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Eagle Industries Office Supplies Sourcing Case Solution
Eagle Industries has over 15000 employees and in order to stay competitive in the changing business environment, the management needed to identify ways to increase the bottom line by increasing the revenue and decreasing the costs associated with operations. At the same time, they needed to improve the quality of their services marginally so as to stay ahead of the competition and this case is focused on their perspective of decreasing costs.
A strategic team made to identify the avenues where the organization could cut costs identified all the aspects where costs are incurred and identified that the fastest way to reduce them would be to target the outsourced office supplies. A preliminary overview identified gaping flaws in the existing system and further analysis was conducted to identify the root causes, the existing industry standards and to find conclusive solutions that would help the company achieve its goal. The analysis compared the existing model with Monczka's model and identified the factors that were consistent and inconsistent with the industry standard laying the groundwork for identification of potential solutions.
Following questions are answered in this case study solution:
Introduction & Problem Identification
Recommended Action Plan
Eagle Industries Office Supplies Sourcing Case Analysis
The main strategies that were identified were reactive sourcing, tactical sourcing and strategic sourcing of which strategic sourcing was conclusively proven to be the best fit for Eagle Industries through a detailed analysis. An action plan was laid down with three main categorical stages subdivided into further stages on the implementation of which Eagle Industries will overcome its supply chain weaknesses. Some of the benefits that Eagle industries will be able to enjoy after the implementation of this strategy include best practices, cost savings, improved quality, specialization, standardized pricing, improved operational efficiency, access to new suppliers and will also help create long term relationships with suppliers. These will all, in effect, help Eagle Industries in becoming more competitive on Wall Street and grow exponentially, in combination with the right business strategies.
2. Introduction & Problem Identification
The case in point refers to Eagle Industries that is a highly competitive organization with over 15000 employees and is facing an issue regarding sourcing at high costs. With the increasing competition in the industry, the need to become an agile organization is severe, and the Eagle needs to increase its revenue, decrease the costs and improve its services. For this purpose a "strategic sourcing" team was made, which included employees from all the areas of business of Eagle, ensuring that no aspect was omitted. The idea was to identify the sourcing mechanism being used by Eagle and to analyze and establish ways of making it more effective and efficient in order to cut costs and derive further benefits for Eagle.
The core strategic sourcing team identified that the indirect purchases were majorly of Property Rental followed by Telecommunication, Professional Services, Office supplies, Mainframe PCs, Office Equipment, Constant Services, Insurance, Utilities, Travel, Fleet and lastly courier services as shown in Exhibit 1 of the case. Cutting through the major costs would have been an extremely tedious task and the smaller item such as utilities and travel had a comparatively lower saving margin, so they started off by analyzing office supplies. The office supplies spending were $3.8million out of which 87% came from three major suppliers. The goal was to identify the lapses in office supplies sourcing and to bridge those gaps to cut the costs to make Eagle Industries more efficient and effective.
The strategic sourcing team was divided into subgroups to analyze the different areas of businesses mentioned above and office supplies was chosen as the first candidate because there was little or no differentiation in office supplies from different suppliers and an initial overview suggested quick cost cutting opportunities. The three main concepts evident in the case included firstly that Eagle Industries had proper outsourcing of stationary commodities, secondly they had good relation with the suppliers and thirdly they had regular inventory replenishment and Just-in-Time management via suppliers. The team was conducting the analysis for which the industry standard is Monczka’s Purchasing Excellence Model which was named MSU after the Michigan State University where it was first found, shown in Appendix 1 (Monczka, Trent, & Handfield, 2005). The first step of the model is Insourcing/Outsourcing and this step was evident at Eagle industries as they identified that all of their office supplies needs were outsourced and that almost 87% of them were supplied by three major suppliers, two on contract and one catalogue, so they needed to analyze those suppliers and identify where the processes could be made more efficient. The 2003 office supply, sent by vendor, showed that supplier A, got 23% worth $900 million of the business, supplier B got 48% worth $1800 million of the business, supplier C got 16% worth $600 million of the business while others got only 10% worth $500 million as shown in Exhibit 2 of the case.
The second step was to develop commodity strategies whereby the commodity in question here are the office supplies and this was not in practice at Eagle Industries. While performing the analysis, the team identified that 68% of the spending was done at the company’s dual headquarters of Eagle and Falcon industries which were now merged together. Also the spread between per employee expenditure by sites was higher than expected as spend per employee at site A was $267.67 and at site B was $247.66 while at the headquarters it was even higher at a level of $248.52 as shown in Exhibit 3 of the case. Also within category several individual items were being purchased at different prices for example 39 types of calendars and 32 kinds of erasers displayed in Exhibit 4 of the case. These shows there were no strategies in place for commodities proving the nonexistence of this concept at Eagle Industries.
The third step as per Monczka’s model is to establish and leverage a world class supply base and this step was also not identifiable in the Eagle Industries case as the purchase agreements between suppliers had never been compared and the procurement team had no idea which was the better supplier. The fourth step is to develop and manage supplier relationships. This step was evident in the procurement by Eagle Industries as they had identified the different categories of suppliers and had selected the options most viable for the organization. There was some level of good relations existing between the suppliers and the employees as they generally got gifts but there was room to improve further collaboration such that the supplier encouraging the procurement team to avail the daily discounts etc.
The fifth and sixth step are combined as a part of critical integrated supply chain processes of which the fifth step is to integrate the suppliers in to the new product development process and the sixth is to integrate the suppliers in the order fulfillment process. At Eagle, the situation was so bad that the organization was paying a large price difference for the same product to the same supplier as shown in Exhibit 5 of the case that a price difference of more than 30% was paid for 37 items to the same vendor. The difference paid to different vendors for the same product was even higher, for example, almost a 50% price difference was paid to different suppliers for #10 envelopes as shown in Exhibit 6 of the case. The seventh stage is supplier development and quality management while the eighth step is to manage costs strategically across the supply chain, and both of these were not evident within the case.
4. Available Options
The evaluation criteria for suppliers include cost/price, quality, delivery, management capability, employee capability, total quality performance, systems and philosophy, process and technological capability, environmental regulation compliance, financial stability, production scheduling and controlling systems, e-commerce capabilities, sourcing strategies, policies and techniques and long term relationship potential (Monczka, Trent, & Handfield, 2005). The criteria that Eagle Industries lacks include good prices and discounts, the cost structure, process and technological capability to reduce order and transaction costs, e-commerce capabilities and long term relationship potential (Monczka, Trent, & Handfield, 2005). All the above-mentioned criteria should be included in the supplier evaluation and selection survey, to ensure that supplier sourcing is done is an effective and efficient manner. Also in case of Eagle Industries the opportunity levers are primarily the price and the uniformity of the product. If the same products are purchased throughout the three sites of Eagle Industries and at a suitably discounted price of acceptable quality then this would reduce their costs.
Eagle Industries has the option of choosing between Reactive Sourcing Strategy, Tactical Sourcing Strategy and Strategic Sourcing Strategy. The reactive sourcing strategy, as the name explains, works by reacting to needs and demand as no stock is kept in store and orders are placed and processed as per the requirement. This strategy is beneficial because it is professional in its essence, fulfills the requirements in cases of unpredictable events and ensures that there is no wastage, so resources are utilized efficiently. However, a problem with this approach is that it is transactional and low level hence it does not contribute to the improvement of the organization's supply chain.
The second option is of adopting the tactical resourcing strategy which is the middle ground between strategic and reactive, but it only covers some part of both, so it is not an encompassing strategy. The benefit of this strategy is that it allows for room to cover unpredicted events and also it is proactively managed so keeps all the orders and requirements up to date. It can be argued that there should be no unpredicted events in such cases because budgets and supplies are set aside in supply chain management for such occasions. Also for low level and low-risk cases, the managers should not be involved in order processing at the last minute, and this is one of its major disadvantages.
The third option is of strategic sourcing and in this strategy, the needs and demands are predicted proactively and orders and processes occur accordingly to satisfy the business needs as soon as they occur since all the work is done, there is no time lag. One of its limitations is that it is a complex process, so it requires extensive knowledge and competence by the supply chain manager. It is beneficial because it comprises of a planned and proper analysis of the supply market and selection of suppliers to provide a solution for predetermined business needs (Chartered Institute of Procurement and Supply, 2013).
5. Recommended Action Plan
The most relevant and appropriate strategy as concluded from the analysis is to apply the strategic sourcing model because although it is a complex process it encompasses and provides solutions to all of the Eagle Industries problems. The Recommended Action Plan for them for the implementation of this strategy is by initially positioning the purchasing and supply management for strategic sourcing. Then conduct an "As is" analysis that includes customer and business requirements, spend analysis, future spend analysis and market analysis followed by the final step of mapping of the supply chains. Once all of this procedure has been completed the next task is to consolidate the data and generate the options, and the relevant option should then be selected as per the needs and requirements of the organization. Using this entire information a "sourcing plan" should be chalked out which will incorporate creative and innovative solutions to cater to the specific needs of the organization. Then a standard plan should be made followed by the selection of new suppliers as per need, and they should all comply with the standard sourcing plan of Eagle Industries. Once the supply chain is in progress, the relevant manager should take regular measurements to identify and ensure that the supply chain is functioning in the most efficient and effective manner possible. With this model in place, Eagle Industries will be able to avail many advantages including Best Practices, cost savings, improved operational efficiency, improved quality, etc. as shown in Figure 1.
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