HOMEWORK CHAPTER 2

Case 4-1: Bright Technology International

Situation:
 Bob Renwick --- Purchasing manager at BTI
 Bob had a background as a technician
 A quotation from Exlectronix for supply of MJ10012 transistor
 It was Tuesday, March 11--- Third time this month be asked to consider a volume
purchase for a component
 Had to respond to the supplier’s proposal before the end if the week
 MJ10012 transistor purchase would provide a good basis in which to change the current
approach used to acquire similar components
BTI’s background
 Headquartered in Hartford, Connecticut
 Manufactured, and marketed proprietary electro-optical instruments
 Sales for the current fiscal year were expected to reach $10 million and for the coming
year were expected that approximately 50% of its sales would be outside the US and
Canada
 BTI currently had sales and service centers in the US, Canada, Germany, and the UK.
 Nine competitors
 Eight of these were about the same size as BTI
 One other controlled nearly one-half of the market
 80 employees
 20 in Connecticut
 45 in Modesto
 Manufacturing engineering and R&D, and customer service functions resided at the
Modesto facility
Purchasing at BTI
 Bob Renwick handled all purchasing for materials and services related to the production
of BTI’s products and reported to the plant manager
 Purchased components accounted for about 80% of cost of sales
 Bod 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
 Balance of the orders were for basic items
 Relied heavily on members of the engineering department
BTI’s Products
  Used around the world for medical research, health care, industrial process, quality
control, environmental science, and other applications
 The company focused exclusively on fluorescence instrumentation and distinguished
itself in the marketplace by providing exceptional product support
 Included spectrofluorometers and ratio fluorescence systems
Fluorescence
 A powerful technique for studying molecular interactions in analytical chemistry,
biochemistry, cell biology, physiology, nephrology, cardiology, photochemistry, and
environmental science.
 Applications included studying dynamics of the folding of proteins, measuring
concentrations of ions inside living cells, studying membrane structure and function,
investigating drug interactions with cell receptors, and fingerprinting oil samples
 Its advantage over other light-based investigation methods was high sensitivity, high
speed, and safety.
The MJ10012 Transistor
 Used in the power supply for several of BTI’s products
 Each power supply needed two transistors and the annual demand for this kind of
transistor had increased over the past few years
 The expected demand for the coming year was estimated to be 2,000 units
 BTI had been using transistors manufactured by Steyn Technologies
 Abram Industries acquired Steyn the previous year, and the MJ10012 transistor was no
longer part of the supplier’s core product offering
 Its supply was currently handled through an independent distributor, Electronix
 Price for purchase MJ10012 transistor increased for last four years
 Current year-4.95
 Previous year- 3.50
 Two years prior- 2.00
 Three years prior- 1.69
 There was approximately a two months’ supply in stock, and the supplier was quoting
lead times of 30 days

Current Trend
 A trend of consolidation among the manufacturers of electrical components and optical
parts
 Remaining players were mostly big companies with significant bargaining power
 Price competition for high-volume components, especially for large customers
 Suppliers tended to charge a premium when supplying small custom orders
 Increased prices for many of BTI’s components
  Bob had worked with the engineering department to redesign certain products
 Eliminating some costly or hard-to-get components
 Engineering staff had not been able to solve this issue completely
 Customers specified certain types of subcomponents in their orders

Basic issues:
 What purchasing policies should establish for such situations
 Time limitation for making decision
 Potential shortage for MJ10012
 Small quantity for purchase MJ10012higher cost

 Price for purchase MJ10012 transistor increased for last four yearsHigher in future?
 Potentially Increased prices for many of BTI’s other components
 Engineering department unable for eliminating some costly or hard-to get components
 Substantial amounts of money for a single purchase
 Customer participation in design process

Case 4-2: Hemingway College

Catherine Barkley, manager of purchasing and accounts payable at Hemingway College in
Fresno, California.
Catherine wondered what action she should take in light of the tight deadline she faced in April 6
and was expected to make her recommendations to her boss, Dan Kavaliers, in a meeting the
following day.
HEMINGWAY COLLEGE
 Hemingway College was a community college with approximately 12,000 students.
 The college prized itself on its trusted position within the community, citing that almost
every fifth person in the city had passed through its classrooms.
 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
 Senior Management at Hemingway College decided to implement the new ERP system
because: unstable support from related software and hardware, a good time to integrate
other areas, i.e. finance, ...
 After a seven-month supplier evaluation process, a cross-functional senior management
team, led by the vice president of finance and corporate services and the vice president of
administration, selected an out-of-the box ERP package, EduSoft, which had been
successfully installed in similar colleges across North America.
 Next set of tasks is aimed: the purchasing and accounts payable system to smooth out the
process.
IMPLEMENTING THE PURCHASING MODULE
 Catherine had identified some drawbacks of the new system according to the existed
policies of the college. She is considering whether to change the policies for the system
of make some adjustment from the system to satisfy the policies, and she picked the 2 nd
option.
 The new purchasing and accounts payable system was tested from October to December
and finished off in January.
TRAINING
 During January and February, Catherine started weekly half-day meetings with staff to
train them and give them hands-on exposure to the new system.
 She planned to continue staff training throughout the summer.
 The staff training meetings typically lasted 15 to 20 minutes held every day or every
second day
 As continuously conducting the training, Catherine received various problems from the
new systems.
IMPLEMENTATION SCHEDULE
 HR department will begin implementation starting July.
 Everyone is doing anything possible to not delaying the system since they do not want 2
system exist at the same time and delaying might results in setting back system
implementation for 1 more year and returning back to old system was not an option.
ALTERNATIVES
 Catherine knew that she had two alternatives: increase time to implement the module or
hire consultant from EduSoft.
 First option would require her to increase staff overtime dramatically and add
temporary staff and hold a one-week workshop with her staff to clear up systems
problems and establish a new project plan
 Second option would be to hire consultants from EduSoft to implement the modules.
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.
 She had a meeting scheduled with Dan Kavalier and was expecting an update from her
and recommendations as part of a comprehensive plan.

Case 4-3: Portland Bus Company

Situation:
 Richard Kaplan, buyer at Portland Bus Company
 meets and manages a series of reverse auction with Laura Henning
 Laura Henning assigned to manage the reverse auction project
 Working supplier to set up the Bothe technology platform and proving training
 Communication relevant documentation to suppliers regarding details of the
auction packages
 Conducting a test auction with suppliers, and subsequently addressing any
technical issues or questions that raise
 On auction, Bothe would monitor the online bidding event and provide helpdesk
support to all parties involved
 After auction, Bothe would provide a detailed auction report to the buyer
 It would take a maximum of two weeks to install the Bothe platform and to train
 Testing the platform would take an additional one or two days
 PBC’s first use of reverse auction
 Online bidding for 290 components involving 7 suppliers
 Group components into 21 packages
Current situation:
 Company’s spend in three fabricated metal parts categories: hinges, brackets, and
ducts
 Ten suppliers were currently responsible for 290 different part numbers
 Annual spend of $2 million, expected a 25 percent reduction
 PBC was owned by Dawe Motors, who was satisfied with the reverse auction
with Bothe AG
 Meeting on October 14 was to finalize the schedule for the reverse auction
 Supplier would need at least two weeks to review the packages and prepare for
the auction
 Run the auctions in the middle of November and hope to complete everything by
Christmas

Basic issues:
1. Purchasing for a private corporation
2. the price, quality, delivery, supply process
3. supplier selection and splitting of business
4. cost management
5. the purchase of services
6. supplier evaluation and supplier relations

HOMEWORK CHAPTER 3
Case 5-1: B&L Inc.
Brian Wilson, materials manager at B&L Inc. in Lancaster, Pennsylvania, was considering a
proposal from his purchasing agent to outsource manufacturing for an outrigger bracket.
B&L INC. BACKGROUND
 B&L Inc. manufactured trailers for highway transport trucks
 The company comprised three divisions: the Trailer, Sandblast & Paint, and Metal
Fabricating Divisions.
 B&L manufactured approximately 40 trailers per year, with about two-thirds produced
during the period from November to April.
THE OUTRIGGER BRACKET
 The outrigger bracket, part number T-178, was an accessory that could be used to secure
oversized containers. Each trailer sold by B&L had 20 brackets— 10 per side.
 The subassembly parts— T-67, T-75, T-69, and T-77—were processed on a burn table,
which cut the raw material to size.
 Although the burn table could work with eight stations, this machine had only been
operating with one station.
 The final assembly operation, T-70, was performed at a manual welding station.
 Manufacturing lead time for the outrigger bracket was two weeks.
 The Metal Fabricating Division had been able to coordinate supply and production with a
ssembly operations so finished inventory levels were kept to a minimum. B&L’s
inventory holding costs were 20 percent per annum.
THE OUTSOURCING DECISION
 Alison Beals solicited quotes from three local companies to supply the outrigger bracket.
Mayes Steel Fabricators (Mayes), a current supplier to B&L for other components,
offered the lowest bid, with a cost of $108.20, FOB B&L.
 Brian met with the controller, Mike Carr, who provided a breakdown of the
manufacturing costs for the outrigger bracket.
 Brian expected that B&L would have to arrange for extra storage space if he decided to
outsource the outrigger bracket to Mayes, who had quoted delivery lead time of four
weeks.
 B&L was operating in a competitive environment and Brian had been asked by the
division general manager to look for opportunities to reduce costs.
Case 5-2: Rondot Automotive
Situation:
 Glenn Northcott, purchasing planner at Rondot Automotive in Jackson
 meets and provides evaluation with his boss, Terry Gibson and Dick Taylor,
purchasing manager, and the plant manager
 a new system proposed by Greven E-coating Company
 Electrocoating system
 Prepared samples for each family of housings
 Provide cost estimates
 A cost of 15￠each
Current situation:
 Rondot Worldwide operated in more than 100 countries, employing more than 200,000
people
 Rondot Automotive operated 85 plants in 25 countries.
 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. The number of employees at the plant had dropped from
1,450 to 600, and plant management was under pressure to lower costs and regain market
share.
 Quality specifications 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 upgrades and modifications, in part to comply
with evolving environmental regulations.
 Cleaning and painting operations cost 25￠ for each housing: 10￠in material, 3￠ in
labor, and the rest in overhead.

Basic issues:
 Company to take a decision on insourcing or Outsourcing.
 Higher Costs related to cleaning and painting.
 Increased global competition and pressure from customers on price reduction.
 Lack of technology development to compete in the competition.
 Inexperienced planner for a big decision.
 Steady decline of total sales for the past five years.
 Terry Gibson and Dick Taylor were under significant pressure to reduce costs at Jackson
plant, outsourcing painting operations represented a good opportunity.
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.
GENERAL COMPANY BACKGROUND
 Products included a wide range of syrups, fudges, cone dips, sauces, mayonnaise, and
salad
 dressings.
 Customers were major food chains, hotels, and restaurants in North America and Europe.
 Investing more than $2 million in plant facilities, the bulk of it new, state-ofthe-art
process equipment and process control.
 TFL employed about 120 people.
 A corporate structure of CEO; president; executive vice president, domestic sales; and
national account manager and used a network of food brokers.
THE SUPPLY AREA
 Purchases could be classified into five different types: labels, packaging, raw materials,
commodities and MRO supplies.
 Mustard was an important raw material used in many of TFL’s products.
CURRENT PRACTICE: PURCHASING MUSTARD EXTERNALLY
 Every month TFL purchased 500 drums, or 100,000 liters, of mustard. The cost of the
mustard itself was $64 per drum.
 Freight costs were borne by TFL and amounted to about $8 per drum.
 TFL operated three eight-hour shifts, five days a week.
 Each worker was paid about $20 per hour. It took about 10 minutes of a worker’s time to
handle each drum.
 The costs of disposing of the drums in this manner were negligible. Other costs and
overhead of purchasing were $0.02 per liter.
SUGGESTED CHANGE: MANUFACTURING MUSTARD IN-HOUSE
 The mustard to be produced at TFL would be composed of roughly 60 percent solid, 20
percent water, and 20 percent vinegar.
 She approached a supplier who indicated that it could make the spice blend at a delivered
price of $0.15 per liter for TFL, including freight.
 Vinegar cost TFL $0.1875 per liter delivered in 15,000 liter lots. And TFL was paying
$0.025 per liter for water.
  Production calculated that the change would entail a total labor and overhead cost of
about $0.105 per liter of mustard using standard cost accounting for labor time and
overhead charges.
 Alicia organized an information gathering and discussion session involving supply,
production, quality assurance, and distribution to discuss the proposed change
 Alicia wanted her proposal for in-house manufacture of mustard to be in the company’s
best interest and wondered how to proceed next.

 If buying, total annual cost is:

TC (EOQ) = S * (D/EOQ) + H * (EOQ/2) + 𝐶 * 𝐷
D
H 2 SD
=S*
√ 2 SD + 2 *
H
√ H
+ CD

= √ 2 SDH + CD

= √ 2∗5∗2500(0.1∗25) + (25*2500)
= $62,750
  If making, total annual cost is:
SD H (1−D/ P) EPQ
TC (EPQ) = + = √ 2 SDH (1−D/ P) + CD
EPQ 2
= √ 2∗50∗2500∗(0.1∗23)(1−2500/10000) + (23*2500)
= $58,156.70
 Conclusion: Manufacturing

Question: Select 3 points of Deming and give the example.

Point 6. Institute training on the job

Example: The Japanese plant manager faces much the same pressures to reduce costs that his
American counterpart does. He has flexibility to cut costs in many areas, but one area he cannot
reduce is his training budget, because training and education are the cornerstones of greater
consistency.
Point 9. Break down barriers between departments.
Example: A pharmaceutical company has production and sales department. Sales who working
directly with customers cannot answer customers' queries of product's ingredient and uses. The
reason is that two department of the company do not cooperated and involved each other.
Teamwork is needed throughout the company. Everyone in design, sales, manufacturing… can
be doing superb work, and yet the company can be failing. Because functional areas are sub-
optimizing their own work and not working as a team for the company. Many types of problems
as the example above can occur when communication is poor.
Point 14. Put everybody in the company to work accomplishing the transformation.
Example: Everyone can be a part of the team effort to improve the input and output of the
stages. Everyone on a team has a chance to contribute ideas and plans. A team has an aim and
goal toward meeting the needs of the customer. Members will spot a few extras that could work
better, and they won’t be afraid to share their observations. A team together can achieve
successes in quality improvement to fit with the satisfaction of the customer.