11 case study sampson products

7/31/2019 11 Case Study Sampson Products

1/23

SAMPSON PRODUCTCASE STUDY

Dines

Gau


2/23

Description of Case Study

Sampson product corporation - major manufacelectrical equipment with average sales of $40

In 1990, SampsonProducts was awarded a

of $20 million to manufacture motors from Gencompany with offering lowest price in bidding

Sampsons Before tax profit is 9% of the $20 m

contract


3/23

General Company sells small rotor shafts to SProduct from its machine shop division

Indication of U.S. Government might restrict

military applications to conserve supplies of muse

Though impressed by the shaft performance George Smithe, Director of purchases Samps

decided to look for suppliers including Gener

Description of Case Study (C


4/23

The highest bid is from General company for motor shafts

The President of General company threatene

Mr. Smithe of canceling the long term contracGeneral doesnt get the new contract of manrotors for Sampson

Description of Case Study (C

R i di h


5/23

Reasons against awarding thecontract to General According to Mr. Georg

No economic basis for General to insiston a premium price, General attempting

to take advantage of motor purchase to

obtain higher price for shafts

Reciprocity shows difficult administrative acontrol problems

R i di h


6/23

Reasons against awarding thecontract to General According to Mr. Georg

If Sampson pays premium prices forpurchase materials for no reason thenthey lose reputation as well as sales totheir buyers who are not their suppliers

Sampson sales motors to General at the bvalue in the best price, so it would be difficGeneral to discontinue their $20 million cowith Sampson


7/23

C

Lastly, being in a long termrelationship Smithe asked

President of General to

reconsider the price of theirbids and send it again


8/23

Material in question ?

Rotor shafts used in smallhigh-speed motors

Shafts are made of specialalloy which is in very shortsupply

High probability that govtmight restrict use of alloyfor nonmilitary applicationto conserve supplies formilitary use


9/23

Further ...

Rotor shaft can make orbreak a motors performanceespecially in high speed smallmotors

Sampson has 100 million

revenue from small motorssale 1/4th of total revenues

Sampson has fourcompetitors of equal size inabove segment


10/23

Kralijic Matrix

Low SupplyChain

Difficulty

High SupplyChain

Difficulty

LowStrategicImportance

Commoditymaterials

Bottleneckmaterials

HighStrategicImportance

Leverageable materials

Direct/corecompetency

materials

Strategic PartnershipSuppliers

Other suppliers are nyet tested for deliverand quality

General may terminacontract , there is aclause


11/23

Questions

What are the basic policy issues situation? Analyze and discuss e

of them. What actions should Smithe

take? Why?


12/23

Question 1

What are the basic policy issues insituation? Analyze and discuss eathem.

Basic Policies: Reciprocity Supplier Relations

Purchasing Strategy & Procedures


13/23

Policies Involved - Reciprocity

Reciprocity:

This action involves giving preferential treatment to suppliers that aof the buying organization.

Why Sales prefersWhy Purchasing avoids it ?

Restricts competition among potential

suppliers Difficult to negotiate with the buyer Legal aspects Proofs to show that there is

no intent to restrict competition and nothreat for economy (anti competitive act).

Purchasing patterns give idea a

potential Readily available customer Helps to increase & retain com

Though reciprocity has lots of legal obligation many companies adothat says in essence:

"When important factors such as quality, service, and price ar

prefer to buy from our customers."


14/23

Policies Involved - Reciprocity

Case Perspective:

Though president concludes that this is a purchasing problem involvemenand marketing makes it top managements problem.

President of Sampson should consider the concerns of both purchasing a

their weightage to the companies objective and then take proper decision

If management believes that it can expand sales permanently and add tolegally by practicing reciprocity, then this is the decision management shomake. Conversely, if management believes that profit will be increased bthe constraints of reciprocity, then that is the policy management should a


15/23

o c es nvo ve upp erRelations

Doing business for a while New contract in place

Smith should have asked the existing supbefore going for competitive bidding

Lack of courtesy and professionalism

Two meetings made the things worse

o c es nvo ve upp er


16/23

Potential Relationship problem with thethree firms and the market in general

Inviting bid again from General only an

problem If general bids lowest, ethical issues

Firms reputation as unethical price bu

o c es nvo ve upp erRelations

P li i I l d


17/23

Policies Involved

Purchasing Strategy & Procedu

Why did Smithe request competitive bidthe new shaft job in the first place?

Sampson's contract renewal/sourcinganalytical procedures may not be as thand as stringent as they should be.

Should have negotiated directly with Gto add the new job onto the old contrac


18/23

Question 2

What actions should Smithetake? Why?


19/23

Decision to be taken Going forward Smithe should take the following decisions

The worst thing that can happen to Sampson at this point is Generalmotors can cancel the contract of purchasing motors from Sampson.The probability for this to happen is very less, reason being Generalmotors was vey much satisfied with the quality and the attractiveprice of the motors being supplied to GM. Cancelling the contract

with Sampson will be a costly move for GM, as it is difficult to get a

supplier like Sampson. Nevertheless, Smithe should first talk with Sampson's sales

personnel responsible for motor sales to General. He shouldapprise these individuals of the recent scenario, so they can plantheir approach to insure retention of the motor business withGeneral.

Wsh

t


20/23

Decision to be taken (Contd Based on his previous actions, Smithe really has no viable alternative o

awarding the new shaft contract to the lowest qualified bidder. In all lwill increase Sampson's shaft costs, compared with the possibility of nnew contract with General originally. However, the multiple sourcing will provide the advantages and additional source reliability that accommultiple sourcing approach.

It is unlikely that General will cancel the existing contract, simply beca

represents an attractive piece of business for five years and the machindivision currently needs the business. Even if the contract were canceleasily could resource with his new supplier or with one of the other bid


21/23

Decision to be taken (Contd It may be difficult to accomplish, but Smithe is obligated to attempt

to improve his relationship with the General organization.

The approach he takes will depend significantly on the personalityof the individual he chooses to deal with, and also on General'sattitude toward the entire situation after the dust has settled.

Since the existing contract still has approximately five years to run,it is imperative that Smithe try to mend his broken fences to theextent possible.

Wsh

t


22/23

Decision to be taken (Contd It is clear that Sampson's procedures used in supplier selection and

contract renewal (including the use of price analysis and costanalysis) must be reviewed carefully .

A good set of procedures in this regard, properly utilized, shouldensure that this type of blundering, poorly conceived sourcingpractice does not happen again.

Whether Smithe will recognize the need for this type of proceduralimprovement is problematic. If he does not, perhaps his president

will generate enough heat as a result of this embarrassing situationto make Smithe aware of this important need.

Wsh

ta


23/23

THANK YOU

11 case study sampson products

Documents