Loren Case Analysis—Team 6
Loren Inc, a Canadian subsidiary of a much larger international company which sells both industrial and consumer products established a good reputation for providing quality oriented products. Brett Miller who now heads Purchasing is looking for the best supplier of hexanoic acid.
On analyzing the case, we have come to an understanding that off the four suppliers we have it is imperative to choose a supplier that satisfies the objectives of Loren Inc. which are :
(1) Assurance of material availability : To ensure the supplier is aware of the demand requirements and has sufficient supply of the required materials/commodities.
(2) Best value : The supplier should be in a position to supply goods with superior quality, price and services.
(3) An Ethical reputation: The relationship between supplier and buyer should be ethical in all the aspects of business.
(4) Information gathering: Constant updates and upgrade are entertained, the supplier should be able to communicate new market trends or effects and also be able to provide the materials suggested.
Basing our views on the above mentioned objectives, we would like to pick two suppliers for Loren:
(1) Carter Chemical/Michigan Chemical and
(2) American Chemical Inc.
Due to the nature of the hexanoic acid industry and Loren’s historical usage, we do not recommend the company to go with single or sole sourcing. Even though single sourcing can provide Loren with maximum leverage and negotiating power over the supplier, choosing multiple suppliers is advantageous to Loren Inc.
Advantages when Loren Inc. chooses to multiple source:
(1) higher level of assurance of the supply
(2) potential price increase comparison
(3) the power to motive suppliers to deliver and perform better
According to the case, the supply of hexanoic has been unstable and is expected in maintaining a significant growth, also considering market availability we believe having more than one supplier will help prevent shortage in the future.
As per the textbook, the author also proves a point that international suppliers might be able to offer better prices than local suppliers, they might also be able to provide high level technical service.
The supplier, Michigan Chemical is an American company while Carter Chemicals is located in Canada as its distributor, which gives a lot of convenience for Loren like providing shorter lead times, low customs and duties, cheaper transportation costs.
Other than that, there was an evidence in the case showing that Michigan Chemical had already worked with Loren (U.S.) and had a good relationship with the company, which makes Carter Chemicals a reliable partner. The company has the capability of fulfilling Loren’s needs. Based on the case, Michigan Chemical had successfully supplied about 99% of its commitment during the shortage period. What makes Carter Chemical most competitive is the quote that they provide, which is $1,268 per ton. What’s more is that , they also provide FOB destination with a quotation which will save a lot of money for Loren.
Our second choice is American Chemical. They did give an impressive quotation at the price of $1,204 per ton at a minimum volume of 1,050 tons and an even better price of $1,192 per ton at a minimum volume of 2,250 tons.
However, American Chemical is an American company, which means Loren has to deal with potential customs, higher transportation costs and longer lead times. Although they had Loren on allocation previously, with the new plant expansion at the Cleveland plant, it is quite certain that the company will be able to supply as much as Loren needs and would try to fulfil the needs of Loren as required.
As per the textbook, the authors state that a buying firm should avoid a seller to become dependent on its business. To prevent this from happening, we recommend Loren allocate 60% of its needs to Cater Chemicals and 40% of its needs to American Chemical. Not only this helps Loren from depending too much on one supplier, but also reduce the potential risk of shortage from one supplier.
As for its current suppliers, Alfo and Canchem. Although they had worked with Loren before the quotes that they provided were not always as good as the other suppliers. However, based on their single-bid policy, each supplier can only quote once. The suppliers need to accept all the consequences. Loren is a company which values the reputation a lot. Therefore, we decided to not consider the second quotation from Canchem.