Reference no: EM131881591

CAMPBELL KEYBOARD CORPORATION

The Campbell Keyboard Corporation was enjoying the biggest year in its history. High production levels made its unit costs low. It was the successful bidder for the Plum Computer's annual keyboard contract-the largest single keyboard sale in the world each year. To win the contract, Campbell promised Plum a state of the art, cordless keyboard with radio frequency range of 100 feet (in free space - no object between the transmitter and the receiver).

In order to meet the initial delivery deadline to Plum, the Campbell Keyboard Corporation had to implement production changes in a hurry-by changing the color of the casing (Plum Computer's are known for their purple color), the key tops, and increasing the power of the radio frequency (RF) transmitter. Campbell Keyboard could easily handle all of the changes in-house, except changing the power of the radio frequency (RF) transmitter. Production of the new RF transmitter would have to be placed outside.

Because of the tight schedule, it was essential that supply management delay as little as possible in selecting a source for the RF transmitter and placing the purchase order. Of the suppliers that were capable of producing the units, only four were large enough to handle the RF transmitter in the necessary quantities. Three of the four sources contacted either refused to quote on so short a schedule or else were fully loaded and unable to consider the order. The only exception was the Ingborg Radio Company, a highly reputable concern with a wide reputation for reliable work and strict adherence to promised delivery dates.

The Ingborg Radio Company was run by Niels Ingborg, a Swede by birth, who was indeed a master craftsman and a man of personal integrity and honesty. However, Ingborg was a businessman of the old school and ran his operation on a tight-fisted, closed-mouth basis. He knew his business and insisted on running his business as he saw fit. He sought advice from no one, and recently, when he was told by one of his customers that his prices were too high, he was heard to have said, "I produce a quality product, and I meet my delivery dates. I know my business, and I know what I should charge as a price. You get what you pay for, and if you're looking for bargains or cut-rate prices, I would rather not have your business."

This, then, was the only supplier willing and able to consider the RF transmitter procurement. Jim Smith, the Campbell Keyboard supply manager, opened discussions with Ingborg expecting at best a difficult time. At the outset, the meeting was noticeably strained. Several months previously, Campbell Keyboard had canceled a sizable order with Niels Ingborg and returned the work to its own shops to relieve what was then an under load condition. As could be expected, Ingborg was most unhappy on that occasion, and Smith was aware that the situation was strained.

It was with a sense of uneasiness, therefore, that Smith asked Ingborg to submit a quotation on the RF transmitters. However, Ingborg was the epitome of politeness and seemed sincere and anxious to be helpful and cooperative. The RF transmitter design was created by Campbell's designer and approved by Plum Computer. Ingborg cited the fact that the Campbell designs were difficult to make, and that more time was needed than Smith was prepared to allow in order to develop a realistic quotation. Consequently, he proposed that Smith tell him what the job was worth, and that would be the quoted price. This approach on the part of Ingborg caught Smith completely off balance. It was the last thing he expected to hear, and although he liked to believe that the "old man had mellowed," his intuition told him to be more wary. To aggravate Smith's dilemma further, Ingborg then proposed an alternative-$33 per hour straight time and $40 for overtime, based on the actual hours spent on the job.

1. What is your opinion of Ingborg's two proposals? Which, if either, would you accept, and why?

2. Are there any other choices open to Smith for arriving at an equitable agreement?

3. How would you have handled the procurement if you were Smith?

4. What should Campbell do in an effort to get better competition?