Read the following case study and answer ALL the following questions:

Global Sourcinq

Charley Ng, procurement manager at the Newton Manufacturing Company, was wondering whether to take the plunge into global sourcing. A salesman from Chinafabric, Ltd., a China producer of small assemblies and stamps, had just left a proposal on his desk for one of Newton's major purchases, the transklutch. Chinafabric's price was 35 percent below what Charley was paying to a local suppliereven figuring in the extra cost of duty, ocean freight, and overland transportation to the Newton plant.

Newton used this assembly, a combination of stampings and turnings; in all its "Powermaster" assemblies sold both for use in consumer and industrial endproducts. The transklutch was half of the unit cost of a Powermaster final assembly. Charley had instructions from Khairy Ismail, Newton's Managing Director, to cut costs. "Charley, the cost-price squeeze on the Powermaster really hurts. Procurement management is responsible for half the cost of this product, and you have to get your material cost down. However, don't cut corners on quality! We can't afford to lose our reputation for a quality Powermaster! Give me a report at our meeting in two weeks!"

Charley had just started to work on the problem when the Chinafabric salesman called. "Our plant is one of the most modern in the Common Market, and that's why we can give you such a low price. We have all the latest equipment, and our quality reputation is well known. In three months you will have the first shipment made exactly to your specifications."

. .3/-

Charley talked it over with several of his closest procurement management friends at lunch: Muniandy Prakash, procurement director of ABC; Gene Neoh, procurement manager for Universal Manufacturing; and Larry Smith, procurement manager for the local electric utility.

Muniandy: "I'd rather look into it, Charley. You know we have been buying foreign on some of our raw materials and metals for years. You have to get used to some of the delays and red tape, but it's sure worth it! I got a promotion out of my foreign buying record."

Gene: "Whoa! That's just on commodities, Muniandy, not components! We got stung when we couldn't get foreign suppliers to stick to our specifications on components. The late deliveries and headaches aren't worth it. We had to go back to our local suppliers after that adventure!"

Larry: "There's another side, too, Charley. We believe in 'buying Malaysian' and supporting local industry. Say, don't you purchase transklutches from Merit Machine here in town? That makes it a pretty touchy political issue then, I'd say."

Transklutch quality was important. If a Powermaster failed in service, the final customer usually complained to Newton. Deliveries had to be on schedule to prevent assembly line downtime and minimise expensive safety stock inventory. Technical service had never been a problem, as their supplier, Merit, was just down the street.

Charley knew he had to have an answer for the managing director in ten days, and the Chinafabric proposal might be it. He could not go in half-cocked, but neither could he look into all aspects of the problem in this short a time.

End of Case study

The case study is adapted from the instructor's CD provided by Burt D, Petcavage S and Pinkerton R, 'Supply Management', d^h edn, McGraw-Hill.

Question 1

Analyse and comment the potential benefits of global sourcing in this case study. Do the benefits mentioned justify the reasons for global sourcing? Why?

[15 marks]

Question 2

Analyse and comment on the challenges of global sourcing mentioned in this case study. Propose three (3) other challenges of global sourcing relevant to this case study.

[15 marks]

Question 3

If you were Charley Ng and you decided not to proceed with global sourcing, what are your alternative proposals to achieve material cost down?

[10 marks]