Reference no: EM131121637

SURPLUS STYLES

Surplus Styles is a manufacturer of hair care products, including shampoos, conditioners, and hair gels. The company, located in Southern California, bottles the shampoos and other various hair products in their manufacturing plant, but sources the content from a number of chemical suppliers. The company has historically competed on cost and has used competitive bidding to select suppliers and award yearlong contracts. The Director of Sourcing, Derick M. Frizzle, has managed the competitive bid process for the past 10 years, having moved up the ranks from purchasing. He was particularly proud that the company was cost-competitive in its market segment.

One recent day the president of the company, Frederick Davenport, called for a meeting with Mr. Frizzle. Derick could tell from the tone of Davenport"s message that the meeting would be accompanied by less-than-stellar news. As Derick took the infamous ride up the wood-paneled elevator with green marble floors to the top of their office building, he contemplated what he could have possibly done wrong. He had followed the same type of supplier bidding process for years and the company was doing well financially. He was anxious to hear what Davenport had to say.

Derick entered Davenport"s vast office, a room highlighted by ceiling-to-floor windows. He could see Mr. Davenport sitting at the end of the long, dark wooden table, with each one of his two aides accompanying him on each side. The man on the right was Bo Jenson and the woman on the left was Gertude Masterson; neither were taken lightly within the company. Derick could always tell when it was going to be a bad day.

"Darn hippies," Davenport rumbled. "Bo and Gertude have some troubling news. This swing towards animal rights and 'quality goods" is about to cost me a lot of money," Davenport continued, making mocking "bunny ears" with his bulbous index and middle fingers. "Apparently market trends are changing again and not for the better." Davenport continued to explain that there was going to be a change in the competitive strategy of the firm. The competition in the hair care market had become fierce and there was greater focus on quality. Specifically, the recent trend in animal rights and natural, organic products meant ensuring that the shampoo content did not go through animal testing and that it was ensured to be hypoallergenic. The current products were produced to compete for price and did not agree with the new demands. Davenport wanted to see products on the retail shelf with this quality standard as soon as possible. "Do it," Davenport continued and sat back down. This concluded the meeting. Luckily Mr. Frizzle had an easy exit as he had only gotten one foot in the door before his task was demanded.

Derick M. Frizzle was rather pleased with his new detail as he cared greatly for nature and had always refrained from purchasing his own company"s products due to their lack of consideration for both the individual and the environment. However, Derick was now confronted with a problem. His current suppliers offered the lowest cost in the business and would likely not be able to provide the needed quality assurances. His expertise had been in procuring the least expensive ingredients available and he did not know where to begin changing his sourcing practices.

Identify the steps that Derick should take to solve his problem.

Should Derick ask for the required changes from the current suppliers? If they do not comply, should he solicit new suppliers? How might he do this?

Should Derick go through a competitive bid in the future? If so, should he do it for all purchased products or just some products?

What are the differences when looking for suppliers to meet cost standards versus quality standards?