The new business venture to produce quality boxes for the U.S market has created a requirement for Platinum Box to source five new presses. The three bids to supply these presses were from Merakuri, Jabaking and Pnutype. Each bid had its attributes over the other. Finding a way to fairly evaluate each bid was needed. A Weighted Evaluation System was chosen. Four factors were used to evaluate the bids. They are: Performance & Quality, Service, Price (total cost of purchase determines the pricing factor) and Financing. By applying a value to each, a better evaluation of the bids can be made.
Performance & Quality was perceived to be of utmost importance to the point where the success of the project depended on it. This was given a high value of 40 with the other three taking 20 each for a total of 100. The Merakuri bid scored the highest with 85 followed by Pnutype with 70 and Jabaking with 60. Jabaking is the current supplier of our presses which came about as a result of a favour from the owners. Platinum Box has always felt indebted to Jabaking and may feel some loyalty as a result but the inability of their current presses to meet the quality specification put forward has dismissed them as supplier at this time.
Also the union presence is strong at Jabaking which could result in a union push towards Platinum Box if they were chosen as the supplier. The new technology used by Pnutype has a high risk attached. It has a very short track record and the technology should be better proven before it can be adopted by Platinum Box. This leaves Merakuri as the preferred vendor with its acceptable product quality, highest production numbers, next day service and fair pricing with financing. Another consideration is that the factory trip to South Korea and Regina should both be taken advantage of. The procurement process should be closely monitored by a cross functional team of Platinum Box procurement and plant management members. They should be encouraged to form a close relationship with the Regina Employees of Merakuri also.
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Issue Identification Platinum Box has decided to enter the U.S high quality box market. As a result five new presses are required in six months to produce 250,000 boxes in 18 months. Three bids have been received with a wide range of attributes. The best source for this press will be recommended to our board. Platinum Box is also trying to decide whether to single source by continuing with JabaKing or multi source with a different supplier. Since the company wants to enter United States and compete on the highest quality product, staying with existing supplier would not accomplish current strategy as they produce fine product, but not of the highest quality. If the company wants to be competitive and enter new market it has to choose the best supplier on the following parameters; Performance & Quality, service, price and Financing. Root Cause Analysis
The three Companies that have been selected as potential supplier and submitted their respective bids with its new presses consist of: Merkuri, Jabaking and Pnutype. The bids factors ranged in price, performance, finance and service commitment. The source for these new presses is a key piece to the success of this venture into the competitive U.S Box market. The most important factor to consider is the performance of the press chosen. It has to meet the high quality box requirement as well as produce 250,000 boxes a year. A fair and consistent way is needed to analyse the bids to determine which offers the best value. Special consideration is to be paid to the current relationship between Platinum Box and Jabaking.
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As the current supplier, Jabaking took a chance with Platinum Box when no other supplier would many years ago and feel they are owed the business. Not to mention the relationship that the President have with them as well. But the threat from Jabaking unionised shop and their intention to unionise Platinum Box should also be factored. Supplying and installing the new presses could be the opening they have been looking for. The selection process is further complicated by Platinum Box plan to expand to 500,000 boxes per year in three years requiring more presses so the desire to form a relationship with a quality supplier is of importance. By using a Weighted Evaluation System as a tool we can better understand the bids and their attributes. Because not all the four factors Performance, Service, Price and Finance have the same importance a value or weight has been assigned.
Merakuri Jabaking Pnutype Performance 40 35 20 30 Service 20 20 15 15 Price 20 15 20 10 Finance 20 15 10 20 Total 100 85 65 75
Some of the reasoning behind this weighting is based on the importance of Performance & Quality as a sourcing criteria thus it is given a weight of 40 compared to the other three at 20 equally for a total of 100. Performance has such a high weight because it encompasses such factors as quality of box produced and production numbers expected which are crucial to the success of the venture.
Alternative or Options 1.Staying with current supplier to keep the relationship and purchase the product that will outlast any of competitors. The proximity of the supplier will assist in repairing the equipment promptly. However, JabaKing does not produce the highest quality product. It has higher operating costs and produces fewer sheets than the competition. All of which will affect the competitiveness and progress into the expansion into the US market. Staying with the current supplier will create potential risk. If there is a strike, the company will be affected by not having maintenance and repairs done on time.
2.Choosing Pnutype as a supplier. It will ensure the company has purchased the latest technology that is also environmentally friendly. Annually produces biggest costs savings among three suppliers $3.75 million. In addition produces extremely high quality product. On the other hand the company has only been building presses for only 2.5 years. Technology has not been tested beyond those years, and therefore output and quality could deteriorate with the aging of equipment.
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3.Choosing Merakuri as a supplier. Produces highest quality product with the capacity of 150 cm per sheet. This can make a very strong product that can be marketed within the US. Produces 25% more product per hour then the closest competition which will save on labour costs. . If going forward with this supplier will save company annually $2.5 million. In addition the supplier has a great reputation among current clients. However, maintenance is $15000 higher than the current supplier. Also, manufacturer is located in South Korea, repairs has to be done through a local distributor. This could create challenges for complicated repairs.
Recommendations The Merakuri score of 85 shows their high compliance with performance by meeting the quality specification as well as having the highest production numbers of 10,000 per hour at .04$ with the ability to go to 400,000 which may help us get to the 500,000 boxes three years from now. Their next day service is impressive at a fair price per press $500,000 offered with 5% financing. The Jabaking bid is deficient in their ability to meet the quality specification required and because of its heavy value they scored the lowest on our evaluation system but they did offer the lowest price per press and lowest transaction costs. The continuation of a relationship with Jabaking should be encouraged; they need to know the short comings of their presses product quality. We can even offer our assistance to help them achieve this requirement for future business.
The Pnutype bid sparked a great deal of interest with their new technology but this is not yet proven in our opinion and did not offer the service level we would expect. The price per press is too high which can be expected from new technology. This may be a worthwhile investment for some but not for Platinum Box at this time. Putting the success of the U.S venture in this unproven technology would be a very risky choice. So again Merakuri will be the recommended source for our new presses because of their conformity to the quality expected as well as high production numbers at a fair price with superior next day service. They offer the lowest perceived risk with the best valued package.
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Implementation The recommendation to source from Merakuri should not be made until after the factory trip. The key decision makers should visit distributor in Regina and visit the headquarters in South Korea. A lot of valuable information can be learned and may influence the final choice. If the trip results are positive then the next step would to notify Jabaking in a respectful way by the persons that formed the relationship years ago.
The formation of a cross functional team is recommended consisting of members of the procurement team and plant management to work with the supplier to help ensure the procurement process is handled correctly. Clear expectations should be outlined and put on paper. Maintenance and repairs has to be done on timely fashion. It is a key to entice manufacturer to make sure that the product is repaired and maintained regularly, therefore giving a chance for purchasing more presses in future. Promised performance and numbers should be put down on papers that both companies can follow up and make sure that they are being met by the equipment.
Monitor and control It is to both parties best interest that the procurement process be monitored in order to correct any deficiencies that are likely to occur in a time sensitive manner. It will be through a close working relationship with Merakuri that we can see the greatest amount of success. Current stuff must be trained on the new machines, not just operators but also maintenance related. The metrics for the performance has to be established based on quality and output with the supplier. It should be regularly followed and the supplier should be advised if any of the targets are not being met. Having them located in nearby Regina will make this relationship easier to maintain. Finally, comprehensive record keeping of repairs and maintenance for each press will help in any future sourcing decisions.
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