Case 10–1 

Wedlock Engineered Products 

Cynthia Gao, procurement manager for Wedlock Engi- neered Products in Buffalo, New York, was reviewing a proposal recommending that the company change sup- pliers for a critical raw material. It was June the 3rd, and Cynthia needed to decide before the end of the day how she would respond to the proposal.

WEDLOCK ENGINEERED PRODUCTS

Wedlock Engineered Products (Wedlock) manufactured and distributed hydraulic, power-assisted, air-powered, and standard mechanical dock levelers, and dock seals and shelters, and vehicle restraints. Wedlock had profits of $50 million on sales of $450 million in the most recent fiscal year ending December 31. The company had en- joyed double-digit growth over the previous decade, sup- ported mainly through an aggressive acquisition strategy.

Wedlock’s growth masked cost pressures the company was facing in its key markets. The company’s annual re- port indicated that financial results were lower than ex- pected due to price erosion. In February, the CEO, Dmitry Barsukov, announced a corporate cost-reduction initiative aimed at improving the company’s competitive position. As part of the announcement, Barsukov specifically men- tioned “opportunities for supply chain savings through coordination of purchasing between operating units and divisions.”

The Buffalo plant manufactured hydraulic dock lev- elers that were installed in shipping and receiving areas in manufacturing facilities, distribution centers, retail operations, and other facilities required to accommodate loading and unloading of highway transport trailers. It produced a standard product that was sold in the replace- ment and new construction markets under the Sloan Lev- eler brand. The Wedlock plant in Cleveland, Ohio, also manufactured hydraulic levelers, under the brand name Cole Dock Levelers. The Cole line of levelers targeted the customized market, for customers with unique material handling requirements.

PURCHASING AT THE BUFFALO PLANT

Cynthia Gao, along with Garett MacDonald, buyer, and Adam McEniry, materials planner, comprised the pro- curement group at the Wedlock plant in Buffalo. Total purchases were $23 million.

Cynthia worked closely with Robert Scobie, her coun- terpart at the Cleveland plant, to coordinate purchases and identify opportunities for costs savings. The Cleveland plant was similar in size to the Buffalo plant, with ap- proximately $25 million in annual purchases. Cynthia and Robert had committed to savings of $1.5 million in the current fiscal year as part of the corporate cost-reduction initiative. They had documented approximately $500,000 so far, measured by year-over-year price reductions from suppliers and based on forecasted annual usage.

STEEL TUBING

The Buffalo and Cleveland plants purchased 3-inch steel tube with a combined total value of $1.1 million annu- ally. The tubing was used on the loading dock platform

to support the hinge connected to the lip of the platform that allowed it to lay flat or unfold, in order to connect or disconnect from the transport trailer. The tubing was required to meet specific metallurgical standards or else the tubing would warp or crack, causing the loading dock to malfunction.

The current supplier for 3-inch tubing was Marandi Steel (Marandi). Located near Buffalo, Marandi distribut- ed a wide range of carbon, stainless, alloy, and aluminum tubing; pipe products in round, square, and rectangular shapes; and steel plate to manufacturing companies in the eastern United States and Canada. Marandi had been a supplier to the Wedlock Buffalo plant for approximately 15 years and provided excellent service. Cynthia had a strong working relationship with the general manager at Marandi and could recount several occasions when they reacted quickly to material shortages at the Buffalo plant that helped keep production going. Marandi currently sup- plied several products, including tubular steel, shapes, and plate, to both the Wedlock Buffalo and Cleveland plants. The supply arrangement with Marandi to the Buffalo plant included just-in-time delivery arrangements, which helped to keep inventory levels at a minimum. Total annual purchases from the supplier were approximately $3 million for the Buffalo plant and $2.5 million for the Cleveland plant.

In order to test the pricing for 3-inch tubing, Robert Scobie issued a request for quotations (RFQ) the previ- ous month from several steel tubing distributors, includ- ing Marandi. The RFQ indicated the expected term of the contract would be two years and include 100 percent of the requirements for both the Buffalo and Cleveland plants. The two lowest quotes were from Vergis Tubing (Vergis), located in Erie Pennsylvania, and Marandi. The quote submitted by Vergis represented an annual cost sav- ings of approximately $24,000 compared to the incum- bent supplier.

REVIEWING OPTIONS

Robert felt that Vergis should be awarded the contract to supply 3-inch tubing for the Buffalo and Cleveland plants and was urging Cynthia to accept the proposal. However, Cynthia had concerns. Vergis had attempted unsuccess- fully on several other occasions to secure business from Wedlock, and she was worried that Vergis did not have any history with either the Buffalo or Cleveland plants. Delivery and quality performance for 3-inch tube was critical for the Buffalo plant, and the performance of Marandi in these areas had been outstanding. A check of Vergis’s references found that they had a good reputation and there were no problems uncovered.

Cynthia was also concerned about the effect of aban- doning a long-standing relationship, which might have other cost implications and jeopardize service provided by Marandi. Marandi supplied a number of other products to the Buffalo plant, and Cynthia wondered how awarding

Case 10-1: Wedlock Engineered Products

 

IMMEDIATE ISSUE

 

Decide whether to change the supplier for 3-inch tubes.

 

BASIC ISSUES

 

• Supplier selection
• Supply costs savings
• Bid evaluation
• Single sourcing
• ABC analysis

 

SUGGESTED STUDENT ASSIGNMENT

 

As Cynthia Gao, what recommendation would you make to Robert Scobie regarding supply for the 3-inch tubes?

 

POSSIBLE DISCUSSION QUESTIONS

 

1. How much weight should be placed on previous supplier performance when selecting a supplier?
2. Is $24,000 in savings worth the trouble of switching suppliers?
3. What will the response be from Vergis if you stay with Marandi, after they provided a lower bid?
4. Do you want to split the business between the two suppliers?
5. If you switch to Vergis for the 3-inch tubes, how will that affect your relationship with Marandi for the rest of your business with them?
6. Is using an RFQ the right approach in this situation?