Procurement Project 2.2
Electric11
BUTLERSYSTEMS.docxButler Systems
Read Case 7: Butler Systems in your text (pg.467-468). In a two- to three-page paper, excluding the title and reference pages, provide a brief summary of the case and main points, and answer the following questions:
1. As the VP of operations, provide an evaluation of the battery shortage problem and justify your reasoning.
2. Propose what potential actions should be taken to mitigate the battery shortage situation and defend your recommendations.
3. Summarize the buying organization's role in selecting and qualifying potential suppliers and justify your reasoning.
Your paper should include at least one scholarly source from the University Library, in addition to the textbook, and be formatted according to APA style as outlined in the Writing Center
BUTLER SYSTEMS
Butler Systems is a manufacturer of environmental control systems and power conditioning equipment. Butler is the world’s leading supplier of computer support systems and the largest supplier of precision air-conditioning and power protection systems. Butler sales exceed $1 billion. The HD-5 battery is the primary component for the EPS (emergency power supply) system.
INFLUENCES TO PRODUCT REQUIREMENT
The HD-5 battery is used in 80 percent of the emergency power supply systems. The EPS is a backup system designed to prevent glitches and ride out temporary power outages in computer network systems. The EPS allows for an orderly shutdown from the servers in order to avoid data loss as well as damage to critical hardware. The design engineering department specifies the customer requirements for the EPS. The purchasing department then develops the appropriate request for quotes (RFQ) as shown in Figure C7.1.
AVAILABLE PRODUCTS
The EPS falls into two categories: the flame-retardant category and the non-flame-retardant category. The flame-retardant battery can be used in place of the non-flame-retardant; however, the non-flame-retardant battery cannot be used in place of the flame-retardant battery.
SPECIFICATION AND SUPPLIER SELECTION
Product specifications are defined based on the customers’ needs and requirements. The design information includes voltage, current rating, dimension, physical size, and battery duration time. For the HD-5 12-volt battery, the float voltage has to be between 13.5 and 13.8 VCD/unit average. Furthermore, the shell container and cover made of polypropylene plastic should meet flame-retardant specifications.
The reputation of Butler’s battery suppliers is critical in the selection process. The battery supplier must be reliable and carefully selected. SDX Chemicals is the current supplier for the HD-S. Butler selects its battery supplier through the competitive-bidding pricing process. After the best suppliers are identified, a formal negotiation is conducted with at least two suppliers. The contract terms are given in the next section.
FIGURE C7.1 Request for Quotes Process
CONTRACT TERMS AND TYPE
The current five-year contract agreement with SDX has been in effect since January 2005. Upon the expiration of the initial term, the agreement will renew for successive one-year periods, unless either party informs by written notice of its intention not to renew 60 days prior to the expiration of the initial term.
The key terms of the current contract with SDX are given below:
1. Product changes. Once SDX is selected, and the agreement date is in effect, the battery specifications cannot change unless approval is given by Butler.
2. Pricing. Product prices are fixed for the term of the agreement. Sixty days’ notice must be given before a price change can occur.
3. Delivery. On-time delivery is defined as shipment received by Butler four days after the order is placed. The supplier is required to pay for late charges and the cost of expediting.
4. Delivery performance measures. The supplier is expected to achieve a 100 percent service rate.
5. Quality standards and goals. Quality measures are expressed as nonconforming parts per million (PPM).
6. Indemnification. Supplier shall indemnify Butler against any and all losses, damages, liabilities, costs, and expenses.
7. Insurance. Supplier shall, at its sole cost and expense, maintain for the term of this agreement and for the period of any obligation general liability insurance. General liability insurance shall cover bodily injury, property damage, and personal injury in the amount of $1,000,000.
8. Acceptance. The current five-year agreement with SDX has been accepted and signed by the authorized representatives of each party.
Butler’s current battery-buying process is efficient. Maintaining good supplier relationships with its suppliers is critical to Butler’s success. Quality, price, delivery, flexibility, and service are considered in making sourcing and purchasing decisions. Butler remains competitive in the increasingly global and competitive markets.
RECENT DEVELOPMENTS
The vice president of operations is concerned about the low HD-5 battery inventory. There is currently a 20-day supply of batteries. A 90-day supply is the normal inventory level. Butler has not received a battery shipment in two months. Last week when the buyer discussed the problem with SDX, it was revealed that the contract price would be doubled and that the current contract with Butler is null and void.
The buyer also found out in his conversation with SDX that the battery industry has been experiencing significant shortages. The demand has been larger than expected based on the increased demand from China. Chinese auto manufacturers have been specifying the HD-5 battery for the new electric-powered cars. According to the SDX salesman, if electric cars become popular, SDX is expected to allocate more of its capacity to support the Chinese automotive industry.
