Avion Case - Purchasing and Inventory Management

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Case1-AvionInc.txt

Case 1: Avion Inc. Susan Dey and Bill Mifflin, procurement managers at Avion Inc., sat across from each other and reviewed a troubling performance report concerning a key supplier, Foster Tech-nologies. The report detailed the deteriorating performance of Foster Technologies in the areas of material quality and on-time delivery. Susan: I don’t believe what I am seeing. This supplier was clearly a star when we performed our supplier visits before awarding the contract for the new Amrod product line. Bill: I’m not pleased. I was on the team that performed the audit and site visit. Foster’s management was so smooth—they indicated they could meet all our requirements. I feel like we’ve been misled by this supplier. Susan: Didn’t you look at their processes and quality systems? Bill: Sure we did. Everything checked out fine. But now every other shipment has some problem, and the delays are hurting our ability to get our product to our customers. What really struck us about this supplier was how innovative they were. Foster’s biggest drawback was their size—they lacked some depth at key manufacturing engineering positions. Maybe that’s why they are having problems. It could be that someone has left the company. Susan: We are going to have to address these problems quickly. Bill: I’ll tell you what I am going to recommend. We should begin immediately to look for another supplier. I never was a fan of these single-source contracts. They leave us open to too much risk. Susan: But won’t that take a long time? Bill: Sure. We’ll have to perform another supplier search with team visits. New tooling could really cost, too. This could take months. Susan: Has anyone talked with the supplier about these problems? Bill: Kevin went over personally today and talked with the production manager. He didn’t have much time to explain, but he indicated on the phone that Foster’s production manager said we should accept responsibility for a good part of the problems that are occurring! Bill: I’ll tell you what I am going to recommend. We should begin immediately to look for another supplier. I never was a fan of these single-source contracts. They leave us open to too much risk. Sure. We’ll have to perform another supplier search with team visits. New tooling could really cost, too. This could take months. Susan: Has anyone talked with the supplier about these problems? Bill: Kevin went over personally today and talked with the production manager. He didn’t have much time to explain, but he indicated on the phone that Foster’s production manager said we should accept responsibility for a good part of the prob-lems that are occurring! Susan: Why should we? I think they are just trying to shift the blame for their poor performance. At this point, Kevin O’Donnell, another procurement manager, entered the room. Bill: Kevin, glad you’re here. We were just discussing how Foster is trying to blame us for their problems. I think we should dump them fast! Kevin: Yeah, well, I’ve got news for you two. I think Foster’s production manager is cor-rect. I think I would be frustrated with us, too! Susan: What are you talking about? Kevin: I spent a good part of the day over at Foster and learned some interesting things. For example, do either of you remember what we told Foster the monthly volume requirements for the product would be? Bill: I remember exactly. The volumes were projected to be 2,500 units a month. So what’s the problem? Kevin: We need to talk with our production group more often. The monthly volumes are now over 4,000 units a month! And not only that, our production group now wants material within 10 days of a material release rather than two weeks. We have also been changing the final material release quantities right up to the last minute before delivery. Bill: Uh oh. I remember on our site visit that the most their production system could handle was 3,500 units a month. And a two-week lead time was about as low as they could go. Susan: But why didn’t they inform us that these changes were causing problems? They still have some explaining to do. Kevin: Apparently they tried. What did your team tell this supplier about communicating with us after you finished negotiating the contract? Bill: We said that any operational problems or issues have to go through our materials management people. The team was responsible for evaluating and selecting the supplier, and then negotiating the agreement. Kevin: Foster’s production manager produced a log detailing seven memos and letters outlining the impact of our production and scheduling changes on their operation. He also called us several times with no response. Each of these inquiries received little attention on the part of our materials group. I’m not sure how fond Foster is of us as a customer. I think they are anxious for this contract to wind down so they can dump us! Susan: What do we do now?