The Collier Company is a large electrical manufacturer. Recently, a new division of the company was started, and entirely new facilities were required. In equipping the new plant, it was decided that for certain subassembly operations it would be desirable to have production employees seated at high stools instead of standing at their work benches. Eight hundred and fifty employees were to be so seated in the new plant. After investigating many possible stool designs, the plant engineering department and the personnel department agreed on a certain style of stool that was easily described to the trade as “Carter’s 816 or equal.” Supply management requested bids from most major fabricators of this type of item, and bids from nine suppliers were received more than ten days before the announced closing date. Several days before the final bid date these suppliers started to call the supply manager to see how they ranked. The supply manager answered their questions honestly with phrases like: “You are not low bidder, but you are fairly competitive.” A “You are not low bidder. You are way out of line.” “You are presently low bidder, but others seem to be revising their bids.” By April 23, the day originally chosen to close bidding, every supplier except supplier C had submitted at least one revised quotation. (See Exhibit 1.) In most cases, the prices quoted were substantially below the initial bids. EXHIBIT 1 UNIT PRICES QUOTED BY SUPPLIERS Original bid April 23 bid May 7 bid Supplier A $55.92 $41.10 $34.08 Supplier B 44.70 37.50 31.62 Supplier C 39.48 39.48 39.48 Supplier D 45.36 35.88 30.06 Supplier E 43.86 38.58 31.98 Supplier F 38.70* 37.92 29.88* Supplier G 39.00 35.40* 30.60 Supplier H 42.78 39.60 31.50 Supplier I 48.60 41.34 33.18 *Indicates low bid.
Late in the afternoon on April 23, two suppliers asked for special permission to make a final bid on April 24. Since these two firms had been satisfactory suppliers of the Collier Company for years, the supply manager was anxious to give them any opportunity to keep their facilities operating in the depressed conditions that then characterized their industry. He gave them a special extension of one day. By the next afternoon, the supply manager had heard from three more firms who wanted the same privileges as the two concerns who had re-bid. Firms kept asking for special extensions or equal bid privileges until the supply manager finally said to all who called that May 7 was the last day, he would entertain bids. On May 7 several suppliers asked for special permission to bid late and were refused. Supplier C still had not called in to change its original bid. By May 7, the supply manager felt that all the firms were bidding at less than their total costs in order to keep their facilities operating at the highest possible volume in this slack period. He also felt that further price adjustments would be negligible. However, not wanting any supplier to go “out of pocket” on the order, the supply manager asked the plant engineers to make a cost estimate on the chairs. The engineers estimated costs as follows: Labor $12.00 Materials 13.62 Overhead: 150% of direct labor 18.00 Total cost (excluding profit) $43.62 Having satisfied himself that all suppliers were making some contribution to overhead at the quoted prices, the supply manager awarded the order to supplier D, who had done business with the Collier Company in the past and was considered one of the best fabricators in its field. On May 9, two days after making the award, the supply manager heard from both supplier C and supplier F. Supplier C was extremely angry that he had not been told of the acceptance of new bids. He said that he would write a letter to the vice president of material requesting a review of this “entire deplorable situation.” The supply manager informed supplier C that reasonable follow-up on the latter’s part would have given him any information available to other potential suppliers. Supplier C was not at all satisfied with this answer and again expressed his intention to contact the vice president of material.
Supplier F asked why the supply manager had requested bids at all if his “mind had been made up all along.” Supplier F said that the order should have gone to the lowest bidder who could provide the object desired. He said he could meet the specifications and could deliver to any schedule supplier D could meet. He demanded the order, and when the supply manager informed supplier F that “final selection of the supplier is entirely my province,” the supplier raged that he would “spread the word to the trade” and would write the Collier Company president, who “should know of such favouritism and incompetence.” He further stated that he even suspected that money had passed hands for this order. The supply manager was upset by these calls and did not enjoy his supper on May 9. 1. What suggestions might you have made in the supply manager’s handling of this matter? (3 marks) 2. What would you recommend that he do now and why? (5 marks) 3. To what extent would you concur in the supply manager’s belief that suppliers should at least be allowed to recover direct costs? (2 marks) 4. Who do you feel should have received the order and why? (5 marks) 5. What are the weaknesses inherent in the competitive bidding process? discuss (5 marks) 6. Discuss “benchmarking” in relation to Collier’s tendering procedure that was used. (5 marks) 7. Do you think best operating practises was used to select appropriate supplier? If yes/No, kindly discuss. (5 marks) 8. With regards to best practises in improving productivity, do you think production employees seated at high stools instead of standing at their work benches will add value? Discuss (5 marks) 9. In relation to defining operation management, do you think that the administration of this tender equid a fair business practice? Discuss (5 marks) 10. Discuss “information management “as one of the best OMP in relation to how Collier tender was awarded (5 marks) 11. What will be Collier’s benefits if the new operation plant achieves its objective? (5 marks)