Can you help with this purchasing management question?

The question is posted in a word document below. Please use the references below when answering the question. The references are also posted in a word document. Please use APA type references with in-text citations. You don’t have to do a title page or introduction when answering this question. I think the answer involves a make or buy anaylisis with metrics. If you have any other questions please let me know.
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references_for_metrics_report.docx

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Learning Activity #1
Make-or-Buy Analysis
Tenace Company is a manufacturer of communications products for commercial, government, and
military applications. It has several product lines and three families of products that share common
platforms but have dual-use for military and commercial applications. The company has four divisions:
•
Government Solutions (nonmilitary products)
•
Military Systems and Services (military products)
•
Communications Services (commercial products)
•
Product Services (after-sales services and warranty services for all divisions)
Tenace is interested in a new product launch that takes advantage of recent developments in batteries
and other power supplies for small communications devices.
The Vice President, Kirk Devine, and the Program Manager, Pete Noworry, have worked together for
about 6 months in developing a plan that they will present to senior management next week. They have
visited three electronics manufacturers who are interested in developing the product under the Tenace
brand, but with different conditions about future use of the technology. The procurement department
has been involved only in the last few weeks and has not contributed much to the program planning so
far.
The key chart of the presentation (Chart 1) is presented below and the entire presentation is being
distributed to the senior staff today. Your boss reviews the charts and is alarmed that Devine and
Noworry have not made any make-or-buy decision; they have proceeded as if the program will be
outsourced entirely without an internal bid to design and develop the product.
Your boss has many concerns, not the least of which is that all three potential suppliers require large
down payments to get started and they each require an outlay of about $1M in Year 1, when their
prototypes would be due for testing and approval. Given that there may be some changes to the design
before the design stage is completed, it may end up costing more; the other main concern is that two of
the three companies will retain some control over the IP and that will require a lot negotiation to ensure
that these companies don’t contract with competitors in the future.
You are good friends with Noworry and, over lunch, he confides that the team did not pursue any
internal bids because the team assumed that the internal design would be more costly and that it would
end up being over-designed to military standards and not commercial standards , adding that “that’s
what Tenace always does and why we have so few original commercial products”. No internal studies
were ever requested or completed.
Noworry comments that the projected unit cost is in line for Tenace to reach the market at a
competitive price that has about 35% margin. Also, he adds, “it is just so cool to travel to these places
and work with these engineers; I can’t wait to get started. Any of them will be a good choice!” When
you reply that there are rumors of layoffs throughout the company and that $1,000,000 of internal
funding to launch a new product would keep a lot of people employed, Noworry seems not too
concerned.
You and your boss will meet later in the day to discuss the situation. The big issues to address are:
•
How do we analyze and select the right bid?
•
How do we encourage the company to develop an internal bid with so little time left in the
program plan?
CHART 1: Overview of Product Design and Development
Singapore Tech, Japan Radio
Inc.
Systems, Inc.
Canberra
Communications
Corporation
1,300,000 USD
2,100,000 USD
1,100,000 Australian
Dollars
Duration to complete
1 year
Eng Design
14 months
9 months
Complete System?
YES
NO
No
YES, external case
requires add’l
investment
New elements
owned by Tenace;
existing elements
retained by JRS
New elements owned
by Tenace; existing
elements retained by
CCC
Nonrecurring Eng
Costs
Additional
Development?
YES
No
Work-for-hire
Intellectual Property
and 100%
(IP) Ownership?
Tenace IP
Not required;
owned by
Tenace
Exclusive rights to new
Nonexclusive
technology and CCC
license and JRS has
can license
right to license
commercially after 5
others
years
$1,000/unit
$950/unit
$1,200
Required Duration of
3 years
Production Contract
3 years
2 years
Product Warranty
1 year
2 years
Tokyo/4 months
Canberra/2 months
IP License
Estimated Product
Cost (delivered to
Tenace factory)
1 year
Warranty service
Singapore/3
Location/Turnaround
months
Time
References
14 Purchasing Metrics that Buyers Can’t Ignore
https://www.digikey.com/en/articles/techzone/2013/dec/14-purchasing-metrics-that-buyers-cantignore
Using Metrics to Enhance Purchasing
https://research.wpcarey.asu.edu/using-metrics-to-enhance-purchasing/
Strategic Sourcing: A Step-By-Step Practical Model
https://www.instituteforsupplymanagement.org/files/pubs/proceedings/fbengel.pdf
Measuring Strategic Sourcing and Procurement Maturity within Indirect Spend
https://www.instituteforsupplymanagement.org/files/Pubs/Proceedings/2010ProcED-Lindstrom.pdf
Supplier metrics that matter

Supplier Metrics that Matter


Best Practices – Make or Buy Analysis – Procurement Training – Purchasing Skills

Purchasing Best Practices from Innovative Sources
http://www.sourcinginnovation.com/glossary/PurchasingBestPractices.php
Building Superior Capabilities for Strategic Sourcing
https://www.mckinsey.com/business-functions/operations/our-insights/building-superior-capabilitiesfor-strategic-sourcing

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