to the new technology. The company would have to start high on the learning curve and lose some of its competitive edge in the short run. Muensters overhead costs are so much higher than that of a small foundry such as Union that in spite of the new equipment and technology, it might not be able to make the housing cheaper. There is also the risk that the new equipment and the new technology might again in a few years become obsolete, and then Muenster would be faced with this same situation again, except that now the company would be in debt for the capital expenditures it had made before. Buying new foundry equipment and technology puts heavy emphasis on the foundry, and it is probably not in Muensters best interest to spend so much in this area. Muenster should concentrate its efforts and resources in the area where it is most successful, and that is the production of high-quality agricultural pumps.

Alternative 5
The Muenster Pump Company can buy the L-1012 cast pump housings from Union Foundry, which is 60 percent of its housing requirements, and keep its foundry to make the other 40 percent. It could then use the foundrys unused capacity to do subcontract work for other firms. This alternative combines points from the make decision and the buy decision. The make decision would keep the company from having to lay off its foundry workers and avoid all the problems related to this action as previously discussed. The buy decision would give the company the advantage of new technology and lower price in its most competitive product. However, the decision to keep the foundry at capacity production, even though this would produce additional revenue, would place it in an area that is new to the company. This is the area of a customer-oriented foundry. The foundry would then have to be in competition with other foundries. Eventually the company might have to make capital investments to continue to be competitive. The expense involved in changing to this type of foundry business might deplete its managerial and financial resources. The company might find itself spreading its resources too thin. Thus, Muenster might find itself facing the same decisions as in Alternative 4.

Alternative 6
The Muenster Pump Company can buy the L-1012 cast pump housings from Union Foundry, which is 60 percent of its housing requirements. It can keep its foundry to make the other 40 percent with the idea that over a certain period of time it will lower the production of the foundry with the intention of eventually closing it. This alternative presents all the advantages of Alternative 5, and it does not have the disadvantage of Muensters having to enter a new area of business unfamiliar to it. Also, since Muenster is going to become more competitive with its agricultural pumps due to their lower production costs, it is possible that the company could increase its sales. It might try developing foreign markets for its pumps. This increase in sales might create additional jobs in the company. Muenster should review each of the sixteen foundry workers cases on an individual basis. Some of the workers are probably at or near retirement age. Others, who are willing to move from Muenster, could be helped by finding other foundry jobs for them. Some could be retrained for other jobs with the company. The thing to remember, and what Muenster must emphasize, is that in order for there to be jobs in the long run for all the workers, Muenster must remain competitive. In order for Muenster to remain competitive, it must take advantage of new technologies. In an age of constantly changing technologies, it is better to be able to take advantage of these changes quickly by changing suppliers than to be tied down with large capital investments that may quickly become obsolete. Muenster should have some kind of information dissemination system so that the workers and

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townspeople could be aware that Muenster is facing these problems. Muenster might still face a certain amount of worker discontentment and community resentment, but this is a risk it must take in order to survive. It is hoped that as time goes on, the workers and townspeople will see that this was the best possible solution under these difficult circumstances. Aside from making this decision on the foundry, Muenster should implement the Integrated Supply Chain System that was previously discussed. The Integrated Supply Chain System will allow Muenster not only to make this kind of decision as well as possible, but to consider its possibility even before it is actually faced with it. The Integrated Supply Chain System will help make Muenster a better company than before by keeping it current on all levels.

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A STUDENT-DEVELOPED ANALYSIS FOR SELECTION OF A PRESSURE VESSEL MANUFACTURER Facts Pertaining to the Case
In an attempt to select a supplier for a pressure vessel intended for use in its nuclear system, Oceanics, Inc. must determine which of two suppliers is best equipped to meet the product specifications in the most cost-effective manner. A committee comprised of the supply manager and a design and manufacturer engineer evaluate proposals submitted by Atomic Products Company and Nuclear Vessels Inc. These are the final two of 18 companies that have submitted proposals for the vessel project. In addition, as part of its preaward survey, this committee visited the production facilities of each company to review both facilities and meet those responsible for completing the job. It is, however, the supply managers responsibility to present a final recommendation to management. The facts as they pertain to each of the formal proposals are as follows.

Atomic Products Company Strengths

Total price estimate $1,232,000 for labor Facilities located in N.Y., close to Pittsburgh locale Has equipment as know-how to perform task Requires no subcontracting Guarantees all workmanship and materials Committed to 6-month delivery date Fixed portion of bid $112,000 Hourly rate $24/hr + 180 percent overhead Added 10 percent handling charge to materials Has never made a vessel of this dimension Did not invite Oceanics to review facilities

Weaknesses

Nuclear Vessels, Inc. Strengths

Fixed fee of bid $1.00 Cost per man-hour $16.00 + 160 percent overhead Material surcharge avoided Extensive experience in this size vessel Has produced products for Oceanics before Willing to negotiate repair costs Invites inspection of facilities

Weaknesses
Total price estimate $1,560,001

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 Will subcontract forgings Will ship F.O.B. Houston in six months of thereafter Guarantees only workmanship. Oceanics will have to absorb plate rejection and repair costs. After the committee had an opportunity to survey the facilities and meet the management, the facts as they pertain to the preaward survey are:

Atomic Products Company Strengths

Manager of production led Oceanics through tour Machines new and well maintained Felt productivity superior to competition Housekeeping excellent Laboratories excellent QC facilities and inspection state-of-the-art Adequate testing facilities Atomic is a potential customer as well as supplier Sales representatives have been unable to reach supply management offices despite the fact Atomic is a potential customer. President did not appear enthusiastic, in fact, did not tour with the group or answer questions. Management seemed immune to the fact they were a top contender for this million-dollar project. Production manager expressed concern over the cleaning specifications and indicated a facility would have to be constructed outside the main area. Had never contracted for a vessel this size although capacity available. President did not meet until end of tour despite advance warning. Unwilling to explain end use of several projects in manufacturing. No manifest evidence of material control structure. President asked Oceanics to let him know if you want us to do the job. Atomic is a union shop with a history of major job strikes.

Weaknesses

Nuclear Vessels, Inc. Strengths

President offered to pick Oceanics group up from airport and make other travel arrangements Held business meeting on the night of groups arrival until 1:30 a.m. at a country club Chauffered Oceanics to facility the next morning Oceanics met with vice presidents of sales, manufacturing, and engineering, and other key people. Had no reservations about meeting any of the specifications Had extra equipment available in nearby El Paso plant.

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Never been unionized; employees had profit-sharing plan Used task-force approach to follow projects through completion Effective control between floor and management Experienced construction of larger vessel and adjusted organization according to that experience Demonstrated an effective material control organization Machines were older and smaller than Atomics Outside subcontractor or other facility would have to be used to meet tolerance levels required by Oceanics General working conditions not as adequate as Atomics Higher estimated cost ($1.56), the result of less adequate equipment

Weaknesses

Problem Statement
Failure to select the proper supplier will prevent Oceanics from meeting its implied profit objective for the nuclear system.

Assumptions
At the onset, some items relevant to analysis of this case must be assumed by the reader. 1. Evaluation of the previous 16 proposals was done effectively based on some predetermined criteria. 2. Of the 20 companies invited to submit proposals, some were foreign manufacturers. Those were dismissed on the basis of limited production runs and insufficient repeat business. 3. There can be no shared supplier contracts because of the nature of the item. 3. The limited source of suppliers (2) is insufficient but not within the scope of this analysis to address

Identifying the Objective

To select the source, the supply manager must decide which of the two firms can provide the right quality in the material at the most reasonable price and within the technical and service requirements mandated by Oceanics specifications.

The Options
There are only two options available for meeting the objective outlined. Each has distinct advantages and disadvantages that need exploration. 1. Award the contract to Atomic Products Company. 2. Award the contract to Nuclear Vessels, Inc.

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Analyzing the Options

To evaluate the advantages and disadvantages of either option, a set of criteria must be established. Those criteria must address specific areas of concern as reviewed in the pre-award tour.

Option 1Award the contract to Atomic Products Company

A. Equipment and Facilities

Advantages
+ + + Atomic has the latest machinery for producing the vessel. In addition, it has the better productivity record according to the production management. The facilities are well-organized and clean. All of the machining will be done in the facility. There is no available space to construct a surgically clean work area to meet the cleanliness specifications required by Oceanics. A temporary facility will have to be built.

Disadvantages

B. Production and Quality

Advantages
+ Atomic has satisfied the preaward committee that its able to meet quality specifications and manpower requirements on smaller vessels. While the capability to produce larger vessels is in place, Atomic has never received a contract for such. Further, in the plant tour, the production manager was unwilling or unable to identify an adequate material control program.

Disadvantages

C. Supply Management/Financial Resources

Advantages
+ The Oceanics committee must investigate the financial stability of the Atomic Products Company if a contract is to be awarded. Should there be a problem in this area, raw materials may be unattainable which may be required to finance more than total costs estimated in the proposal. The Oceanics sales team had been unable to contact the supply management department despite the fact that Atomic was a potential customer.

Disadvantages

D. Accounting System The Oceanics committee did not review this system in its tour of the facility. In the interest of assessing appropriate costs to the vessel project and delineating those from other special jobs in process, however, further investigation is warranted.

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E. Managerial

Advantages
+ + The production manager conducted the facilities tour. The president said that he would be pleased to meet with the group when they arrived. Atomics management did not take a marketing approach to this project. The president did not meet with the Oceanics committee, despite an appointment, until after the facilities tour. Further, the president did not offer to follow through on the proposal. Other than the production manager, no other responsible party was visible despite an express desire by Oceanics.

Disadvantages

F. Industrial Relations

Advantages
+ Atomic has 2000 unionized employees working under one roof. There have been several major strikes against Atomic in the past few years. The production manager implied an inability to compel . . . workers to wear (garments) to adhere to surgical requirements within the confines of the building. The fixed fee cost of $112,000 and the $24/hr + 180 percent overhead are the direct results of a union shop.

Disadvantages

G. Past Performance

Advantages
+ + Good with smaller vessels Management boasts a good productivity record There is not track record for projects of this size.

Disadvantages

Option 2Award the contract to Nuclear Vessels, Inc.

A. Equipment and Facilities

Advantages
+ + + + There is adequate equipment for the job. There is additional equipment in an El Paso plant. Facilities clean. There is adequate room for the cleaning facility.

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Disadvantages
Older facilities than Atomics Older facilities mean higher cost per manhour to complete the job. Overall facility not as good as Atomics

B. Production and Quality

Advantages
+ + + + Had supplied Oceanics with quality products in the past Floor organized and all parts tagged by end use. Production work load divided into task forces that include quality, scheduling, and expediting. Experienced with large vessels which induced them into changing internal organization for closer follow-up. Overall building not as clean as Atomics

Disadvantages

C. Supply Management and Financial Resources

Advantages
+ The concerns here are essentially the same as those outlined in the Atomic evaluation. The cost estimate here is $328,000 higher than Atomics. Oceanics should investigate this further.

Disadvantages

D. Accounting System Although Oceanics has had previous dealings with Nuclear, the effectiveness and adequacy of this system should be reviewed similarly to the manner outlined in the Atomic appraisal. E. Managerial

Advantages
+ + + + + + + This appears to be a marketing-oriented organization. Management takes a professional approach to presentation. Vice presidents of 4 functions and key personnel met with Oceanics. There appeared to be effective control over the shop floor. A project engineer is given daily status reports of each project. Management appears willing to revise its organization to meet demands of the product. This is a congenial, professional group of people. Nuclear may have been overly solicitous with Oceanics. The limousine, country club, and other perquisites only serve to drive up the direct costs.

Disadvantages

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F. Industrial Relations

Advantages
+ + + + A union has never been formed here. Employees are on a profit-sharing plan. Good labor-management relations on the shop floor. Fixed fee cost of $1.00 and the $16 per man-hour are indications of a stable work force and work flow. None perceived

Disadvantages

G. Past Performance

Advantages
+ + This is an experienced supplier. There is experience in supplying vessels of this size to the industry. There is no perceivable problem with meeting the delivery date required. Nuclear has run into problems with large vessels in the past on first-time production runs.

Disadvantages

Evaluating the Options

The solution to this problem must address the following concerns, as implied by the Oceanics Management Committee: 1. The quality of the vessel is the biggest concern. 2. The delivery date is six months. 3. The rigid technical specifications must be met. 4. The price must be competitive. 5. The managerial, financial, and production organizations must be capable of handling the project. To objectively evaluate these five areas of concern, a 100-point rating matrix will be used.

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Factors Technical competency Production capabilities: Facilities Equipment Material control Cleanliness Ability to meet schedule Price Managerial, financial, & production organization Quality-control staff Total

Maximum Points Atomic Nuclear 10 10 10 10 10 10 10 10 20 100 8 8 9 7 8 8 10 5 18 81 10 7 7 9 7 8 8 10 17 83

Justifying the Outcome

Since Nuclear Vessels, Incorporated, scored 83 of 100 points and Atomic Products Company scored 81 of 100, the objective choice is Nuclear Vessels, Inc. However, Oceanics should not accept the initial proposal of $1,560,001 without further negotiation. The bid may have been hastily prepared, and as Oceanics is a repeat customer, more adequate financial consideration is in order. Finally, the issue of plate repairs and rejected materials needs clarification. Since Atomic offered to sustain the costs of all repairs in accordance with specifications, Oceanicss supply manager has some basis for negotiating this item as well. The language in the proposal in reference to delivery date is also unacceptable as stipulated. Since the Oceanics committee has determined six months as the date of delivery, then any slips in that time should be the responsibility of the supplier. The Oceanics supply manager must negotiate those costs with the Nuclear management committee.

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