Loren Inc. Case Study

Loren Inc. Case Study

Organizational Background

Loren Inc is a Canadian subsidiary of a larger international chemical company. The company sold consumer and industrial products and had established an excellent reputation for quality products and marketing effectiveness. Financial success and total growth of $800 million Total Canadian Sales and after-tax profit of $40 million in raw material and packaging costs being approximately 50 percent of sales. With the build up of excess Hexonic acid inventory the market would reflect a buyer’s market for the coming year which should result in more aggressive quotes.

The purchasing department worked hard to establish purchasing objectives, policies and a new supplier’s brochure with suppliers, this included a single bid policy, best quote on their first offer and should be willing to live with the consequences of their bid.

Loren Inc, annual hexonic acid requirements commencing August 01. The recently appointed raw material buyer, Brent Miller is required to prepare a recommendation for this year annual Hexonic acid requirements. Four suppliers, Alfo, Canchem, Michigan Chemical and American Chemical Inc (AMCHEM) were sent inquiries to have their bids submitted by 07 June 4:00 pm.

On Jun 3, the Canchem representative, Mr. Albert presented and informed Brent of the company’s terms which stated $1,384 per ton, the current price Loren Inc is paying. All bids from the three remaining suppliers were received on time before the deadline, 07 Jun, 4:00 pm. At 3:45 pm,07 Jun, Mr. Albert from Canchem submitted a second bid for the Hexonic acid contract.

Defining the Issues

Main Issue

The main issue is whether to allow the second bid from Canchem to stand for the Hexonic Acid contract or to disregard it and go with the original bid.

Associated Issues

- To adhere to the Purchasing Objectives

- To follow the New Supplier Brochure

Analyzing Case Data

Qualitative Analysis

- Canchem disregarded single bid policy;

- All suppliers have the capacity required for the contract;

- AMCHEM excellent quality & service but had fell short in its commitment to Loren Inc;

Quantitative Analysis

Comparison of Bids:

PRICE

SUPPLIER SPOT CONTRACT TERMS RANK

Alfo $1,296.00 / ton $1,296.00 / ton Min. period: 1 year

Min. volume: —

Price protection: 90 days

Notice: