Assignment Topic

BRIGHT TECHNOLOGY INTERNATIONAL

Bob Renwick, purchasing manager at Bright Technology International (BTI), was considering a quotation from Electronix for the supply of MJ10012 transistors, in his Dublin Office. It was Tuesday, March 11^th, and this was the third time this month he had been asked to consider a volume purchase for a component and he wondered what purchasing policies, if any, he should establish for such situations. Bob has to respond to the suppliers proposal before the end of the week, and he felt that the MJ10012 transistor purchase would provide a good basis in which to change the current approach used to acquire similar components.

Company Background

Headquartered in Kildare, BTI design, manufacture, and market proprietary electro-optical instruments. Founded in the early 1980s, BTI went public in 1989. Company revenues had grown steadily and sales for the current fiscal year were expected to reach 10 million.

BTIs products were used around the world for medical research, health care, industrial process, quality control, environmental science, and other applications. The company focused exclusively on fluorescence instrumentation and distinguished itself in the marketplace by providing exceptional product support. Fluorescence was a powerful technique for studying molecular interactions in analytical chemistry, biochemistry and cell biology. Its advantage over other light-based investigation methods was high sensitivity, high speed, and safety.

In recent years, the company has expanded internationally and it currently has sales and service centres in the United States, Canada, Germany and Ireland. Management expected that approximately 50 per cent of its sales for the coming year would be outside the United States and Canada.

BTI had nine competitors. Eight of these were about the same size of BTI, while one other controlled nearly one-half of the market. In total, BTI had approximately 800 employees, including 200 in Connecticut and 45 in Modesto. Manufacturing and R&D, and customer service functions resided in the Modesto facility.

Purchasing at BTI

Bob handled all purchasing for materials and service related to the production of BTIs products and reported to the plant manager. He had a background as a technician for a major telecom company before he joined BTI six years earlier. Purchased components accounted for about 80 per cent of the cost of sales. Although Bob worked with more than 400 vendors, many of whom were located outside Ireland, approximately three quarters of the total Euro value for his orders were custom-designed components while the balance of the orders of the total Euro relied heavily on members of the engineering department who were familiar with the suitability of suppliers to satisfy technical specifications for various components and for recommendations regarding new suppliers.

In recent years there, there had been a trend of consolidation among the manufactures of electrical components and optical parts, and the remaining players were mostly big companies with significant bargaining power. While there was still price competition for high-volume components, especially for large customers, suppliers tended to charge a premium when supplying small custom orders. For Bob, this trend meant increased prices for many of his components. To address this problem, he had worked with the engineering department to redesign certain products, eliminating some costly or hard to get components. However engineering staff had not been able to solve this issue completely and occasionally customers specified certain types of subcomponents in their orders.

The MJ10012 Transistor

The MJ100212 was a transistor used in the power supply for several of BTIs products. Each power supply needed two transistors and the annual demand for this kind of transistor had increased over the years. The expected demand for the coming year was estimated to be 2,000 units.

BTI had been using transistors manufactured by Steyn Technologies. However, a competitor, Abram Industries, acquired Steyn the previous year and the MJ10012 transistor was no longer part of the suppliers core product offering and its supply was currently handled through the independent distributor, Electronix.

Checking his records, Bob found that the MJ10012 transistor had been purchased in each of the last three years with the following price history:

Year	Price per unit
Current quote	4.95
Previous year	3.50
Two years prior	2.00
Three years prior	1.69

Bob estimated that there was approximately a two months supply in stock and the supplier was quoting lead times of 30 days.

Conclusion

As bob looked at the quotation from Electronix, he considered his alternatives. He was confident that there were other transistors on the market that provided similar performance capabilities, however, these products would have to be located, then tested and approved by engineering. If, on the other hand, he was going to buy the transistors from Electronix, how many should he order? The controller had indicated that it cost about 50 to process an order, and besides, Bob felt that his time was better spent on other matters.

Bob had to make purchasing decisions about hundreds of different parts; and although the MJ10012 transistor decision was a minor one in terms of monetary amount, it represented a typical issue in the purchase of electrical and optical parts that was of growing concern to him. He wondered whether there was anything else he could do to deal with this and similar issues.

Learning outcomes

1. Demonstrate an understanding of the principles underlying materials requirements*

2. Describe the key factors in materials analysis and costing requirements*

3. Analyse the principles underlying supply requirements*

4. Analyse the key factors in providing and supplying requirements*

Assignment Questions

1. If you were in the position of Bob Renwick, what would be your analysis of the MJ10012 transistor supply situation? [40 marks]

Analysis should include basic (rough) cost estimates including Cost of Sales, cost of standard versus non standard components, per cent increases of MJ10012 over time, Economic Order Quantity (not essential). In addition to quantitative information the student should also diagnose and critique the current problem using sourcing principles.

2. Identify three specific actions that Bob should take with the MJ10012 and why? [15 marks]

The student should apply basic sourcing and inventory policies. Actions need to be justified based on procurement principles and feasible given the context in which Bright Technology International operates.

3. Propose a maximum of 5 actions that would help avoid similar problems with other components in the future? [45 marks]

The student can propose up to 3 critical actions, i.e. must-do and 2 should do.