Reference no: EM133425725

PROBLEM # 1

Better Boat Bunks(BBB) is a boat lift company, located in Lakeshore, Ontario Canada and has hired your purchasing team to source all the parts and components for their boat and PWC (Personal Water Craft) lifts.  The lifts are designed to accommodate boats from 14' long to 26' long and all sizes of PWC's. The lifts raise the boats out of the water for protection.  The appeal to customers is that the lifts are interchangeable with boat sizes, meaning that this one model can be shortened and/or lengthened in order to suit any size boat in their length range. The lift system is easy to use by one person and can be automated if the customer's request the addition. 

BBB's strength is aluminum fabrication and has the capability to make all the aluminum parts (legs, crank wheels, brackets and braces) in their facility. The company usually fabricates 200 bunks (units) in a production run.  The aluminum bunk frame is made from 16 pieces that are cut from an aluminum tube 1.5"SQ x .188"thick x 16' long.  The crank wheel is 3/8" thick round aluminum tube with a 18" diameter cut and bent from a 10' tube

Note: The aluminum components are made by BBB, but they must buy the aluminum to make these parts. 

The following list of components is the focus of your Purchase Requisition:

 Your purchasing team's assignment is to prepare the following for your General Manager to consider with respect to the possible purchase of the above items:

PROBLEM # 2

The General Manager of Better Boat Bunks has reviewed your purchasing team's requisition to buy several key materials and components from a list of potential suppliers recommended earlier (see Problem 1).  Your team also recommended a preferred supplier for each item to be purchased. However, your General Manager wants your decision to be clarified further before your recommendations are approved by the President (her father) and before Purchase Orders are prepared.

The President started Better Boat Bunks in 2006 and "tight control" of every aspect of the company has always been important to him. He is a very demanding, strict and is an "old style" leader who started his business in an era when a company did almost everything in house and only used suppliers when it was absolutely necessary.  

The President's views are reflected in the company's three strategic objectives, which are:

1. Earn the respect of our customers with outstanding product quality and service;

2. Design and build products that meet our customer's needs for comfort and efficiency; 

3. Conduct our operations with unparalleled efficiency, cost control to the highest standard of our quality management system.

The competitive pressures, especially from lower cost suppliers in China and Indonesia, as well as improvements in manufacturing technologies over the years, has forced many firms to be extremely efficient, as well as focus on what they do best over what they cannot do as well as other firms.  During a strategic review in 2016, BBB aligned its core competencies more closely with its strategic objectives and chose to focus on its fabrication capabilities.  For BBB this meant, cutting, bending, stamping, drilling and welding of aluminum - the core components of their boat lifts- as well as the "finishing" aspects of their product including, wood cutting and carpet wrapping, painting, anodizing, sub-assembly and packaging for delivery. The company has invested over $1 million dollars in the past two decades to make these processes "world class". Once the President accepted these competencies, he has applied them rigorously.  However, due to increasing competitive pressures, he now even questions whether other aspects of what they do can be outsourced.

Consequently, with respect to the items that your team was to purchase from outside suppliers in Problem 1, the President is now questioning two aspects of the earlier decisions: 1. whether the crank handle & carpeting for the cut lumber should be made and finished by an outside firm and supplied to BBB ready to install, rather than purchasing the raw lumber and carpet and finishing it in-house. 2. If the raw aluminum (in 16' lengths) should be supplied to BBB cut to the company's required lengths.

The General Manager on the other hand is concerned about the possibility of outsourcing these items.  The difference in cost(savings) by buying from outside as opposed to producing the components in-house was $75.00 for each crank wheel and .05/ piece for the cut aluminum as well as a reduction of $50.00 per each bunk that would be precut and covered with carpeting.  The GM feels that BBB should maintain control of these items to adhere to its strict quality requirements and look for efficiencies in these in-house processes to reduce the cost gap. The President's argument, based strictly on cost, is that the cost gap is too great to overcome, especially for the bunks and crank handles. 

For the moment you are to assume that the cost analysis is correct. Your team must therefore produce the following brief report for the General Manager and the President that includes:

Question:

1. Since the President and the GM may decide to purchase these components from an outside source (based upon your review) prepare a list of the important specifications that must be met by a possible supplier.  Therefore, if the decision is to purchase these items from an outside supplier your company will be able to accept the component as "finished", in compliance with your quality standards and ready to be attached to a completed boat lift.