Read the case below and give the answers:

1. Using your purchasing knowledge, what do you feel are the immediate and basic issues with sourcing a supplier in the case? 2. With review of the quotes, Provide the Basic analysis using all applicable criteria discussed in class. 3. Consider the different supply options for the company, what recommendation do you suggest for the company?

CASE TO READ

JollyDelight Hospital On Tuesday, October 7, Kathy Cheung, senior buyer at JollyDelight Hospital in Star City was examining three supplier proposals for recycling and waste transfer services. Hospital policy required supplier contract reviews every five years, and Kathy needed to prepare a recommendation that would be considered at the sourcing team meeting the following day. JollyDelight Hospital JollyDelight Hospital was one of largest acute-care teaching hospitals in Star City, dedicated to excellence in patient care, teaching, and research. Physicians, residents, and staff numbered nearly 15,000, and the hospital provided care for more than one million patient visits each year. Star City was located in the metropolitan area, which had a population of approximately 4.5 million people. JollyDelight was committed to environmental stewardship and to reducing the hospital's dependence on non-renewable energy and waste sources through five key environmental programs: energy conservation, waste management, sustainable transportation, procurement, and an awareness and education campaign. The hospital's waste and recycling program included a collection of glass, newspaper, fine paper, cardboard, mixed plastic, aluminum, and organic materials. In the previous year, JollyDelight collected and recycled approximately 200 tons of co-mingled products, 240 .tons of paper products, 290 tons of cardboard, and 230 tons of organic waste. Purchasing played a critical role in JollyDelights recycling and waste management initiative. It was responsible for managing the infrastructure and suppliers involved with recycling activities. Recycling Contract JollyDelight had a policy of limiting contracts with suppliers to a maximum of five years, and most contracts were awarded for one, three, or five years. When contracts expired, purchasing would issue requests for quotations (RFQs) or requests for proposals (RFPs) to identify opportunities for improved quality, service, and lower total costs. The RFP and RFQ process was typically managed by a sourcing team that involved purchasing and representatives from key stakeholder groups who would be impacted by the sourcing decision. Along with Kathy, Sam Griffiths, supervisor of grants, and Riccardo Cosentino, facility manager, sat on the sourcing team for the recycling and waste management RFP. The expectation was that the recycling and waste transfer services contract would be awarded for five years. As part of the process to create and review RFPs, the team was required to create a rating system that included set criteria and a point system, which would be used to evaluate each proposal. To develop the rating system for the recycling RFP, the team evaluated the current situation and identified key components of the contract. The committee considered past contractual issues to ensure that previous problems or missing components were addressed. The point system was also expected to reflect the overall strategic direction of the hospital. JollyDelight set several high-level criteria, including best value-based pricing, service, and specification, and a site visit evaluation. The purpose of the site visit was to see the location, staffing, equipment, and capacity of each potential supplier. Points were allocated to specific items within each section and then each section was weighted based on importance. Once the criteria were established, the committee created the RFP, which outlined the scope of work, bidder instructions, terms and conditions of the contract, service and pricing specifications, and clarification of what JollyDelight was looking for from proposals overall. Exhibit 1 provides details for selected sections of JollyDelights recycling and waste transfer services RFP. The RFP was posted on JollyDelights purchasing department website on September 3. Two weeks later, Kathy hosted a day for potential suppliers to visit the hospital and examine its operations, and proposals were due on September 26. Proposals were submitted by Merrily, JollyDelight Waste Management Services Inc., and Chip Happy Recycling. Once the RFP responses came in, the committee evaluated each based on their RFP response, financial data, and reference checks. Supplier site visits were conducted on October 2 and 3. Merrily Inc Proposal Merrily was the current supplier for recycling and waste transfer services at JollyDelight, originally awarded the contract five years prior. The company was a regional firm with a good reputation. It handled waste and recycling contracts for several of the municipalities in the area. Although Merrily offered the best recycling rebate, their price was 25 percent higher than what JollyDelight offered. Kathy expected that the recycling rebate offered by Merrily would offset the price differential with JollyDelight. The Merrily proposal was not very detailed, offering to extend the contract for the current services provided, without any changes. Kathy did not consider Merrily to be particularly innovative, but she had not received any major complaints about their services during the past five years. The site visit revealed that Merrily was undergoing a construction project that would consolidate all of their facilities into a single location, including a new building. Merrily seemed to have the staff, equipment, capacity, and capability to handle the JollyDelight contract. However, there was minimal evidence of formal systems and processes in areas such as equipment maintenance, material handling, and training. JollyDelight Waste Management Services Inc. Proposal JollyDelight was a new company, founded by two local business people two years prior. JollyDelight offered the lowest price, and all other proposals were measured against its price. The proposal provided minimal information, with many sections omitted. In some cases, Kathy was unable to determine if JollyDelight agreed to the terms and conditions set out in the RFP. Financial statements were also missing. When the sourcing team arrived for the site visit at JollyDelight, they were surprised that the processing operations were not busy and there were only about 15 people working in the operation, plus a small office staff. JollyDelight had very little processing and material handling equipment at the site, and Kathy was concerned about the supplier's ability to handle the capacity generated by JollyDelight. The general manager at JollyDelight, who conducted the tour, indicated that his organization had plans to invest in additional equipment if it was successful in securing the contract from JollyDelight Hospital. Chip Happy Recycling Proposal Chip Happy was a Fortune 500 company that was one of the largest environmental solutions providers in North America. The proposal from Chip Happy was the most expensive of the three, at 50 percent higher than the cost of the Merrily proposal. Furthermore, the rebate proposed by Chip Happy set commodity prices so low that any rebate payments would be negligible. The proposal also placed additional charges for use of the compactor and trailer. In all other areas, however, Chip Happy seemed exceptional. It provided excellent references, with evidence of a track record of excellent service to its customers. All sections of the RFP were thoroughly completed, including a section on the company's strategic initiatives and environmental solutions capabilities. Chip Happy also suggested additional programs that it recommended JollyDelight consider as part of a comprehensive sustainability program. The site visit further impressed the sourcing team. It was evident that Chip Happy had the capacity to handle additional work from JollyDelight, the staff was knowledgeable, and the equipment was in excellent condition, supported by on-site maintenance. Overall, the operation was very professional. Evaluation of the proposals Kathy evaluated each supplier proposal using the predetermined rating system. According to her evaluation, Merrily came out on top, slightly ahead of Chip Happy. However, after the site visits, Kathy was much more impressed by Chip Happy and felt that this supplier was a better fit with JollyDelight. Although Chip Happys cost was higher, it excelled in the other three areas in the evaluation system. She remained concerned, however, that ignoring the results of the rating system violated JollyDelights established purchasing practices and wondered what recommendation she should make at the sourcing team meeting schedule for the afternoon of October 8. Reference - Exhibit 1 Selections included in RFP 2.1 Proponents are invited to submit proposals for recycling and waste transfer services as required by the grounds department. The spend for the most recent year at JollyDelight Hospitalis estimated to be greater than $200,000. The annual spend figures are furnished for Proponents to assess the total annual base value of the contract. JollyDelight Hospital cannot guarantee the purchase volumes/values indicated in this RFP. 2.2 JollyDelight Hospital's recycling and waste transfer program includes: (a) Paper: paper products: boxboard (i.e., cereal, detergent, cracker, and tissue boxes); cardboard (i.e., clean pizza boxes, packing boxes); catalogs, magazines, newspaper, phone books, paper egg cartons, and miscellaneous paper products such as flyers, envelopes, and writing paper. (b) Co-mingled: rigid food, beverage, and liquid containers, milk and juice cartons, drink boxes, aluminum and steel containers, empty paint cans, aluminum foil and pie plates, glass bottles and jars, and plastic bottles and tubs. 2.3 The successful Proponent shall be required to provide the necessary equipment to handle the recycling program: a compactor for paper, 30 yard bins or other suitable transfer systems, and cardboard gaylords containers on a trailer. 2.4 JollyDelight Hospital is looking for the successful Proponent to suggest/or identify alternative methods that would provide greater efficiencies and/or cost savings initiatives that would benefit JollyDelight Hospital. 4.6 The lowest-cost Proposal or any other Proposal may not necessarily be accepted. 6.1 JollyDelight Hospital is interested in participating with the successful Proponent in any initiatives that are mutually beneficial and can give JollyDelight Hospital strategic or economic advantages in the areas of administration, health, research, or teaching. Bidders should provide any evidence of previous "partnering" arrangements where they have collaborated on mutually beneficial initiatives with clients providing them with strategic or economic value beyond the narrow scope of the supply arrangement. 8.1 JollyDelight Hospital is looking for a rebate program, payable on a monthly basis, which will be applicable when the value of the goods recycled represents a positive return. Credits will be based on fair market value of the recycled goods minus processing fees and handling costs incurred. Proponents must identify in their proposals the method to be used to: (a) calculate fair market value; (b) establish the date of the fair market value; and (c) calculate processing fees and handling costs incurred by the proponent.