Write conclusion essay for the case study that includes the basic issues and questions 1 thru 10
Current Issues and Cases Studies in Procurement & Supply Management
Introduction
Paul Travers, Purchasing Manager for the Talbot County School Board, was deciding on his next move. In February, the new owners of the company that serviced photocopiers in Talbot County’s schools notified Paul they would be increasing prices by over 50 percent. Paul knew school budgets had already been set and wondered what to do next
Paul Travers
Paul had worked as the purchasing manager for the Talbot County School Board for 20 years. He was responsible for all of the purchasing requirements for the county’s public schools. These purchases included items such as snow removal, window replacement, and servicing photocopiers.
Budgets for all schools were typically set early in the year. Budgets were based on existing or new contracts for the services and appropriations that would be necessary for the school in a given year. School boards typically received their funding from municipal and state governments. Because of the funding cuts made at all levels of government, school boards were feeling pressure to cut costs wherever possible, and increasing expenditures once budgets were set was increasingly difficult.
Photocopiers in Talbot County’s Schools
Each school in Talbot County had at least one photocopier. If the photocopier in a school broke down, it required immediate servicing, typically same day, as it was the only source the school had for making copies of office and class materials. Over the course of one year, Talbot County’s schools collectively made approximately 8 million photocopies. These photocopiers had been purchased by the school board five years ago and required servicing and toner replacement on a regular basis.
Sigma Servicing
Paul had dealt with Sigma Servicing, a photocopying service company, for the past six years. The school board never had a written contract with Sigma, but the company had held prices at 0.9 cent per copy over the length of the relationship and never indicated any displeasure with the arrangement. The cost per copy included the service charge and the charge for toner necessary over the course of the year, and was paid in advance by the school board.
Last November, Sigma was purchased by an individual who had been in the service business a number of years ago and decided to reenter the market. Upon taking over the company, he began an examination of the existing service arrangements Sigma had with its customers. The new owner discovered that the business with the Talbot County School Board was actually operating at a loss and proceeded to inform Paul in February of his intention to raise prices and seek a new contractual agreement with the school board immediately. Otherwise, Sigma would withdraw its services.
The New Deal
The new owner of Sigma wanted to change the relationship so that service and toner charges would be applied separately to the school board’s photocopiers. The new total price would amount to 1.4 cents per copy, instead of the existing 0/9 cent per copy. Sigma also wanted any new deal to be retroactive to the beginning of the year so it could recoup the losses.
Paul expected that the new price of 1.4 cents per copy was competitive with other companies. However, he requested that Sigma explore some alternative pricing options for the toner charge. As a result, Sigma undertook two studies, one in which generic toner was used instead of the brand the school board currently used and another in which toner was recycled with the use of a special container. The result of the first study showed that the yield from the generic toner was a disappointing 4,000-5,000 copies per bottle, indicating limited cost-savings opportunities. The second study indicated that the yield was 7,500-10,000 copies per bottle when the toner was recycled, resulting in a potential cost savings of about 0.2 cent per copy.
The Decision
Paul was frustrated by developments with Sigma. He had enjoyed a good relationship with the previous owner and was personally proud of the deal he had received during a time of budget cuts. Furthermore, he knew that the negotiations with the new owner would be drawn out and would require a great deal of time in his busy schedule. The negotiations also would be difficult in light of the fact that Sigma felt they had lost money on the previous arrangement, and that schools had already set their budgets for the year.
At this point Paul felt he had several available options. First, he could agree to pay the higher price with Sigma. He was concerned, however, about the budget implications of this alternative. Second, he could ask Sigma to use a recycled toner, thereby avoiding a portion of the price increase. Third, Paul considered his possibilities of exploring relationships with other vendors.
Paul considered his options and wondered what he should do next. The issue of Sigma’s request for a retroactive price increase effective the beginning of the year had to be taken into consideration when making his decision. He knew that he had to respond quickly as the schools required constant servicing and new toner for their photocopiers.
BASIC ISSUES
What is your assessment of the current situation at the Talbot County School Board regarding photocopier servicing? As Paul Travers, what action would you take next and why?
QUESTIONS FOR DISCUSSION
1. As an employee at Talbot County School Board, what are your purchasing needs here?
2. What are the economics of the situation? How significant is this matter?
3. What are the major budgetary items in a school board’s budget?
4. How effectively has Paul Travers performed his job regarding the photocopier service contract?
5. How do you define quality here?
6. Do you think Paul should negotiate a contract for photocopier services? How long do you think it should be?
7. What do you think of the option to recycle toners?
8. Should Paul send the contract out for bid?
9. Should Sigma receive a retroactive price adjustment?
10. Why did Paul continue to use Sigma when he suspected or knew their prices were 50 percent below the market cost?
