PURCHASING AND PROCUREMENT MANAGEMENT

PURCHASING AND PROCUREMENT MANAGEMENT

CASE
STUDY
FLORIDA
RETAIL COMPANY

Overview

The
Florida Retail Company is a collection of small consumer electronic retail
stores. The company is known for its personal and efficient service. Susan
Bender, the Vice President of Operations, prides herself on running one of the
most efficient operations in the electronics retail industry. One of the main
tools for this efficiency is a computer system that allows FRC to closely
monitor sales progress and inventory turnover rates.

The computer system was bought
and is currently maintained by ACME Retail Computer Services. ACME and Florida
Retail have had an excellent and mutually profitable relationship for the past
10 years. FRC maintains a small staff of three people to run the ACME retail
system.

New
Strategy

The
Florida Retail Company is planning a bold strategic move into the consumer
electronic retail industry. The company plans to phase out all of its current
smaller retail stores and mold its business around large super-stores. The
first store will be the showcase and model for future stores. Jack Murphy, the
owner of FRC, has envisioned a futuristic computer system to support his new
store concept. The new computer system will provide all the functionality of
the current system (accounts payable, accounts receivable, general ledger,
purchasing, inventory control, sales analysis) and have a fully integrated
point-of-sale function. Jack envisions a “paperless” sales floor where all
transactions and merchandise reservations are handled by the computer system.
Additionally, the new computer system will have an optical bar code reading
capability to facilitate customer transactions.

The
first super-store will open at this time next year. FRC plans to open at least
two other super-stores in the year following.

Need
for New System

Susan
Bender, the vice president of operations, realized that the current computer
system supplied by ACME would not support the larger operations of the future
super-store. After some inquiries, Susan believed that ACME was the only
supplier capable of offering the software needed. ACME was currently in the
process of developing a software package that would provide all the functions
of the current systems for larger operations.

Susan contacted David Lansing,
the CEO of ACME, to discuss a possible deal. The two quickly agreed that ACME
would supply the needed computer software system for FRC. Susan would be
involved initially to help develop the customized point-of-sale system for FRC.
Beyond that, ACME agreed to deliver a new software system capable of all
functions the old system provided plus integrating the customized point-of-sale
system. FRC was to be the first ACME customer to use the new computer system.
It was agreed that the software was to be in place two weeks before opening day
of the new super-store and the hardware needed for the software was to be in
place one month prior to opening day.

A fixed price of $350,000 for
the software was proposed by ACME based on a $3 million estimate for total
development costs. The price of the software was derived by prorating the development
costs (including the point-of-sale system) over the expected number of
customers and adding 15 percent for profit. ACME required that 50 percent of
the purchase price was to be paid up front and the remainder was to be paid
upon delivery of the software system.

Susan
thought that the price was fair and the terms and deadlines of the agreement
were satisfactory. Close monitoring of ACME’s progress would not be necessary
since Susan has always relied on ACME to successfully solve FRC’s computer
system problems; besides, nobody at FRC knew much about developing computer
software systems.

Opening
Day (Six Months Later)

Susan
was a bit nervous this morning. Everything about the store was ready, but there
had been some problems with the computer system during these past two weeks.
Her system manager, Helen Cooley, as well as two ACME representatives had been
spending many sleepless nights fixing and tuning the system. Susan hoped all
the major problems were resolved.

A long line of people were
waiting to get into the store when the doors finally opened. Right away there
were problems with the computer software system supplied by ACME. The first
customer to be serviced at the cashier’s station took 20 minutes to finally get
out of the store due to the slowness of the computer software system.
Salespeople were complaining about slow computer response time when they tried
to reserve merchandise through the system. Soon, there was a long line of
people at every cashier station and with every salesperson. Customers were
leaving the store due to long lines at the cashier stations and slow
salespeople. The computer system finally “crashed” in mid-afternoon and became
inoperable. The employees of FRC had no idea what to do next.

That evening, Jack Murphy had a
meeting with Susan, Helen, and two ACME representatives. Jack told them that
the computer system was going to put him out of business and they had better do
something about it.

(Source: Adapted from Burt, D. N. and Dobler,
D. W., (2003). The World Class Supply Management, 7th edition,
McGraw-Hill)

As
a consultant for Florida Retail Company, you are required to assess the
aspects of Purchasing & Procurement Management and use your own
assumptions to answer the following questions:

QUESTION
1

(a)
Identify FOUR (4) advantages of the inclusion of supply managers
and pre-qualified suppliers.

(25 marks)

(b)
Identify FOUR (4)disadvantages
of excluding supply management and suppliers from the new product development
process.

(25
marks)

QUESTION 2

(a) Do you feel that the fixed price contract
agreed to by FRC was the best way to procure ACME’s computer system?
(25 marks)

(b) Where did FRC go wrong in purchasing the
software system?

(25
marks)



Price: £ 45

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