Supply Chain Integration Case Study $1$ SES BAG

Assessments Worksheet

Overview

Steve Clinton

Maxwell Stevens, sales representative for Specialty Engineering Services $($SES$),$ felt uneasy as he drove to his appointment at Boston Aerospace Group $($BAG$).$ In the past, sales deals with BAG have proceeded smoothly. Oftentimes competitors were not even invited to bid on the BAG business. Nathan Benson, purchasing agent at BAG, claimed that was because no competitor could match SES$$s product quality.

But this contract negotiation was different. Several weeks before the contract renewal talks began, Benson had announced his plan to retire in $6$ months. SES management quickly promoted Tyler Pinto as Benson$$s successor. Although Pinto had been relatively quiet at the previous two meetings Stevens sensed that it would not be business as usual with Pinto. While the contract decision ultimately depended on Benson$$s recommendation Stevens felt Pinto might pose a problem.

Pinto, $35,$ had worked for a Fortune $500$ firm following completion of his undergraduate degree in operations management. While with the Fortune $500$ firm Pinto had become extensively involved with JIT and quality programs. He had returned to school and earned an MBA with a concentration in purchasing and logistics$.$ Eager to make his mark Pinto had rejected offers to return to large corporations and instead accepted BAG$$s offer in inventory management.

BAG, an original equipment manufacturer $($OEM$)$ for the US aerospace industry makes a wide variety of plastic products for airplane applications. When Pinto began working with BAG$$s inventory management, he applied the $80/20$ rule, illustrating to management that $80$ percent of BAG$$s business was related to $20$ percent of its product line. Over the next $3$ years, as contracts expired with customers and suppliers Pinto trimmed BAG$$s product line. BAG management was impressed with the positive impact on BAG$$s profits as unprofitable contracts and products were discarded. A trimmer product line composed primarily of faster$-$moving products also resulted in higher inventory velocity.

So$,$ when Benson announced his retirement plans, management immediately offered Pinto the position. After taking a few days to review BAG$$s purchasing practices Pinto felt he could make an impact. He accepted managements offer. As he learned his way around the purchasing department Pinto tried to stay in the background, but he soon found himself questioning many of Benson$$s practices. He particularly distained Benson$$s frequent $$business lunches$$ with long$-$time associates from BAG$$s suppliers. Despite these feelings Pinto made an effort to not be openly critical of Benson. Such efforts did not, however, prevent him from asking more and more questions about BAG$$s purchasing process.

Benson, for his part, felt his style had served BAG well. Prices were kept low, and quality was generally within established parameters. Although Benson typically maintained a wide network of suppliers, critical materials were sourced from a limited number of them. In those cases, contract bids were a ritual, with the winner known well in advance. SES was one such winner. Its polymers were a critical feedstock material to BAG$$s manufacturing process. When Benson began sourcing from SES nearly $15$ years ago, there was no question that SES$$s polymers were the best of the market. BAG$$s production managers rarely complained about production problems caused by substandard polymers. Benson reasoned that the fewer complaints from manufacturing the better.

$$Hi$,$ Max! Come on in$!$ Good to see you. You remember Tyler Pinto, don$$t you?$$

Steven$$s spirits were buoyed by Benson$$s cheery greeting.

$$Absolutely$!$ How are you Tyler? Coming out from the old horse$$s shadow for a bit now?$$

Pinto politely smiled and nodded affirmatively Light banter continued as the three moved down the hallway to a small conference room.

$$Well great news, Max, SES has the contract again!$$ Benson paused, then continued, $$But there$$s going to be a slight modification. Instead of the traditional $2-$year contract we$$re only going to offer a $1-$year deal. Nothing personal, just that management feels it$$s only fair to Tyler that this last contract I negotiate be limited to a year. That way he doesn$$t get locked into any deals that might make him look bad!$$ Benson roared with laughter at his last comment.

$$It is certainly no reflection of SES$$ Tyler interjected. $$It simply gives me a chance to evaluate suppliers in the coming year without being locked into a long$-$term contract. If my evaluation concerns with what Mr$.$ Benson has told me about SES, I see no reason that our successful relationship won$$t continue.$$

$$Entirely understandable$$ replied Max as his mind pondered the meaning of Pinto$$s evaluation. $$I$$m confident you$$ll find SES$$s service and product every bit as good as Nate has told you.$$

Following the meeting Benson invited Stevens to join him for a cup of coffee in BAG$$s lunchroom. Pinto exc