Case Study 1

The Wright Group designs and manufactures a wide range of equipment for civil and military aircraft. Three years ago, it won two large contracts for supplying landing gear on two overseas civil aircraft developments. There was a requirement for machining castings and forgings. The surge in demand required 1000 hours of machinery each month to be subcontracted. This meant that more than twice that capacity was kept in-house. The subcontracted work was tendered by the procurement department and was awarded to a local, small company Standish Manufacturing. When it won the work, it invested in special purpose machining equipment, having negotiated a bank loan. The Wright Group now takes more than 60% of Standish Manufacturings output, by value.

The Wright Groups won machine shop is now short of work because a military support contract has ended. The Production Director, Chuck Briggs, has asked the Buying Manager to cancel the arrangements with Standish Manufacturing. It was an arrangement because the Buying Manager took advantage of Standish Manufacturings lack of contract expertise and agreed a form of words that items would be called of as and when required. A weekly production schedule has been issued and that has become the method of advising the requirements.

Last week, the Buying Manager called in Joe Sopwith, the Managing Director of Standish Manufacturing, and told him that no more subcontracting would take place. Sopwith was horrified and said that the decision would bankrupt the business. He added that local labour would be made redundant and that the decision was illegal and unethical. He further added that not only had he invested in machinery, he had also invested over 60,000 in special tooling. To make matter worse, he had just declined a large subcontracting job from a competitor of the Wright Group. The Buying Manger was very sympathetic but added he had no choice but to stop subcontracting.

In the last few days, things have got worse. Standish has now stopped machining components and refuses to answer telephone calls from anyone at the Wright Group. The Managing Director has told his Buying Manager to ensure that the matter is resolved immediately, otherwise the Wright Group will be paying 40,000 a week in liquidated damages to a Swedish company.

Task

1 What actions will you now take? 2 Analyse the history of this deal and suggest how it could have been done differently