CUSTOM EQUIPMENT It was July 2, and Matt Roberts had just been given his first assignment, the

³Wire Management Program´ (WMP), by the purchasing manager of Atlanta-based Custom Equipment Inc. The purpose of the WMP was to reduce the supplier base for the company¶s wire and cable requirements. As a newly hired purchasing agent, Matt Roberts wondered how to proceed. CUSTOM EQUIPMENT Custom Equipment Inc. (CE) was a relatively new division of Custom Equipment Global, a multinational electrical engineering and technology company. CE generated sales of $66 million in the past year, and had forecast growth of 25 percent for each of the upcoming four years. CE¶s products were divided into assembly line equipment and press automation equipment. Assembly line products included units such as framers, in which a vehicle frame was fed onto a line and welded in specified areas. Press automation products were units built to move vehicle frames, doors, and hoods between machines already installed within the customer¶s assembly process. The machines were built in Atlanta, tested, approved disassembled into sections, shipped to the customer¶s facility, and then reassembled. All machines at Custom Equipment were hand-built. Most units were unique due to the requirements of the manufacturer and the intended purpose of the machines. Each machine was comprised of steel, mechanical, electrical, and hydraulic parts. Wires and cables were purchased in lengths and installed throughout the unit. With automotive design changed occurring annually, CE was constantly reconditioning previous builds or bidding on new lines. CE prided itself on customer satisfaction. In the automotive industry, a key factor was on-time delivery of equipment required to begin production. CE¶S PURCHASING DEPARTMENT The purchasing department at CE was composed of six purchasing agents and one manager. Responsibilities were divided into commodity groups. These groups consisted of electrical, mechanical, hydraulic/pneumatic, robots/weldguns, affiliate-produced parts/fabricated components, and steel/other metals. Matt was hired recently to replace two retiring purchasing agents. MATT ROBERTS Matt held an undergraduate business degree from a well-known business school. Upon graduation, Matt had worked for a year as an inventory analyst for a multinational manufacturing organization. He had applied to CE after visiting its display booth at a local manufacturing trade show. Matt was eager to make an early contribution at CE and he believed that the WMP provided an excellent opportunity. WIRE MANAGEMENT PROGRAM (WMP) Matt¶s manager had recently initiated the WMP believing that CE could improve value for all of its wire and cable requirements from volume leverage. Rationalizing the supplier base would also save time currently spent processing multiple supplier invoices. A stronger relationship could be fostered with the chosen supplier, which could help increase the priority of CE orders and open further opportunities for cost savings. Also, transportation costs could be reduced because all items would be arriving from a single source. Finally, sourcing from a single supplier would allow the purchasing agent to focus on issues involving higher dollar values. Matt¶s manager had given him the impression that the WMP should be implemented before the end of October. MANUFACTURING COMPONENTS

Each assembly line and press automation product was divided into cells. approval had to be obtained from the project manager. it needed to be thoroughly designed and tested within the engineering department¶s computer-aided design system (CAD). that buy-in from key users would be required before implementing any significant changes. because a purchase order for electrical items could contain more than 100 items. Certain parts were common across cells. Missing components could significantly delay the production of later cells. since each line on the purchase order had to be entered. Ninety-eight percent of component orders were job-specific. they would need to be ordered immediately. Keeping over-ordered materials tied up company funds. There were some incidences of workers ³borrowing´ items required for their jobs. CE had a total supplier base of 3000 components of which less that 5 percent were regular suppliers. He knew. The second reason was that some suppliers specialized in certain products. This was often the cause of administrative problems and headaches. When components were over-ordered. Recently. Occasionally. which entailed many engineers entering materials required for their designated cell. received. In these instances. A significant problem was that there could be numerous orders each day for 10 feet of the same wire. with no direct accountability. Wires were fabricated from copper rods rolled into a desired thickness and then covered wit a protective coating. and resistance to external factors.Last year CE¶s total component purchases totalled $32 million. This created shrinkage problems. they needed to be returned to the supplier or held in inventory until a need arose. mechanical. Although current supply processes were generally accepted. There was usually some variations between actual requirements and initial expectations. When a project-related item was received. The first reason for having such a large number of suppliers was that newly hired purchasing agents usually had previously established relationships with certain suppliers. ELECTRICAL COMPONENT SUPPLIERS . Also. When CE was awarded a job. CE engineers were forced to use the specified product which might only be available through nonstandard vendors.´ causing purchasing agents to help resolve the problem through expediting. and electrical categories were entered into a bill of materials (ingredients list). The bottom line was that material availability was important because each job cell built on the previously completed cell. which had not been ordered or which had not yet arrived. When needed items were under-ordered or forgotten. Some jobs were comprised of more than 10 separate cells. however. many items were labelled as ³rush. Part of this process consisted of determining every component that would be required to complete the job. in a pinch. WIRES AND CABLES Wires and cables were considered commodity products within the electrical industry. situations arose in which a product was specified by the end-user. Purchasing agents identified requisitions related to their commodity group and satisfied them by creating purchase orders. Matt felt that the WMP gave him an ideal opportunity to analyse what changes would be possible.the bill of materials created a demand for specific parts within Custom Equipment¶s computer system. insulation. and using an outer covering or jacket. but entry time varied. it was kept in an unlocked receiving area until it was needed for the job. Cables were made combining two or more copper wires separated by insulation. jacketing. Specified products occurred more often with motor cables than with wires. Custom Equipment¶s carrying costs amounted to 15 percent per annum. Returning products was usually time-consuming and obviously did not add any value. Wire differed from cable primarily in the number of conductors. however. and processed individually. Cells consisted of numerous components. the receiving area might issue parts from another job to one with a more urgent requirement. creating unnecessary ordering and processing costs. Required components which were divided into hydraulic.

Matt believed he could develop an objective assessment of the suppliers¶ past performance. The amount of wire and cable purchased last year approximately $700. He was hesitant to consider all comments given due to these potential biases. he would need to justify his recommendation to is manager and CE¶s engineers and other employees. He would have to analyse the capabilities and managerial abilities of each company in order to reach a decision. Matt¶s initial thought was that a single supplier could provide the best prices for CE¶s annual requirements.Custom Equipment¶s wire and cable requirements for any one job were typically purchased from three to six different electrical suppliers. He was also sceptical about some of the comments of the purchasing agents for similar reasons. If you were in Matt¶s position what would your approach be to satisfactorily address the issue on hand ? . CE had established strong relationships with some of the suppliers. which led to the desire of reducing the base to a single source. he got the impression that some employees seemed to prefer certain suppliers because of friendships outside of work because of similar nationalities. and he therefore wanted to give all interested companies an opportunity to present their case. product returns. With these records. There had been no significant quality problems with any of CE¶s current suppliers according to the receiving manager. THE NEXT STEP Matt¶s boss had created the Wire Management Program to seek benefits from reducing the number of wire and cable suppliers. Matt discovered that the receiving manager had been keeping some records of suppliers¶ delivery performance for the last 30 months because of CE¶s ISO 9001 certification requirements. and overall supplier service were tracked and kept within the records of the receiving department. Matt began to think about possible methods to reduce the total number of wire and cable suppliers. The employees volunteered both positive and negative comments regarding the various suppliers. He realized that there were arguments both in favour and against using this approach. However.000. Matt asked some shop floor employees about CE¶s current six suppliers. He believed that the vendors possessed relatively uniform quality. Criteria such as delivery. in conjunction with his conversations with the receiving manager. Wire and cable purchases were predicted to increase at the same rate as corporate sales. The suppliers¶ product lines contained significant overlap. Whatever he chose. Matt considered these comments as ³unofficial´ past-performance reviews.