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Case 3-2: Kokko Foods

The case analysis should be in the form of a report ( not a Question and Answer form). You can use the following suggested format for the report or your own format.

1) Executive summary

2) Issues/problems to be resolved

3) Possible solutions/choices

4) Your recommendation with justification.

STUDENT ASSIGNMENT

As Caroline Byrne, what action would you take regarding the email from Stephen West and why?

While writing your report you may consider the following possible issues

1. Why has Stephen West reduced his price twice within the last week?
2. Do you think Stephen West knew the prices submitted by Ellis and HKH on June 30th? Do you think he knew that John Ly had amended his bid?
3. Is it fair to accept amended bids?
4. What do you want to say to Kelly Ross and Jennifer Stewart?
5. Should Caroline call John Ly again and offer to let him amend his bid?
6. Why is Stephen West so anxious to win this bid?

Please submit a report that incorporates the answers to the questions and any other issues you deem relevant to the case. The report should be between 2-3 page using

Case 32 Kokko Foods Page 76 Caroline Byrne, strategic sourcing manager at Kokko Foods in Philadelphia, Pennsylvania, wondered what she should do, if anything, about the most recent quote submitted by a supplier related to the acquisition of programmable logic controllers (PLCs). It was Friday, July 17, and she had just received a second unsolicited offer from Stephen West at McCaig Automation (McCaig) to reduce his prices. THE PLC CONTRACT Kokko Foods was a global manufacturer and marketer of branded consumer foods. Its principal markets were in the snack, cereals, and baking foods segments. Sales in the most recent year were $12 billion, and the company operated 49 manufacturing plants, with 36 located in the United States, 10 in the Asia/Pacific region, and three in Canada. Corporate purchasing was located at the companys head office in Philadelphia, which was responsible for the acquisition of raw materials, ingredients, packaging, contract manufacturing, capital equipment, and information technology (hardware and software). Caroline managed the team responsible for the acquisition of capital equipment. PLCs are industrial computers used to control manufacturing processes, such as assembly line equipment and robotic devices. Their rugged design allow PLCs to withstand operating conditions in an industrial environment, such as fluctuations in temperature, dust, and moisture. The Kokko facility in Springfield, Missouri, was undergoing changes to its manufacturing operations, including the installation of new automated filling lines. Caroline was assigned to a cross-functional team responsible for sourcing the capital equipment for the project. The other two people on the team were from the Springfield plant: Kelly Ross, engineering manager, and Jennifer Stewart, plant manager. On Monday, June 5, Caroline sent a request for quotation (RFQ) to three suppliers for PLCs that would be installed on the new equipment. Although the Springfield plant had a history of using McCaig PLCs exclusively, Caroline pressed Kelly and Jennifer to consider other suppliers. Based on her previous experience purchasing similar products, Caroline included HKH Group (HKH) and Ellis Controllers (Ellis) on the bid list. Both suppliers were large, well-established firms with proven technologies, and were able to supply product that met or exceeded specifications. Both HKH and Ellis PLCs were used at other Kokko plants, and Caroline did not expect any switching costs if either company was selected to provide controllers for the Springfield plant. Page 77 Each company submitted bids on the June 30 RFQ deadline. Ellis had the lowest cost at $400,000, while McCaigs quote was $420,000 and HKH submitted a bid of $430,000. Caroline had a conference call with Kelly and Jennifer on Friday, July 7 to review the bids. Both Kelly and Jennifer were clearly disappointed that McCaig was not the lowest bidder. Kelly commented: The McCaigcontrollers have been reliable and worked well. Our technicians and operators are used to working with this equipment. With the millions of dollars that we are spending on new automation equipment, does it make sense to switch PLC suppliers for $20,000? However, Caroline stood her ground in the meeting, reminding both individuals that all three suppliers were qualifiedand the process established at the outset was to accept the bid with the lowest pricein this case Ellis. The following Monday morning, July 10, Stephen West called Caroline to discuss his bid: I spoke to my manager, and we dont want to lose this business. So I wanted to speak to you before any decisions were made. We are prepared to reduce our prices by 15 percent, which represents a price of $355,000 for the entire package. I am sure you will find this an attractive proposal. I will send you the revised quote in an email later today. Since Caroline had not communicated the outcome of the bid to either Ellis or HKH, she decided to call her contact at Ellis, John Ly, with whom she had a good working relationship. During their conversation on July 12, Caroline explained to John that she had received a revised bid from the incumbent supplier, which was considerably lower than his bid. Caroline indicated that under the circumstances she felt it was fair to allow John the opportunity to amend his price if he wanted to do so. Caroline did not divulge specifics of McCaigs pricing during the conversation. John thanked Caroline for the opportunity and responded the next day in an email offering a revised price of $350,000. Caroline called Kelly and Jennifer later that afternoon to update them on the developments and confirmed that she was prepared to award the contract to Ellis for $350,000 the following week. THE NEW PROPOSAL About 9:00 a.m. on Monday, July 17, Caroline received the following email, marked urgent, from Stephen West: After careful consideration, we would like to further amend our quote for the controllers for Springfield plant to $335,000. Kokko Foods is a valued customer and looks forward to a continued strong relationship. Caroline wondered, what, if anything, she should do about Stephens email.

Read

Case 3-2: Kokko Foods

The case analysis should be in the form of a report ( not a Question and Answer form). You can use the following suggested format for the report or your own format.

1) Executive summary

2) Issues/problems to be resolved

3) Possible solutions/choices

4) Your recommendation with justification.

STUDENT ASSIGNMENT

As Caroline Byrne, what action would you take regarding the email from Stephen West and why?

While writing your report you may consider the following possible issues

1. Why has Stephen West reduced his price twice within the last week?
2. Do you think Stephen West knew the prices submitted by Ellis and HKH on June 30th? Do you think he knew that John Ly had amended his bid?
3. Is it fair to accept amended bids?
4. What do you want to say to Kelly Ross and Jennifer Stewart?
5. Should Caroline call John Ly again and offer to let him amend his bid?
6. Why is Stephen West so anxious to win this bid?

Please submit a report that incorporates the answers to the questions and any other issues you deem relevant to the case. The report should be between 2-3 page using