Sabor, Inc. is facing a potential shortage of supply of marconil, a new high-tech raw material for air filtration. During the past three weeks Sabor has been approached by three suppliers advising of this potential shortage and encouraging Sabor to sign long-term supplier contracts for the product to hedge against shortage. Sabor is not well-informed on the manufacturing process for marconil, however we are aware that two of the three component raw materials used to produce marconil are by-products from industrial processes and are reasonably stable. The third component raw material is the unknown. Further, we have heard rumors in a few years a much ...view middle of the document...
Further the cost of manufacturing a marconil filter...
Iowa Elevators Case
1. Where would you start? With which of the purchase categories?
It is wise to look at which categories have the most expenses: which in this case is the farm supplies, MRO/Construction and transportation services. It seems that combined, they account for approximately 75% of overall annual expenses. One should analyze why they are so high.
2. How much money do you think you can save in each of the next five years?
It is hard to predict the savings because of limited information but one can predict that once the targeted purchase categories are accounted for this savings can occur: Year 1: $0, Year2: $3mi, Year3:$6mi, Year4:$ 18mi and Year 5: $33million.
3. What are the inventory turns for farm supplies? What kind of improvements can be made in inventory management and how?
The inventory turn for farm supplies are crop protection: 1.9, equipment and supplies: 0.60, fertilizer: 6.2 and seed: 4.2. Many improvements such as adding hybrid centralized- decentralized method to their supply management, hire specialists to only focus on managing supply and inventory rather than give managers too much power and overwhelm them and lastly increase inventory turnover especially on equipment and supplies since its very low but also targeting all farm supplies. Maybe the company can also increase supplier relationship and buy local.
4. Why hasn’t Scott McBride proposed a cost reduction plan in the past?
Mr.McBride, the director of purchasing, has not proposed a cost reduction in the past because he was working with a small limited group of team that focused mainly on office supplies, brochures, advertising and other purchases. Iowa Elevators also did not view the purchasing department as a primary importance until new executives stepped in and realized that one can save a lot more by cutting costs in the inventory level (supply management) rather than sell for higher prices.
1. I will start to reduce the large annual spend in categories, including farm supplies, transportation services, and MRO and construction. These three categories contribute the majority of the spend categories and some cost is not essential. Therefore, I will eliminate these unnecessary expenses.
2. According to the Scott’s speaking in textbook, I can save about $500,000 on average in each year of the next five years. This is not an accurate number. However, it is certain that it can be saved more and more with the time.
3. The inventory turns for farm supplies are crop-protection products, equipment and supplies, fertilizer, and seed. The improvements can be made by reducing the annual spend in purchasing the farm supplies. In order to achieve the goal, we need to request an additional spending beyond standards upgrade at the beginning. And then, the savings can be made increasingly over the next five years.
4. The changes I would make to the...