Purchasing: Cost and Executive Management Team
Case 3-1: Iowa Elevators
Name: Ying-Tsung Cheng, Corey Hutchins, Hsuan-Tzu Yu, Ting-Yu Lin, Kai-Hsiang Ho
Date: September 22, 2011
SITUATION Scott McBride, director of purchasing at Iowa Elevators, prepared for a meeting with the executive management team to present a five-year plan for the purchasing department. Iowa was a large grain-handling company in the U.S. with annual revenues of $2.3 billion and more than 2,500 employees. Its two business units were the grain-handling and marketing division and the farm supplies division. The grain-handling and marketing division operated approximately 300 grain elevators in Midwest and represented approximately 75% of total company revenues which has declined by 20%. The farm supplies division had doubled its revenue over the past five years, but operating margins had remained flat. The data collection focused on two questions: · How much money did Iowa Elevators spend with its outside suppliers? · How much inventory did the company carry? 1,500 suppliers, with 20 accounting for 45% of the total spend and the top five representing 35% Farm supplies inventory of $120 million with annual purchases of $310 million Plan needed to reduce cost and increase profitability
BASIC ISSUES
Capture cost reduction in a large service organization
Large organization- decentralized
Too many suppliers
Excessive inventory
TASKS
Prepare a five-year plan to the executive management team considering the following:
- Farm supplies account for nearly 35 percent of the total annual spend.
- Transportation services: Improving our logistic system.
- Inventory control.
- Among those suppliers that the company was dealt with, 20 suppliers accounted for approximately 45 percent of the total spend and the top five represent 35 percent.
- The MIS proposal about the additional spending.
- Establish a budget and human resource requirements that
Name: Ying-Tsung Cheng, Corey Hutchins, Hsuan-Tzu Yu, Ting-Yu Lin, Kai-Hsiang Ho
Date: September 22, 2011
SITUATION Scott McBride, director of purchasing at Iowa Elevators, prepared for a meeting with the executive management team to present a five-year plan for the purchasing department. Iowa was a large grain-handling company in the U.S. with annual revenues of $2.3 billion and more than 2,500 employees. Its two business units were the grain-handling and marketing division and the farm supplies division. The grain-handling and marketing division operated approximately 300 grain elevators in Midwest and represented approximately 75% of total company revenues which has declined by 20%. The farm supplies division had doubled its revenue over the past five years, but operating margins had remained flat. The data collection focused on two questions: · How much money did Iowa Elevators spend with its outside suppliers? · How much inventory did the company carry? 1,500 suppliers, with 20 accounting for 45% of the total spend and the top five representing 35% Farm supplies inventory of $120 million with annual purchases of $310 million Plan needed to reduce cost and increase profitability
BASIC ISSUES
Capture cost reduction in a large service organization
Large organization- decentralized
Too many suppliers
Excessive inventory
TASKS
Prepare a five-year plan to the executive management team considering the following:
- Farm supplies account for nearly 35 percent of the total annual spend.
- Transportation services: Improving our logistic system.
- Inventory control.
- Among those suppliers that the company was dealt with, 20 suppliers accounted for approximately 45 percent of the total spend and the top five represent 35 percent.
- The MIS proposal about the additional spending.
- Establish a budget and human resource requirements that