Reference no: EM131108999

THE DUTZEL DIESEL CASE

Jack Haley, a senior supply manager for the Dynamite Truck Company, was confronted with an interesting predicament-and possibly a trip overseas. Rising gasoline costs and increased foreign competition had caused the management at Dynamite Truck to develop a new truck powered by an air-cooled diesel engine.

From bumper to tailgate, the new vehicle was designed as a full-performance diesel truck. It was heavy-duty throughout: frame, suspension, brakes, axles, and steering. It was built to endure. Under normal operating conditions, the new truck, using an efficient air-cooled diesel engine, was designed to yield 18 to 20 miles per gallon. The warranty was for 100,000 miles or two full years, whichever came first. Jack had been actively involved in the development of the new truck. He provided the Dynamite engineers with information on the availability and cost implications of various materials, components, and subassemblies under consideration. From a technical, cost, availability, and service point of view, the diesel engine was the most crucial item to be purchased for the new truck.

Jack obtained technical data on four air-cooled diesel engines that appeared to satisfy Dynamite's requirements. Two of the manufacturers of these engines were located in Europe, one in Japan, and one in the United States. Discussions with the program manager indicated that from a technical point of view, each of the diesel power plants was acceptable. Accordingly, all four manufacturers were invited to submit bids. The request for bids stipulated an estimated requirement of 10,000 engines per year for each of the next three years.

The date specified for the close of the bidding period was Friday, June 13. All four firms submitted bids by the established date. Dutzel Diesel of Gailsdorf, Germany, was the low bidder with an F.O.B. destination price of $14,263 for the first year, and a standard price escalation clause for the second and third years. The second lowest bidder was a U.S. firm, the Great American Diesel Company. Its price bid for the first year was $16,287 per engine. The price for the second and third years contained the same economic escalation clause as Dutzel's bid. Jack sat contemplating a course of action. He wondered if the $2,024 per unit price differential required to buy the U.S. engines could be justified. He also wondered about the necessity of a trip to Gailsdorf to perform a survey on Dutzel prior to awarding the contract.

1. Do you believe that buying from global sources is destined to give supply managers an increasing number of problems? Discuss.

2. What is the easiest way for supply managers to start buying internationally?

3. If you were Jack, how would you decide this issue?