The university is in to contract with Tenex Company where the company supplies the University with stock tab paper. When they entered into the contract, the company was to supply stock tab paper on a fixed price basis. Now that the prices for the stock tab paper have gone up, Tenex approaches the University's purchasing department so that they can go to a guaranteed margin approach as opposed to what they had agreed earlier, fixed price. The university's purchasing department responds to the Company (supplier) reminding them that the case would have been different had the prices gone down. The university is now evaluating the various alternatives that are there so as to have the issue resolved (Kenneth 55).
Situation Analysis
The situation analysis of the university will entail a critical analysis of the key strengths, weaknesses, opportunities and threats. It is also important that the University conducts PESTEL analysis. Situation analysis involves a critical evaluation of the political, economic, social, technological, environmental and legal environments (Kenneth 51). The fact that the university had entered into a contract poses as strength, and this makes the university have some leverage on the supplier. The university can, therefore, exploit the terms of the contract in a better way than Tenex.
Key decision criteria
The University should include the following in its decision criteria (Lysons, Kenneth, and Farrington 12)
Time aspect-the university should consider the amount of time that will be consumed when going for one alternative instead of another. It is advisable for the University to choose an alternative that is suitable in terms of time requirement so that it can get back to its core activities.
Corporate image- the university should settle to an alternative that does not tarnish its image or one that does not send a negative message to the business world. If at all there are better alternatives that will not compromise the interests of the university, it is better to settle to alternatives that do not demand public attention (Kenneth 57).
Costs- the alternative that the university is to settle down to should not be expensive. As much as the University might want to maintain its good relations with the supplier the University should not lose out. The alternative should also not require a lot of cash to go into waste.
Quality- whatever option that the university wants to settle to, it must ensure that the quality that it has always maintained is adhered to. It is particularly in the cases where the University wants to adjust to new suppliers or new sources. The university should not settle for options that do not assure quality (Quayle, Michael 54).
Legal factors- the alternatives that the University chooses must also meet the laws that exist. The fact that the university is in to contract with the supplier means that there are legal aspects that govern their relationship, and it is, therefore, important that the same is put into consideration when resolving the problem/issue that they have.
Leadership in any given degree requires a minor focus, full knowledge on the problem set, and the urge and ease to move the overcome the problem. The University for this Case must, at any given point, be ready to make a uniform decision with significant long-lasting and reflective impacts (Quayle, Michael 54).
The problem, though, is that not all leaders in the University are ready to make such choices for fear of it being seen wrong. They believe that once a judgment or decision has been reached at it is irreversible and interminable and that acclimating is not an option, even worse, they will be fired for being pivotal.
How should institutions or organizations decide on the particular alternative to pursue while trying to keep a positive relationship between them and suppliers? To answer this, people have to remain open minded (Quayle, Michael 57). For instance, when deciding on the particular type of car to purchase one should consider some of his or her essential features, the cost of the car, the durability of the car, the mileage, style, noise, comfort, accessibility, gas, transmission/manual, reliability and even the speed. Therefore, these are considered to be factors that guide the decision-making criteria of acquiring the car.
The University can find this particular approach as part of the solution and ensure that at the end of it all, the relationship between the University and the Supplier is good/positive. The decision criteria, for instance, in a University setting entail the particular characteristics or variables that are significant to the Academic needs and decision making. The University leaders should ensure they analyze the alternatives from which they are choosing from (Lysons, Kenneth, and Farrington 66). The variables are used since it can disdain any characteristics that are consistent with the choices. For instance, if the University evaluates that the suppliers delivered products that are out of standard, then they can disregard that characteristic.
Alternatives
Going to court surely can attract the attention from the business community; the following are the alternatives I can propose.
The easiest way that the university can redefine its relationship with Tenex is to bring in a new value with them. This move will balance the power equation, turning purely commercial transaction into a strategic partnership (Quayle, Michael 64). The university can provide new value in different ways discussed below;
Being a gateway to new markets- This is the quickest and least expensive way that the university can readdress the power imbalance by offering the company a market opportunity that comes out as too good to pass up in the exchange for the price concessions (Quayle, Michael 54). For example, the university can look at the markets that Tenex has tried to penetrate without success and seek to be the gateway to those new markets. After identifying the markets, the university's purchasing department can join heads with the marketing department and come up with an ideal offer for the company (Brian Farrington 59). Presenting an excellent offer to the supplier and giving him an opportunity to penetrate a market that was difficult for him to penetrate will build the relationship which is on the verge of going sour. It means that the company will continue supplying the university at the fixed price as they had agreed (Lysons, Kenneth, and Farrington 66).
Reducing the supplier's risks is the second alternative. If the university is capable regarding helping the supplier to reduce its price risks, it demands some discounts in return. The university's purchasing department can work together with the finance department to create a detailed model to determine a price range that will be suitable for both the supplier and the University (Brian Farrington 61). For example, the University can agree to a multiyear contract that specifies that the prices will not fluctuate more than 7% annually, and the supplier gets a 7% discount from the initial quote (Quayle, Michael 52).
The second option if at all there are no opportunities that exist to help the university create new value is for the University to change its pattern of demand. Taking into consideration, the fact that this strategy may have implications it requires that the purchasing department collaborates closely with the other departments that might be affected. The university can change its patterns in demand in any of the three ways below (Quayle, Michael 54).
Consolidating its orders
It is the least risky of the three options, and it is also the easiest to implement. This option involves little more than acting on the internal audits of the purchasing department's data. The units' heads can come together and consolidate their spending data. After that is said and done, the supply department can threaten the supplier the institution will suspend all purchases if Tenex will not make changes (Quayle, Michael 54). There are chances that the Tenex will become far more open and that the supplier will also cut prices to fewer margins. This will be the result if at all the university orders through multiple units if that is not the case, the University can form purchasing consortiums with other learning institutions.
Rethinking the Purchasing Bundles
If the University cannot create large purchasing quantities- By increasing the purchasing packages, the supplier might reconsider the issue of making the prices remains as they had agreed to them in the first place (Brian Farrington 62). Decreasing the purchase bundles- this is the last way in which the university can alter its demand patterns from the supplier. The institution can choose to go for substitutes who perhaps supply the same product even at a lower price. The great thing with this move is that it increases the supplier's willingness or openness to negotiate (Lysons 25). The university's administration further needs to stand behind the negotiation team that it has put forward.
Creating a New Supplier
When the options for altering the demand patterns do not work or are not available for the university, the next alternative is to explore on creating a new supplier. The university can either bring in suppliers from adjacent markets, for example, a competitor. The institution can announce its move to the public of its willingness to adjust to a new supplier and perhaps after the announcement theTenex will be willing to change his offer. When there are no possible new suppliers, the university can consider making itself a new supplier maybe by venturing into a strategic partnership. This move requires some investments in the assets that are needed to produce the product (Quayle, Michael 68).
Playing Hardball
It is the last option that the university should consider. The Institution can cancel all its orders, exclude the supplier from the future business or even go for litigation or some suitable combinations of these actions. The university should only consider these measures as the tactics of last resort. (Quayle, Michael 74)
Recommendations
The recommendations that I would make is that the University should try as much as possible to maintain positive relations with the supplier. A positive relationship can only exist where there is mutual trust and a win-win situation (Lysons 25). The university should, therefore, seek the best alternative among the following so as to create new value.
The university can be a gateway for its suppliers to new markets- This is the quickest and least expensive way that the university can readdress the power imbalance by offering the company a market opportunity that comes out as too good to pass up in the exchange for the price concessions. For example, the university can look at the markets that Tenex has tried to penetrate without success and seek to be the gateway to those new markets. After identifying the markets, the university's purchasing department can join heads with the marketing department and come up with an ideal offer for the company. Presenting an excellent offer to the supplier and giving him an opportunity to penetrate a market that was difficult for him to penetrate will build the relationship which is on the verge of going sour. It implies that the company will continue supplying the university at the fixed price as they had agreed.
The university can also resolve to reduce the supplier's risks. If the university has the capability regarding helping the supplier to reduce its price risks, it demands some discounts in return. The university's purchasing department can work together with the finance department to create a detailed model to determine a price range that will be suitable for both the supplier and the University (Lysons 25). For example, the University can agree to a multiyear contract that specifies that the prices will not fluctuate more than 7% annually, and the supplier gets a 7% discount from the initial quote.
The university should only resolve to undertaking legal measures only when all the other alternatives fail. It is because deciding to engage in litigation process is not only time- consuming and expensive but also sends a negative image to the business community and this might jeopardize the future of the university especially when it is an issue of securing contracts.
Action and implementation Plan
An effective action plan for the purchasing department will largely depend on increasing the awareness among the key functions. All the units involved in the procurement process of the university need to have a shared understanding of the goals of the university as far as the sourcing is concerned and the kind of relationship that the university intends to maintain with its supplier.
The university through its purchasing department will need to raise awareness to all the units, by providing them with all the necessary information about what is taking place. The university's administration can also organize workshops that the staffs in the finance, the purchasing department as well as the registry office will attend. After a suitable course of action has been selected from the various alternatives, implementation then takes place. After the implementation of the different measures, it is also important to conduct periodic assessments to ensure that they remain in the appropriate course (Boyce, Tim 45).
Works Cited
Lysons, Kenneth, and Brian Farrington. Purchasing and Supply Chain Management. Harlow [u.a.: FT Prentice Hall, 2006. Print.
Quayle, Michael. Purchasing and Supply Chain Management: Strategies and Realities. Hershey, PA: Idea Group Publ, 2006. Print.
Boyce, Tim. Successful Contract Negotiation. London: Thorogood Pub, 1996. Internet resource.
