Part 3 Overview & Vendor options FFLI Groups
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Fit for Life Overview Groups Part 3
Purchasing 5004
Assessment Process-dates
1.
Submit Report (in ppt slides) in BB.
2.
Second Step:
Each Group to Present in Class (each team member to present a section). 2 Classes are
available for groups to present, all groups are to be ready to present on either of 2 dates
Weeks 13-14. Groups will present their power point submission from Week 11. Exact
dates and times will be supplied in class sessions.
Overview
•
This case study is to have you analyze the “Buy” alternatives for 3 vendors identified by
the RFP, results are in & (Attached- you are to use the 3 vendor outlines for this project).
You are selecting one only with full supporting rationale.
•
FFLI is facing a cost-competitive issue that only outsourcing at lower production cost will
enable the company to survive. In house cost of production is substantially higher than
any competition hence, outsourcing at a lower cost is mandatory.
•
Protection of all core competencies must be maintained or enhanced. You are not
permitted to consider a hybrid sourcing solution. One vendor (of the three) is to be
selected by your team.
•
You are recommending a decision for the Executives at FFLI hence your thought process
and rationale is to be very clear and vendors easily differentiated.
•
Use a timeframe of 6 months to have the new vendor up and running, use a GANTT
chart to reflect all actions, times and transition plans.
•
Use a matrix to reflect ratings for protection of core competencies. As you are aware you
have current manufacturing space and people to consider as part of your future plans.
(select matrix content and values for each criterion supporting your decision).
•
Your new vendor will solve the current crisis and keep the company in business.
As part
of your overall planning expand on where FFLI should focus for their growth in the
future. Ideally FFLI must continue to grow at plus 20% a year.
•
Use all existing materials as there is no additional material, excel or spreadsheets, there
is sufficient material to select the optimum outsourcing vendor for FFLI (3 Vendors
outlined in the attachment provided).
Format Analysis Report:
Submit in Power Point Slides:
•
Title page (name-assignment, student names, Group #)
•
Table of contents
•
Executive Summary (a “snap shot” summarizing your recommendation-decision,
supportive points, timeframe, any costs & brief conclusion on how FFLI will proceed in
future) 1-2-page summary
•
Report Body (this is your analysis of each vendor and your recommendation-decision
supported with a Matrix evaluation criterion, GANTT chart, (all decision support criteria
and evaluations) Typical 4-8 slides.
(Groups use whatever length they feel will support
their thought process and rationale for the outsourcing vendor selection).
•
Appendix References & any support calculations etc. to be referenced in the slides.
Value: Report & Presentation Combined = 20% of Final Grade Purchasing 5004
Fit for Life Outsourcing Selection Group Part 3
.
(Ref. Source M Kirkland 2015)
FFLI has to outsource production of their state-of-the-art fitness equipment. Competition is
selling at a fraction of the price and customers will no longer pay the large difference in price for
FFLI equipment. Customers have advised FFLI that while their equipment is far superior they
need to compete locally and need lower prices to continue to purchase from FFLI.
FFLI has to respond or go out of business. They have issued an RFP and have received replies
and isolated to 3 vendors they feel are worthy of further evaluation. FFLI has contracted with a
Group of Humber College Purchasing & Supplier Management students (to sign an NDA) and
use their many skills to develop a recommendation for the Executive team and the future state
of FFLI. FFLI Executives are expecting a full and complete analysis, including and not restricted to
a Matrix, GANTT chart and all associated costs as to why you are recommending your chosen
vendor.
FFLI is well aware competitors are outsourcing their manufacturing and FFLI is no longer cost
competitive. FFLI is also aware there could be layoffs of Manufacturing staff, engineering and
related manufacturing support in all of FFLI. There is a total of 5 current full-time staff involved.
(Manufacturing, Service and Engineering). Both sites (current manufacture and DC across the
road from each other), have long term rental contracts and are approx. 5,000 square feet each.
FFLI has been growing at plus 20% a year and has plans to maintain this growth into the future.
The 3 vendors to be evaluated are: Steel-Town Fabricators in Hamilton, Ontario, East Coast
Metalworks in St. John New Brunswick, and Music City Metals of Nashville, Tennessee-USA.
FFLI will need some inventory so they can continue to deliver promptly based on quick order
turnaround from sales (one of their core competencies). The rates quoted are to be treated as
firm and you may do a little better based on further negotiations. Quality must be maintained or
enhanced and returns, parts and service all readily available. The FFLI customers are to feel no
changes at all and pricing to be back in line with the market and FFLI equipment to continue to
be acknowledged as state of the art today and into the future.
Part 3 FFLI Outsourcing Options
Steel-Town Fabricators, Hamilton Ontario
Overview:
Well established metal fabricators. Fully capable of cutting, bending, welding, assembly etc.
On site wet coat paint shop. CAD facility, in-house engineering, Privately-held family business: second
generation management team. Owners active in-community: e.g. Donations to Macmaster University
Annual Sales
:
Estimated at $18 Million
Customer Base:
Customers requiring fabrication of metal products, design and build. Primarily small and
medium size enterprises, often suppliers to Dofasco. Emerging market is the wine industry (tanks,
processing equipment, racking etc. No existing customers in the fitness industry.
References:
Three references provided, all local to the GTA. Two references have been customers for five
years, third reference less than 12 months. General consensus was fair, reliable “good people”. Weakness
some missed deliveries but with notice and follow up. One reference was not expecting the call but
happy to respond.
Quality Programs:
ISO 9001 certified
Transition Time: Four to six weeks to review engineering drawings, produce samples, and obtain sign-off
on fitness machines and accessories. Two weeks to finalize Steel Town Fabricator vendors and obtain
approval on parts. Therefore, first production orders can be accepted about two months following
agreement to proceed.
Production Lead Time
: Orders dropped Monday available to ship 2 weeks later.
Terms: FOB origin. Two-year deal, with provisions for renewal/cancelation. Pricing estimate based on
annual volume in RFP. Annual volumes below 75% of RFP estimate result in 10% surcharge, payable at
year end. Volume over 150% of RFP estimate: 5% Annual Volume Rebate (AVR)
Order Quantity
: MOQ 8 fitness machines, MOQ equal 2 units for accessories. No maximum order but any
order over 15 machines requires negotiation of delivery date ( 2 weeks lead time does not apply)
Product Cost:
$1975.00 per machine. $210 per accessory
Other Factors:
Proximity, Stable, Good Credit.
Not to confuse you but if you choose STF in Hamilton, we should consider buying or leasing a Mercedes
Sprinter Van, the long wheel base version will hold 5 or 6 skids. My guess is $55,000.00 before taxes.
They are pretty cool and we can put the company graphics on the sides. A rolling billboard. We could use
it for tradeshows and other company events. We would also use it for local deliveries. I think we really
need a company van.
Shipping Rates:
Origin Steel Town Fabricators, Hamilton Ontario
Destination: FFLI Mississauga Ontario
Currency Canadian Dollars
Transit time: 1 business day, excluding day of pickup
Shipment Size
1 skid $135.00
6 skids $405.00
10 skids $600.00
16 skids $780.00
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Music City Metals, Nashville Tennessee USA
Overview:
Relatively new player in the fabrication field, aggressively seeking new customers in various
industries. Modern facility for cutting, bending, welding, assembly, etc. On site e coat paint shop. CAD
design shop. Privately held principal owner has diversified businesses, car dealerships, trucking firm &
DC’s)
Annual Sales: Estimated $10 Million USD, growing each year
Year Established: 2009
Customer Base:
Broad customer base in southern USA, recently added 2 customers in Canada. Most
customers are small to medium enterprises. Currently supply fitness equipment to Sportlife a USA based
competitor.
References:
Four references provided, only one in Canada. Canadian reference less than 12 months old.
General consensus was positive: flexible, quality products, “pleasure to do business with”. Weakness:
Canadian customer noted initial problems with export documentation and shipping, since rectified.
Quality Programs:
No external certifications
Transition Time:
Indicated 4 weeks to produce samples, would like to visit our operation to review
production methods. Require signoff process for engineering drawings and parts vendors. I suggest we
allow a two-week buffer given location, contracts in the USA, regulatory etc. Therefore, first production
orders can be accepted about 6 weeks following agreement to proceed.
Production Lead Time:
Quoted 2-week lead time production to ship.
Terms:
FOB origin. One-year deal, with provisions for renewal/cancelation. Pricing firm for volume range
of 50% to 150% of RFP estimate.
Order Quantity:
MOQ = 3 Fitness machines MOQ = 1 unit for accessories. No maximum order but any
order over 10 machines results in 3-week lead time.
Product Cost:
$900.00 USD per machine and $95.00 USD per accessory. (Currency conversion at this time
and use $1.00 USD = $1.20 CDN or plus 20%)
Other Factors
: Higher risk profile (new and outside Canada in USA), rates are in USD and Canada
Customs Brokerage Clearance fee will $75.00 CDN per shipment.
Shipping Rates:
Origin Music City Metals, Nashville Tennessee, USA
Destination: FFLI Mississauga, Ontario Canada
Currency: in USD
Transit Time
: 4 business days, excluding day of pick up
Shipment Size
1 skid $305.00
6 skids $1,100.00
10 skids $1,950.00
20 skids $3,100.00
( all in USD)
East Coast Metalworkers, Saint John New Brunswick
Overview
: Subsidiary company of multi-billion-dollar Irving Business empire. Full engineering and design
services. Sate of the art metal fabrication and assembly capability. As per the Irving philosophy, some
services such as painting are subbed out to sister companies. Well established and well known in Atlantic
Canada. Privately held, senior executive is Alistair Irving.
Annual sales
: Estimated at $50 million to $75 Million CDN
Year Established:
1981
Customer Base:
Heavy focus on the oil refining, shipbuilding, agricultural, and machine industries. As
expected, many customers are Irving sister companies. Customer size varies, includes both SME and
larger organizations. Limited customers in the GTA, customers primarily on the East Coast of Canada and
the USA. No existing customers in the fitness equipment industry.
References:
Four references provided, two were Irving companies. All references have been customers
for 5 plus years. General consensus was positive, professional, process oriented, highly dependable.
Weakness: less flexible to last minute changes.
Quality programs:
Internal Lean/Six Sigma program, ISO 14001 certification in progress
Transition Time
: Six weeks to develop engineering drawings, product samples, and obtain sign off on
fitness machines and accessories. Timeline includes selection and approval of ECM vendors. Therefore,
first production orders can be accepted six weeks following agreement to proceed.
Production Lead Time: Orders dropped on Monday available to ship 3 weeks later.
Terms: FOB origin, expect minimum 18-month deal with commitment to a quantity of no less than 80%
of the annual volume figures in the RFP.
Order Quantity
: MOQ = 3 fitness machines MOQ = 1 unit for accessories
Product Costs
: $1,600.00 per machine $150.00 per accessory
Other Factors:
String credit rating. Irving resources. Outreach program for youth. Environment focus (ISO
14001)
Shipping Rates:
Origin: East Coast Metalworkers, Saint John New Brunswick
Destination: FFLI Mississauga, Ontario
Transit Time:
4 business days, excluding day of pick up, LTL service uses rail intermodal
Shipment Size
1 skid. $185.00
6 skids $840.00
10 Skids:
$1,450.00
16 skids:
$2,180.00
There are 3 impacts on the DC Operations of the Outsourcing Project to consider
in your evaluation:
Increased FG storage requirement
: This will be a function of the order size from the vendor.
Fitness machines and accessories are palletized and no stackable. We floor stack pallets, no
racking. Allow 1 pallet position for accessories, 2 for machines. We gross up the standard 14.6
foot pallet footprint by 1.75 times to account for aisles, access, etc. You need to decide the
typical order quantity before I can determine the incremental storage requirements in the DC. By
the way, freight rates are a function of order quantity, so there is a tradeoff to be evaluated:
order quantity, storage space, carrying cost and freight cost.
Decreased RM and WIP storage requirements
: Today all the RM and WIP is housed in the
manufacturing operation and not the DC. What do you plan to do with the manufacturing space
when you outsource?
Spare Parts for Repair and Warranty
: Not sure what the impact will be on space, small-big? Right
now, parts are taken from the RM stocks to satisfy repair or warranty needs. We will need to
procure and hold a spares inventory to address any customer concerns. If you plan to calculate
the carrying cost of increased inventory, I suggest 15%. This will cover the cost of capital,
damage, loss and obsolescence.
You have a full 6 months
to complete the full cutover to your newly selected vendor to produce
FFLI fitness machines and accessories.
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