MBA 7704 – Decision Making & Procurement Process The Problem with Sinking Canoes “Roger, you are asking way too much fro
Posted: Tue Apr 26, 2022 12:51 pm
MBA 7704 –
Decision Making & Procurement Process
The Problem
with Sinking Canoes
“Roger, you are
asking way too much from your suppliers, you need to stop beating
us up here.” Said a flustered Anthony Logan, Sales Manager at
Supreme Canoes Ltd. “ Your quality and cost expectations are really
unreasonable. We want to work with you and retain the relationship
but we can’t improve on quality more than what we have done to date
and also reduce our prices. We do need to make a profit margin to
remain in business at all to even supply you with our world
renowned canoes. We can’t go out of business in order to meet your
continued demands. We conduct internal inspections and they are
very costly.”
“Anthony, I
appreciate your points however, our customers are complaining that
your products we are selling to them are falling apart, wearing
out, breaking and are not working well as advertised or your world
renowned reputation states. We are getting frequent product
returns.” Said Roger Lee, Owner and Supply Manager at Outdoor
Adventures, a franchised athletic and outfitting retailer located
in 3 of the Maritimes Provinces. “We have calculated significant
costs and lost profits to our business for your canoe issues. We
are even losing our regular business because customers are going to
our competitor, The Great Beyond, they buy their canoes, kayaks and
gear at lower prices and higher quality. Our staff and business are
intended to sell products and not intended to be your return
clerks. This has been very hard on our business and reputation. It
is hard when at the end of some days upon close off sales
reconciliation’s our sales numbers are in the negative because we
are returning funds back to customers instead of receiving monies
from them in purchases. Somedays we can’t refund the cash so we are
giving customers credits and this wreaks havoc on our financials.
We can’t float your business and failures. Besides added to this we
can’t store your defective canoes here and lose our valuable retail
floor space. You ask us to ship back to you on our dime and it
takes over 60 to 90 days for us to get a refund back from your
company. Often you just tell us to dispose of the canoes so we have
to take the time and spend money trying to coordinate transport to
dispose of them. Something has to be done by month’s end or we will
have to terminate our agreement and find another canoe brand to
carry here. We can’t have our outdoors folks coming back telling us
that their canoe leaked on their first fishing trips any longer. We
also need you to do something about your minimum orders because
they are huge.”
“Ok, Roger, I have
always wanted to work with you and always have. We have both grown
our businesses together and mutually benefited from one another. We
go back a long ways and have always helped one another in good
times and bad. I do not want to see our relationship dissolve. What
do you propose as a solution?” said Anthony “ We looked at our
manufacturing model factoring in the purchase prices of the canoe
resin and out annual holding costs. Currently we are manufacturing
1,200 canoes per day, each are requiring resin. The resin we use is
premium quality but it does have petroleum based products in it and
that commodity market fluctuates greatly these days. Just look at
your price for vehicle fuel, when that goes up due to the NY market
then so
does the resin. We
are paying $ 3.20 a litre for resin. My finance guy, our accountant
Jimmy, has estimate that we have an annual holding cost at 25% per
year, but our costs for placing orders are $ 55.00. We operate our
plant 45 weeks a year and we end up with variable inventory from
3000 to 1200 units. It has been a challenge for us and I know it is
impacting quality and our bottom line. Our transportation costs are
crazy.
Canoes are large and
they weigh a ton. We pay through the nose with the courier company,
they have small vans. We need to ask for high minimum orders to
make any profit. What would you do Roger?”
“Anthony, it looks
like you have some soul searching to do about your manufacturing.
When we started with you guys there was so much more quality of
workmanship and personalization. People were happy to pay for that
but now they are still paying a premium with the same expectation
for a premium product which they really are no longer getting. I
also looked at things from our side and really our annual
requirement for canoes is generally 100 units which we want spread
evenly throughout the year. We have no room to store or merchandise
too many canoes. I would rather just order on demand for customers
since I know you can ship in a week. I appreciate your offer to
sell us 100 units at a price of $ 100 each or to let us buy 10
units at a time for $ 130 each. Here is where we are at on this and
what I wanted to negotiate with you. We have an inventory carrying
cost of 20% per year and really would like to have no ordering
costs. We want to land a deal which can help us best determine the
proper ordering quantities and inventory levels which will work
best and help us to save money. Let’s both think about all of this
and meet next week on September 14th for coffee or a
round of golf and sort it out. I expect there is a solution
here.”
“I sure hope so
because the Bank of Canada keeps hiking the interest rate and
inflation is rising, I am not sure if we will still be in
business.”
Decision Making & Procurement Process
The Problem
with Sinking Canoes
“Roger, you are
asking way too much from your suppliers, you need to stop beating
us up here.” Said a flustered Anthony Logan, Sales Manager at
Supreme Canoes Ltd. “ Your quality and cost expectations are really
unreasonable. We want to work with you and retain the relationship
but we can’t improve on quality more than what we have done to date
and also reduce our prices. We do need to make a profit margin to
remain in business at all to even supply you with our world
renowned canoes. We can’t go out of business in order to meet your
continued demands. We conduct internal inspections and they are
very costly.”
“Anthony, I
appreciate your points however, our customers are complaining that
your products we are selling to them are falling apart, wearing
out, breaking and are not working well as advertised or your world
renowned reputation states. We are getting frequent product
returns.” Said Roger Lee, Owner and Supply Manager at Outdoor
Adventures, a franchised athletic and outfitting retailer located
in 3 of the Maritimes Provinces. “We have calculated significant
costs and lost profits to our business for your canoe issues. We
are even losing our regular business because customers are going to
our competitor, The Great Beyond, they buy their canoes, kayaks and
gear at lower prices and higher quality. Our staff and business are
intended to sell products and not intended to be your return
clerks. This has been very hard on our business and reputation. It
is hard when at the end of some days upon close off sales
reconciliation’s our sales numbers are in the negative because we
are returning funds back to customers instead of receiving monies
from them in purchases. Somedays we can’t refund the cash so we are
giving customers credits and this wreaks havoc on our financials.
We can’t float your business and failures. Besides added to this we
can’t store your defective canoes here and lose our valuable retail
floor space. You ask us to ship back to you on our dime and it
takes over 60 to 90 days for us to get a refund back from your
company. Often you just tell us to dispose of the canoes so we have
to take the time and spend money trying to coordinate transport to
dispose of them. Something has to be done by month’s end or we will
have to terminate our agreement and find another canoe brand to
carry here. We can’t have our outdoors folks coming back telling us
that their canoe leaked on their first fishing trips any longer. We
also need you to do something about your minimum orders because
they are huge.”
“Ok, Roger, I have
always wanted to work with you and always have. We have both grown
our businesses together and mutually benefited from one another. We
go back a long ways and have always helped one another in good
times and bad. I do not want to see our relationship dissolve. What
do you propose as a solution?” said Anthony “ We looked at our
manufacturing model factoring in the purchase prices of the canoe
resin and out annual holding costs. Currently we are manufacturing
1,200 canoes per day, each are requiring resin. The resin we use is
premium quality but it does have petroleum based products in it and
that commodity market fluctuates greatly these days. Just look at
your price for vehicle fuel, when that goes up due to the NY market
then so
does the resin. We
are paying $ 3.20 a litre for resin. My finance guy, our accountant
Jimmy, has estimate that we have an annual holding cost at 25% per
year, but our costs for placing orders are $ 55.00. We operate our
plant 45 weeks a year and we end up with variable inventory from
3000 to 1200 units. It has been a challenge for us and I know it is
impacting quality and our bottom line. Our transportation costs are
crazy.
Canoes are large and
they weigh a ton. We pay through the nose with the courier company,
they have small vans. We need to ask for high minimum orders to
make any profit. What would you do Roger?”
“Anthony, it looks
like you have some soul searching to do about your manufacturing.
When we started with you guys there was so much more quality of
workmanship and personalization. People were happy to pay for that
but now they are still paying a premium with the same expectation
for a premium product which they really are no longer getting. I
also looked at things from our side and really our annual
requirement for canoes is generally 100 units which we want spread
evenly throughout the year. We have no room to store or merchandise
too many canoes. I would rather just order on demand for customers
since I know you can ship in a week. I appreciate your offer to
sell us 100 units at a price of $ 100 each or to let us buy 10
units at a time for $ 130 each. Here is where we are at on this and
what I wanted to negotiate with you. We have an inventory carrying
cost of 20% per year and really would like to have no ordering
costs. We want to land a deal which can help us best determine the
proper ordering quantities and inventory levels which will work
best and help us to save money. Let’s both think about all of this
and meet next week on September 14th for coffee or a
round of golf and sort it out. I expect there is a solution
here.”
“I sure hope so
because the Bank of Canada keeps hiking the interest rate and
inflation is rising, I am not sure if we will still be in
business.”