James Sampson, manager of central supply management, Celebrity Electronics Group, in Somerville, California, wondered what action to take. Supplier quotations had been reviewed for a vacuum chamber and significant differences existed among the four finalists. Celebrity Background Data Celebrity was a manufacturer of electronic equipment, systems, and components for markets in the United States and other countries. Last year, sales and revenues were $6.2 billion, with net earnings of $321 million. The company was organized into sectors, groups, and divisions, with essentially a decentralized management structure. The Celebrity Electronics Group specialized in the research, development, and production of advanced electronic systems and equipment for the U.S. Department of Defense, NASA, and commercial users, both domestic and offshore. The Communications Division, Radar Operations Division, and Strategic Electronics Division, which made up the Group, each had a separate organization for buying production material. Because all operations were located in the greater Los Angeles area, a central supply organization bought capital equipment, new construction, maintenance, repair, and operating supplies. For major capital equipment procurements, the manager of central supply management and representatives from finance, quality assurance, and the test equipment facility organization made up a source-selection team. The team, under the leadership of the manager of supply management, was responsible, according to the procedure, to evaluate supplier proposals, select a supplier, and prepare an appropriate justification memorandum recommending the supplier. An appropriation request was reviewed by the local general manager and his staff and, based on current approval levels, forwarded to the corporate offices in Los Angeles, California, for approval by a committee of senior corporate executives. New Facility Procurements A new, large facility was to be constructed in the Somerville area to provide production capacity for new projects. Central supply management was deeply involved in buying equipment for the facility. One important item was a thermal vacuum chamber, 10 feet in diameter, capable of simulating the vacuum, heat, and cold of deep outer space. The specifications were developed for this custom walk-in chamber by Celebrity engineers and were within current technological understanding and capabilities. The chamber would test components and systems that would be sent into outer space. In addition to the 10-14 atmospheres vacuum, the chamber had to cycle between the extremes of heat and cold that hardware is subjected to in the deep-space environment. Because of the extreme vacuum involved, the speed in achieving the vacuum was important since the energy cost to operate the chamber increased rapidly as the time increased. There were also safety considerations. A catastrophic failure of the chamber could cause severe personal injury as well as heavy damage to the building.

The chamber had to be delivered in 14 months after release of the order. The building’s last wall could not be completed before the chamber was installed. If delivery were late, construction would be halted on the building. It might be possible for “work-around” construction to continue in such a case, but additional costs would be involved. Supplier Data On receiving the specifications for the chamber, James Sampson prepared a request for bid for ten potential suppliers. Based on various input and evaluations, the list was pared to five companies. (The following table lists the suppliers’ proposals.) Supplier Location Quotation in 000s Delivery A Rayard Air Products Co. Peabody, MA $1,101.5 14 months B MRT Engineering Inc. Chicago, IL 1,051.1 14 months C Houston Chambers Co. Houston, TX 561.8 12 months D Engineered Environments Danbury, CT No bid E The Wiston Group San Diego, CA 1,008.0 14 months Each of the suppliers reportedly had successfully constructed chambers similar in design and requirements to the one Celebrity was buying. The evaluation team studied the technical proposals at some length. The Rayard submission was very complete and included photos of similar installations. The pump-down time was forecasted to be slightly better than the others. The MRT Engineering proposal was technically sound. Their conditions of sale, however, provided the customer little recourse in the case of late delivery. Six years earlier they had been five months late on a delivery of a critical system to Celebrity. The Houston Chambers Company’s technical proposal was not complete and could not be fully evaluated. Some team members questioned whether the supplier understood the specifications or had been unable to develop the full details in time for the proposal. The low price was also a concern. The Wiston Group proposal had arrived somewhat late and seemed hastily prepared. Its technical proposal offered no advantages or disadvantages. It was technically less detailed than the Rayard Air Products proposal. The evaluation team had been impressed with the presentation and completeness of the Rayard proposal. James Sampson was concerned about the spread in the pricing and the fact that a qualified supplier had not bid. He wondered if he should have the team probe further. One thing was clear; in two weeks, a request for appropriation with a supplier recommendation was supposed to be submitted to the general manager. It would take four or five days to prepare. If construction were delayed, Sampson estimated added construction costs could run from $5,000 to $10,000 a day. 1. Outline in a step-by-step fashion the actions you suggest James Sampson take in handling this matter. Discuss the significance of each. Adapted from a case copyrighted by the Institute for Supply Management (formerly the National Association of Purchasing Management). Reprinted by permission. John D. Cologna wrote this case during one of the ISM-sponsored case writing workshops.

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