Procurement is an integral part of organizational operations. Companies are continuously purchasing raw materials, equipments and machinery and other products essential for production. This case study deals with the procurement process in an industrial market where manufacturers sell their goods to other manufacturing companies. In this case, the buyer is an engineering based company named Oceanics Inc. that intends to buy a pressure vessel from vessel manufacturing companies. Oceanics Inc. is located in the United States of America. Its procurement department has been entrusted with the duty of purchasing a pressure vessel as per the stated specifications. The procurement team, after advertising for bidding of a tender to supply the required pressure vessel, received proposals from twenty vessel manufacturing companies. After analyzing the proposals, the procurement team has been left with the difficult task of choosing between two companies (Atomic Products Company and Nuclear Vessels, Inc.) whose proposals seem to be equally good. To facilitate the making of the best decision, the procurement team embarks on field visits to the two companies so as to ascertain the contents of their proposals. It is after these visits that the procurement team will be able to choose the best supplier between the two companies.
Analysis of Atomic Products Company and Nuclear Vessels, Inc.
These two companies are quite competitive in their manufacturing activities. They both offer high quality products within the specified time. However, an analysis of their proposals and other elements such as workforce management and commitment will give a deeper insight to the Oceanics procurement personnel so as to decide on the company that is best suited t supply them with the desired pressure vessel.
To begin with, both companies’ proposals have several strengths and weaknesses. Atomic Products Company offers a lower cost as compared to Nuclear Vessels, Inc. thus, putting it at an advantage. The lower charges can be attributed to the fact that the company is fully equipped with both personnel and the machinery that is required for the manufacturing of the pressure vessel. Adequate staff and machinery in turn improves the speed of production thus reducing the amount of manufacturing time. Consequently, operations costs are reduced. However, it should be noted that cost is not the only factor to be considered when choosing a supplier. There are other factors such as experience and speed of delivery of the finished product. Atomic Products Company also seems to outdo Nuclear Vessels Inc. in terms of location and ability to deliver the required vessel within the specified time. One of the greatest disadvantages of the Atomic Products Company is that it does not have any past experience in manufacturing larger pressure vessels. Oceanics needs a larger pressure vessel and therefore it’s not a guarantee whether the Atomic Products Company would be able to handle the production of such a vessel.
On the other hand, the Nuclear Vessels manufacturer counters the strengths of Atomic Products Company by offering lower hourly and shop overhead rates. The company also has excellent experience in manufacturing larger pressure vessels and offers some subcontracting as well. Nuclear vessels’ past experience in manufacturing heavy plate pressure vessels is a guarantee that it will make the desired vessel as per the specifications of Oceanics. Subcontracting the supply of the forgings is also an added advantage as it means that the final product would be of high quality and that lesser time would be spent in production. However, Nuclear Vessels is faced with the greatest challenge of inability to guarantee the speedy delivery of the pressure vessel as well as the provision of after sale services. For instance, in its proposal, the company maintains that it will not cater for the costs of repairing rejected plates. This leaves the buyer in doubt whether it would be wise to purchase the vessel from a supplier who asks for extra costs of repair.
The reception of the Oceanics’ tour group by the two companies plays a critical role in the choosing of the supplier of the vessel. Despite the fact that the Atomic Products Company had invited Oceanics Inc. to visit their premises in order to inspect the plant, the top management personnel did not seem quite enthusiastic about it. From the phone call to the actual visit, the president of the Atomics Products Company did not seem quite committed to receiving the Oceanics’ group. He did not even attend the initial meeting with the group with the excuse that he was busy. This is a clear indication that the visit by Oceanics procurement group was not very important to him and his company. The question is, ‘If the president was not interested in meeting Jack Toole and his colleagues during the tour, how was he going to prove to the group that his company would be a committed partner?’ The president was only interested in the signing of the contract as shown by his quick remarks that if the Oceanics’ team was satisfied with their facilities, they should go ahead and start discussing the contract requirements.
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On the contrary, the Nuclear Vessels, Inc. team was quite enthusiastic about meeting Toole and his colleagues. From the beginning, the president of the company was extremely committed to the Oceanics’ team; he began by inviting them for dinner at the Houston Country club where they discussed several business issues. The next morning, a chauffeur from Nuclear Vessels’ picked up the Oceanics’ team and drove them to the president’s office where they found the president and his vice presidents together with other top management personnel waiting for them. After a detailed discussion on the vessel specifications, both groups proceeded to tour the shop. Nuclear Vessels’ top management proved that they are a trustworthy team that was willing to establish a healthy business relationship with Oceanics, Inc. this puts Nuclear Vessels at a competitive advantage over their rivals.
Another factor that was to be considered by Oceanics when choosing a supplier for their vessel would be the reliability of the suppliers’ workforce. Workforce management is a crucial element of operations management since it is through effective management of staff that organizational operations get to run smoothly and as desired. That is, a company needs labor so as to ensure that its operations are executed. In other words, without labor, all organizational operations would be at a standstill. From the given information, it is evident that Atomic Products Company’s workforce is prone to strikes due to its unionized nature. Unions are in most cases demanding for workers’ rights hence putting the workers and the administration at logger heads as in most cases organizations are not willing to provide all demands. This is a great risk since the workers might strike during the construction of the pressure vessel thus, affecting the delivery time and the quality of the finished product. In other words, a striking workforce would slow down the manufacturing process.
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On the other hand, Nuclear Vessels’ workforce seems to be well managed despite the fact that it does not belong to a union. The management and the shop floor workers seem to have a good relationship; the management respects the workers as exemplified by the president’s courteous request to one of the employees to explain to the visitor’s their role in manufacturing the pressure vessel. Respecting workers motivates them to work towards achieving organizational goals. This seems to be a strategy used by Nuclear Vessels which in turn puts it a competitive advantage thus making it the most suitable supplier of the pressure vessel.
Moreover, total quality management (TQM) is another management tool that puts organizations at a competitive advantage. This organizational tool ensures that quality is an integral part of organizational operations. Total quality management encompasses all organizational departments ranging from the human resource to production to sales and marketing to health, safety and environment departments. Effective workforce management yields high performance among employees whereas effective production management ensures that inputs are subjected to the best processes that yield high quality products. Proper sales and marketing strategies and protection of all stakeholders’ (workers, shareholders, neighboring communities and the environment) interests is also part of total quality management.Despite having a clean and safe working environment, Atomic Products Company does not embrace total quality management in its operations. For instance, the workers seem to be poorly managed thus the frequent strikes. The top management also seems to be less committed towards making strong relationships with other industries. In addition, the company lacks evidence on materials control. This makes it difficult for the company to prove to any potential buyers that their products are of high quality as they claim. The top management should understand that buyers need tangible evidence not verbal proof on material control.
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Conversely, Nuclear Vessels, Inc. seems to have embraced total quality management. The workforce is properly managed and all departments are well coordinated to ensure that all processes go smoothly. For example, a task force was formed to oversee the manufacturing of the pressure vessel. This task force consisted of representatives from the purchasing, quality control, planning and scheduling and expediting departments. These representatives were charged with the responsibility of overseeing the whole project and reporting their findings to the project engineer on a daily basis. This does not only guarantee a smooth running of operations but also ensures that the finished products of the highest quality possible. Additionally, this departmental coordination speeds up the production process. Furthermore, all equipments and machinery were clearly marked so as to allow for ease of identification. Total quality management therefore places Nuclear Vessels at the top of the bidders’ list.
The strengths and weaknesses of both companies are summarized in the table below.
|Nuclear Vessels, Inc.||Atomic Products Company|
|Total Quality Management||Use of old equipment||Well equipped laboratories||Lack of total quality management|
|Past experience in production of large pressure vessels||Lack of full guarantee||Speedy delivery of products||Lack of commitment and enthusiasm especially from the top management|
|Enthusiasm and commitment||High estimated costs||Full guarantee||Frequent workers’ strikes|
|Subcontracting||Lower estimated prices|
|Effective workforce management|
From the above analysis, it is clear that the best candidate for the pressure vessel contract is Nuclear Vessels, Inc. There are several reasons why this is the best supplier that Oceanics, Inc. should pick. To begin with, Nuclear Vessels, Inc. has adequate experience in the construction of large pressure vessels as is required by Oceanics, Inc. Through, this experience, New Vessels has learned the challenges facing such a process and has in turn devised ways of countering these challenges. Therefore, Nuclear Vessels past experience in producing large pressure vessels will ensure that it gives the desired product as per the Oceanics’ rigid specifications. In addition, Nuclear Vessels has collaborated with Oceanics in the past and is therefore well versed with Oceanics contractual arrangements and operations. Oceanics would be better placed by choosing a company that they have a past with instead of establishing a new business relationship that may take up a lot of time and more resources to establish and maintain.
Secondly, Nuclear Vessels embraces total quality management in its operations. This is a guarantee that its products and services are of high quality. In all its operations, this company integrates quality control so as to ensure that the finished products are of the highest quality possible. For instance, the company had already created a task force for overseeing all the operations related to the production of the pressure vessel. This task force is clear proof that Nuclear Vessels values its customers by ensuring that it delivers to them high quality products.
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Thirdly, Nuclear Vessels’ top management and the entire staff are quite enthusiastic and committed towards the pressure vessel project. The president and his vice presidents and other top management officials attended the field tour by the Oceanics’ purchasing group where business issues relating to the pressure vessel project were discussed extensively. This commitment gives assurance that they are a committed partner who will be actively involved in the project from its inception to its termination. That is, it will not relax until it delivers the pressure vessel to Oceanics, Inc. It is worth mentioning that businesses that establish business ties with enthusiastic and committed partners tend to succeed more as compared to businesses whose partners are less concerned with their operations. Committed partners not only guarantee the delivery of quality products but also ensure that all operations run as expected and within the stipulated time.
Moreover, the labor force of Nuclear Vessels is quite reliable thus guaranteeing the delivery of the vessel within the agreed time. Labor is an essential element in the production process and its reliability is a determining factor of an organization’s overall performance. Employees of this company are well managed and thus rarely conflict with the management. In other words, employees’ strikes are not a norm in this company. By signing a supply contract with Nuclear Vessels, Inc., Oceanics, Inc. is guaranteed that it will receive the vessel as per the contractual agreements since there would be adequate labor for the entire project.
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Furthermore, the ability of the Nuclear Vessels, Inc. to subcontract some of the project activities to its other divisions will reduce the amount of time spend in production. Subcontracting has the greatest advantage of reducing operating costs which in turn lowers the overall costs. Subcontracting also ensures that the work is done by professionals. Professional services in turn guarantee the designing and production of high quality goods.
Finally, it should be noted that the procurement process is a crucial part of organizational processes. It is through procurement that companies get raw materials, equipment and machinery and other resources that are necessary for the smooth running of company operations. Suppliers are key players in the procurement process since they are the ones entrusted with the responsibility of supplying the required resources. It is therefore crucial for companies to choose suppliers who are reliable and trustworthy so as to receive the desired products within the stipulated time. However, choosing a good supplier is not an easy task. It requires an organization to weigh different factors so as to come up with the best supplier. These factors include total estimated costs; workforce reliability; commitment and enthusiasm of the supplier; speedy delivery of products; quality management; availability of equipment and labor; and past experience in the relevant field. All these factors aid the procurement team in choosing the best supplier.