SAMPSON PRODUCTS
SAMPSON PRODUCTS
CASE STUDY
CASE STUDY
Presented By
Presented By
Amit Ahlawat (19) Amit Ahlawat (19) Anand G (21) Anand G (21) Arpit Goyal (34) Arpit Goyal (34) Dinesh Khanwelkar (44) Dinesh Khanwelkar (44) Gaurav Hegishte (52) Gaurav Hegishte (52) Keerthi (66) Keerthi (66)Description of Case Study
Description of Case Study
Sampson product corporation - major manufacturer of
Sampson product corporation - major manufacturer of
electrical equipment with average sales of $400 million
electrical equipment with average sales of $400 million
In 1990,
In 1990,
Sampson
Sampson Products
Products
was awarded a contract
was awarded a contract
of $20 million to manufacture motors from
of $20 million to manufacture motors from
General
General
company
company
with offering lowest price in bidding
with offering lowest price in bidding
Sampson’s Before tax profit is 9% of the $20 million
Sampson’s Before tax profit is 9% of the $20 million
contract
contract
General Company sells small rotor shafts to Sampson
Product from its machine shop division
Indication of U.S. Government might restrict
non-military applications to conserve supplies of non-military
use
Though impressed by the shaft performance Mr.
George Smithe, Director of purchases Sampson,
decided to look for suppliers including General and to
The highest bid is from General company for the
motor shafts
The President of General company threatened
Mr. Smithe of canceling the long term contract If
General doesn’t get the new contract of manufacturing
rotors for Sampson
Reasons against awarding the
contract to General
According to Mr. George Smithe……
No economic basis for General to insist
on a premium price, General attempting
to take advantage of motor purchase to
obtain higher price for shafts
Reciprocity shows difficult administrative and
Reasons against awarding the
contract to General
According to Mr. George Smithe……
If Sampson pays premium prices for
purchase materials for no reason then
they lose reputation as well as sales to
their buyers who are not their suppliers
Sampson sales motors to General at the best
value in the best price, so it would be difficult for
General to discontinue their $20 million contract
with Sampson
Cont..
Lastly, being in a long term
relationship Smithe asked
President of General to
reconsider the price of their
Material in question ?
Rotor shafts used in small
high-speed motors
Shafts are made of special
alloy which is in very short
supply
High probability that govt
might restrict use of alloy
for nonmilitary application
to conserve supplies for
military use
Further ...
Rotor shaft can make or
break a motors performance
especially in high speed small
motors
Sampson has 100 million
revenue from small motors
sale 1/4
thof total revenues
Sampson has four
competitors of equal size in
above segment
Kralijic Matrix
Low Supply Chain Difficulty High Supply Chain Difficulty Low Strategic Importance Commodity materials Bottleneck materials High Strategic Importance Leverageabl e materials Direct/core competency materialsStrategic Partnership with
Suppliers
Other suppliers are not
yet tested for delivery
and quality
General may terminate
contract , there is a
clause
Questions
What are the basic policy issues in this
situation? Analyze and discuss each
of them.
What actions should Smithe
Question 1
What are the basic policy issues in this
situation? Analyze and discuss each of
them.
Basic Policies:
•
Reciprocity
•
Supplier Relations
Policies Involved - Reciprocity
Reciprocity:
This action involves giving preferential treatment to suppliers that are also customers
of the buying organization.
Why Sales prefers it
?Why Purchasing avoids it
? Restricts competition among potential suppliers
Difficult to negotiate with the buyer
Legal aspects – Proofs to show that there is no intent to restrict competition and no threat for economy (anti competitive act).
Purchasing patterns give idea about sales potential
Readily available customer
Helps to increase & retain company’s market
Though reciprocity has lots of legal obligation many companies adopt the policy
that say’s in essence:
Policies Involved - Reciprocity
Case Perspective:
Though president concludes that this is a purchasing problem involvement of Purchasing
and marketing makes it top management’s problem.
President of Sampson should consider the concerns of both purchasing and sales along with
their weightage to the companies objective and then take proper decision.
If management believes that it can expand sales permanently and add to the firm's profit
legally by practicing reciprocity, then this is the decision management should
make. Conversely, if management believes that profit will be increased by buying without
the constraints of reciprocity, then that is the policy management should adopt.
o c es nvo ve
–
upp er
Relations
Doing business for a while
New contract in place
Smith should have asked the existing supplier
before going for competitive bidding
Lack of courtesy and professionalism
Two meetings made the things worse
Potential Relationship problem with the new
three firms and the market in general
Inviting bid again from General only another
problem
If general bids lowest, ethical issues
Firms reputation as “unethical price buyer”
o c es nvo ve
–
upp er
Policies Involved –
Purchasing Strategy & Procedure
Why did Smithe request competitive bids for
the new shaft job in the first place?
Sampson's contract renewal/sourcing
analytical procedures may not be as thorough
and as stringent as they should be.
Should have negotiated directly with General
to add the new job onto the old contract
Question 2
What actions should Smithe
Decision to be taken
Going forward Smithe should take the following decisions
The worst thing that can happen to Sampson at this point is General
motors can cancel the contract of purchasing motors from Sampson. The probability for this to happen is very less, reason being General motors was vey much satisfied with the quality and the attractive price of the motors being supplied to GM. Cancelling the contract with Sampson will be a costly move for GM, as it is difficult to get a
supplier like Sampson.
Nevertheless, Smithe should first talk with Sampson's sales
personnel responsible for motor sales to General. He should apprise these individuals of the recent scenario, so they can plan their approach to insure retention of the motor business with General.
What actions
should Smithe
Decision to be taken (Contd…)
Based on his previous actions, Smithe really has no viable alternative other than
awarding the new shaft contract to the lowest qualified bidder. In all likelihood, this
will increase Sampson's shaft costs, compared with the possibility of negotiating the
new contract with General originally. However, the multiple sourcing arrangement
will provide the advantages and additional source reliability that accompany the
multiple sourcing approach.
It is unlikely that General will cancel the existing contract, simply because it
represents an attractive piece of business for five years and the machine shop
division currently needs the business. Even if the contract were cancelled, Smithe
easily could resource with his new supplier or with one of the other bidders
Decision to be taken (Contd…)
It may be difficult to accomplish, but Smithe is obligated to attempt
to improve his relationship with the General organization.
The approach he takes will depend significantly on the personality
of the individual he chooses to deal with, and also on General's attitude toward the entire situation after the dust has settled.
Since the existing contract still has approximately five years to run,
it is imperative that Smithe try to mend his broken fences to the extent possible.
What actions
should Smithe
Decision to be taken (Contd…)
It is clear that Sampson's procedures used in supplier selection and
contract renewal (including the use of price analysis and cost analysis) must be reviewed carefully .
A good set of procedures in this regard, properly utilized, should
ensure that this type of blundering, poorly conceived sourcing practice does not happen again.
Whether Smithe will recognize the need for this type of procedural
improvement is problematic. If he does not, perhaps his president will generate enough heat as a result of this embarrassing situation
to make Smithe aware of this important need.