Supply Chain Management

Supply-Chain Management
DaSilva Manufacturing Company

Mr. DaSilva, president of DaSilva Manufacturing Company, and Mr. Lawson, the vice president, were discussing how future economic conditions would affect their product, home air purifiers. They were particularly concerned about cost increases. They increased selling prices last year and thought another price increase would have an adverse affect on sales. They wondered if there was some way to reduce costs in order to maintain the existing price structure.

Lawson had attended a purchasing association meeting the previous night and heard a presentation by the president of a tool company on how his firm was approaching cost reduction. The tool company had just hired a purchasing agent with a business degree who was reducing costs by 15%. Lawson thought some of the ideas might be applicable to DaSilva Manufacturing. The present purchasing agent, Mr. Pirelli, had been with DaSilva Manufacturing for 25 years, and management had no complaints. Production never stopped for lack of material. Yet a 15% cost reduction was something that could not be ignored. DaSilva suggested that Lawson look into this area and come up with a recommendation.

Lawson contacted several business schools in the area. He said he would be interested in hiring a new graduate. One of the requirements for applicants was a paper on how to improve the company's purchasing function. Several applicants visited the plant and analyzed the purchasing department before they wrote their papers. The most dynamic paper was submitted by Tim Tsunakis. He recommended the following:

1. Lower stock-reorder levels (from 60 days to 45 days) for many items, thus reducing inventory.
2. Analyze specifications on many parts.
3. Standardize many of the parts to reduce the variety of items.
4. Analyze items to see whether more products can be purchased by blanket purchase orders, with the ultimate goal of reducing the purchasing staff.
5. Look for new and lower-cost sources of supply.
6. Increase the number of requests for bids, to get still lower prices.
7. Be more aggressive in negotiations. Make fewer concessions.
8. Make sure that all trade, quantity, and cash discounts are taken.
9. Buy from the lowest-price source, disregarding local public relations.
10. Stop showing favoritism to suppliers who also buy from the company. Reciprocity comes second to price.
11. Purchase to current requirements rather than to market conditions; too much money is tied up in inventory.

After reading all the papers, Lawson was debating with himself what he should recommend to DaSilva. Just the previous week at the department meeting, Pirelli was recommending many of the opposite actions. In particular, he recommended an increase in inventory levels in anticipation of future rising prices. Pirelli also stressed the good relations that the company had with all its suppliers, who could be relied upon for good service and possible extensions of credit. Most of DaSilva's suppliers bought their home air purifiers from DaSilva Manufacturing. Yet Tsunakis said that the practice of favoring them was wrong and should be eliminated. Lawson was hesitant about what action he should recommend. Mr. DaSilva wanted a decision in the morning.

DISCUSSION QUESTIONS

1. What recommendation would you make if you were Lawson? Why?
2. Analyze each of Tsunakis's recommendations. Do you agree or disagree with them? Why?