solution

As a buyer, Juan’s responsibility was to get the material his company needed, when they needed it. He was primarily responsible for buying standard components and materials, so he had hundreds of catalogs from all possible suppliers of these standard commodities. When he needed to place an order, he would typically use the catalog price or the quoted price from a supplier as long as they could meet the delivery time he needed. He had little concern for transportation cost or even quality, since for these standard components the quality from all possible suppliers was roughly equivalent. There were a few cases in the past when quality did prove to be a problem, but the supplier could usually respond quickly with an appropriate replacement. Even though the supplier would typically give the company credit for any rejected parts, changing schedules around the problem or carrying safety stock to protect against problems would both end up costing the company more money.

Juan was promoted to a head buyer in an effort to move the company in a more cost-competitive direction. The president wanted Juan to develop and implement a plan that would accomplish the following:

• Reduce purchased raw material inventory levels.
• Improve delivery speed and reliability of purchased material.
• Improve the quality performance of suppliers.
• Reduce the overall cost of purchased materials.

These actions were important to reduce the overall cost and stay ahead of the pack on price competitiveness. The following gives a little indication of the current position of the company:

Annual cost of goods sold: $14,827,527

Direct material cost: $8,517,323

Inventory (on balance sheet): $2,352,117

Supplied parts transportation expense: $256,103

Number of suppliers: 2872

Inventory holding cost: 21% per year

Average total processing cost for products: 3 hours, 27 minutes

Number of different designs for end product: 72

1. What additional information should Juan gather to help him develop his plan?

2. Once you know what other information he needs, develop a purchase plan for Juan. If information is required, you can make it up and develop the plan according to that information as well.