RUHLING MANUFACTURING

COMPANY

Sourcing Dilemma

YOGESH KUMAR(190)HARSH SINGH(191)SMIT RAKESH(194)VIJAYA KRUSHNA(215)

Introduction

• Cyrus Ruhling founded the Ruhling Manufacturing Company in 1901

• Until 1915, the firm made electric motors• After World War I, Cyrus decided to cater

to the small but growing home appliance industry

• Today, Ruhling is one of the nation’s largest appliance manufacturers

• Ruhling has a small capacity installed internally for contingency.

Background

• Company issued an invitation for bids for 11/32-horsepower motors for a six-month period at an estimated price of $29 per unit.

• Quantity estimated for six month period is 48000.

• Ordering Frequency : Daily • Lead Time : Maximum one Week• Company follows dual sourcing policy on

some places three suppliers may be in contract.

Bids Received

• Able Electric $30.00• Beta Products $28.00• Gamma Manufacturing $32.00• Delta Electric $29.25• Epsilon Products $30.00

Epsilon Proposal

• Proposed Price : $23.75• Flexible ordering period• Lead time: 3 days(guaranteed)• Would keep inventroy required for

one month at its disposal.• Would increase capacity if warranted• Conditions :

– Contract period : one year– Shall source the entire requirements

The Questions

• Should Epsilon's alternative be considered?

• Comment on the practice of dual sourcing when part of the requirement is produced internally. Relate this practice to the advantage and disadvantage of a 100 % requirement contract?

Options to consider

• Continue with dual sourcing policy by accepting bids from Beta Electric ($28.00) and Delta Electric ($29.25).

• Single sourcing from the Epsilon ($23.75) and keep its own plant as a contingency source. This option will lead to 17.03 % over other.

Should Epsilon’s alternative proposal be considered?

Taking the cost into consideration we should go for single sourcing , provided there is no risk of continuity in supply. Only considering the proposal of Epsilon is neither ethically correct nor it can give us competitive advantage.Advantages:

– Flexible ordering period– Lead time: 3 days(guaranteed)– Would keep inventory required for one month at its disposal.– Would increase capacity if warranted

Disadvantages:– Risk of meeting Contingency requirements– Lack of alternatives– Risk of running out of inventory

100% contracting Vs. Dual sourcing

• 100% requirements contract– Better cost advantage – Risk of continuity of supply

• Dual sourcing:– To ensure the continuity of availability– To mitigate the risks In these two strategies, there is a trade off between risk and cost.

Recommendation

Ruhling should move to single sourcing model. As it can mitigate the risks by using its internal capacity.It should negotiate with all the bidding companies to get the best price and contract terms. It will reduce the cost of material (in case Epsilon by 17.03 %) as compared to dual sourcing model.

Thanks

Queries?