MPM 346
Abstract
Congenial Garments Co. Ltd is a renowned maker of attire of the highest quality and a wide variety. Fabrics of unmatched quality are carefully and expertly stitched together to give out the best designs as per the client’s specifications. The products conform to the “fit all” concept and the prices suit both retailers and wholesalers concurrently. Recently, Congenial Garments struck a deal with Standard Chartered Bank in light of the annual StanChart marathon scheduled to take place in December. Standard Chartered signed a two-year contract with Congenial Garments to be their supplier of marathon kits for the next two StanChart events. Each year, the theme for the marathon is renewed and the accent colors are therefore different for every marathon. At Congenial Garments is a fully-fledged textile factory equipped with weaving machines for fabric formation as well as machinery for performing fabric processing, quality inspection, and finishing.
However, outsourcing must be done for the required threads for tailoring, yarns for weaving, dyes as well as printing inks. Part of the project at hand will thereby look into the entire project procurement process from acquiring suitable suppliers, all the way to delivering the product to Standard Chartered in the right quantity, quality, and at the appropriate time. As this project is for products on order, the whole aspect of marketing shall be skipped and, alternatively, definite concentration will be on price per unit and the revenue-profit analysis for Congenial Garments. According to the specifications tallied out in the order, following a record of 22000 participants in last year’s event, Standard Chartered expects the number to rise to 25000 this year. In preparation for the same, Standard Chartered requires about 25000 t-shirts (mandatory to all participants), 5000 caps, 5000 shorts, 1000 headbands and 1000 armbands. The order also requires all the garments to be delivered 45 days prior to the event to give allowance for pre-purchases from the participants.
Technical data
Fabric width produced by each machine: 2 meters
Types of fabrics required: 4
Total number of meters required for each fabric:
T-shirts: 22000×1.5+2000×1.8+1000×2.0=38600 meters
Shorts: 4000×0.75+800×1.0+200×1.2=4040 meters
Armbands/wristbands: 0.58×1000+0.18×1000=7602=380 meters
Caps: 5000×0.58=2900 meters
Total fabric length needed: 38600+4040+380+2900=45920 meters
Lead time available: 6 months
Total production per week: 10×1200=12000 meters
Total amount of time required on weaving only: 4592012000=3.827 weeks≅4 weeks
T-shirts and caps shall require dyeing with a blue dye and the total time required will be: 386002000×6 hours+29002000×6 hours=124.5 hours≅5 days
All shorts, caps and t-shirts shall bear the Standard Chartered logo, hence shall be printed. If Congenial Garments opted to buy the fabrics from an external source (in this case from China), the lead time would be 3 months at most. Therefore, whichever option is considered, the deadline shall be met.
Make or Buy Analysis
Congenial Garments currently produces all types of fabrics for commercial use. Owing to the contractual order made by Standard Chartered, Congenial Garments is weighing the options between internal production of the type of fabric ordered, or purchasing the fabric from an outside vendor. If Congenial Garments procures the fabric from a dealer, the company will also be required to cater for the material handling cost, since the desired fabric type is not available locally. The projected production rate of fabric is about 1200 meters per weaving machine per week for the next 8 weeks of operation leading up to the StanChart marathon. After considering the effects of income taxes, the accounting department enumerated the costs connected to each option as follows:
MAKE option
BUY Option
Thus, Congenial Garments would be better off buying fabric from the outside vendor than producing the same in-house.
Source selection criteria
The supplier for the project shall be required to meet certain requirements. Amongst these are reliability, consistency, quality, economical, great customer services, adept communication, should have the will to partner with the client, and should have a form of collateral or financial anchorage.
Procurement risks
The rough draft of procurement risks can best be described according to the various stages of the procurement process. At the initial stages, there is risk for misinterpreting, under-defining or possibly overstating the problem at hand. Hence, the likely planning procedures employed shall be either non-quenching or wasteful altogether. Consequentially, other challenges such as unbalanced timing of events or scarce funding. During the planning stage, there might occur risks such as wrong choice of approach, misjudgment of the potential sources, deficiency in information, lack of confidentiality, non-responses from the right suppliers, fraud, security breaches, wrong selection of supplier, poor choosing of products, price variations from market trends, as well as unwillingness from suppliers to accept the contract.
Contract Management/Administration
Congenial Garments intends to utilize its internal team of procurement personnel to negotiate the contractual terms with the selected supplier on behalf of the company.
Change control
The strategy most suitable for the company will entail the commonly applied steps of recording, assessing, planning, building, implementing and closing.
Types of Contracts
Lump Sum Contract
A lump sum contract is one where the contractor agrees to do all that is required in a project, at a fixed price. It is also known as a Fixed Fee Contract since only a one-time fee is issued out as payment for the entire period. A Fixed Fee or Lump Sum Contract is commended if the range and schedule of the project are well-defined. In such a case, therefore, Congenial Garments could adopt this type of contract since all required parameters are duly defined
This form of contract depends solely on projected quantities of units of an item as included in the project. It also stipulates the price per unit of those items. The closing price placed on the project will be determined by the quantities that are necessary to completely carry out the project work. A unit price contract is best usable in construction projects as well as those projects in which different types of products are supplied but the quantities are not taken into account. Business experts pay homage to the idea of merging Unit Price Contract with a Lump Sum Contract since the advantages of both types complement each other. This type of contract, however, has its disadvantages. The total cost of a project can be limitless if such variables as the number of hours are used for unit pricing. Secondly, the quality of the work may suffer for when the amount of work done per unit of time compromises the quality. Additionally, misguided ordering has a high probability of occurrence. For instance, a contractor may be inclined to choosing the cheaper of two suppliers. But the cheaper of the two might be slow on delivery, or may have lower quality supplies.
Cost plus Contract
A cost plus contract is one where the purchaser has agreed to pay all costs incurred in terms of labor and materials. Furthermore, an expanse for contractor overhead and profit is also catered for. The contract has many ways in which it can be specified; Cost + Fixed Percentage Contract, Cost + Fixed Fee Contract, etc.. Where the range of the project activities is uncertain or highly ambiguous, this type of contract can come in handy. The kinds of labor, material and equipment required are mostly also unknown. Comprehensive records of all time as well as the materials consumed by the contractor during the entirety of the project should be preserved. The profit earned here is however usually low.
Moreover, the books and accounts are privately preserved so that only the client has access to them. Profit is also usually centered on a percentage of cost, hence not productive. Hereupon, the type of contract best suited for the project to be undertaken by Congenial Garments is the Unit Price contract. To justify this, firstly, this type of contract makes the contractor’s work easier. Also, it reduces the longevity of a project, especially such a project as the one discussed above whereby a deadline is given. Since the contractor must complete as many units of work in the shortest time, this type of contract is an added merit. Finally, it allows the client to recount the cost incurred in the project, to the concrete and measurable outcomes.
References
Ewerhart, C., & Fieseler, K. (2003). Procurement auctions and unit-price contracts. RAND Journal of Economics, 569-581.
Goldschmidt, O. (1968). Lump-sum contracts. New York Certified Public Accountant (pre-1986), 524.
Richardson, A. P. (1918). Cost-plus contracts. Journal of Accountancy (pre-1986), 216.
