Case 1-3: Southeastern University

Situation: * Southeastern University was one of the largest universities in the state. * Total enrollment of more than 25000 students and approximately 3500 staff. * Had 12 faculties at the university, over 20 continuing education diploma and certificate programs and 3 affiliated colleges. * Its purchasing department was centralized and it has a detailed policy. * Purchasing director Blake Hyatt, reported to the university’s VP of administration. * Maintained a list of approximately 1200 approved suppliers, adjusted every 3-5 years. * Follows a weighted average vendor selection system * Volume of purchases amounted to $75 M for goods and services each year. * The office of registrar handled about 160000 pieces of mails a year. * 50 to 60 employees(full time and temporary) were occupied in manually stuffing envelopes two days a month. * Walter Charbonneau, Manager of university registrar’s office bought the automatic folding machine; at cost -$14000 and supplier-not in the approved supplier list. * Heather Sloman, buyer in the purchasing department received quotes from 3 of her suppliers for a similar machine * .Q1- 10000,Q2- 11000 and Q3- 15000 +free 1 year service. Tasks: * What does Heather do? * Investigate unauthorized purchase * Talk with Walter about following university policy * Check with other suppliers on stock availability/lead time * Contact supplier about price reduction, return, or cancellation * What are the alternatives? * Keep equipment * pay supplier quoted price * negotiate terms with supplier * Return equipment and pay cancellation fee * Purchase equipment from another supplier (if stock)

Actions: Actions Heather has to consider on such a situation like this: 1. First how to deal with the current situation a. Heather could either keep the automatic folding machine, yet use the quotations to negotiate lower price with the supplier since the other two currents suppliers are offering lower prices for the same equipment. i. An advantage of this decision is that it will eliminate some of the manual work that 60 people would be doing. ii. Disadvantage is that other employees might ignore the university’s purchasing policies and they would purchase anything without going through the safe purchasing procedures that they have to be obligated to. b. Or Heather could return the machines and if necessary negotiate a cancelation penalty and buy another one from the currents suppliers they always deal with at much cheaper price. iii. Advantages of this decision: 1. Save the university’s money 2. Buy from the current suppliers 3. Eliminate some of the manual work 4. Follow the university’s purchasing policy and rules 5. Ensure secure process through the current suppliers 6. University’s centralized purchasing system would be determined iv. Disadvantages: 7. Walter Charbonneau, the manager of the university register’s office may feel offended because the equipment he bought was returned 2. Determine benefit analysis and review cost c. For example check if the machine will actually help in reducing manual work and therefore reduce university’s expenses. 3. What actions Heather should consider to prevent this situation from happening again? d. Emphases the importance of following the university’s purchasing policy and how beneficial it is to achieve the greatest cost saving and to the university’s budget overall. e. Ensure direct communication from upper managements of other departments and with the purchasing department in case if there is any services or products that need to be procured. f. Determine that all purchasing have to be approved by the purchasing department, otherwise payments won’t be processed. g. Purchasing department should arrange meetings with upper management managers or employees weekly/monthly to discuss if anyone thinks any equipment or service need to be purchased to avoid any random purchasing.

Results : 1. If Heather decides to keep the machine and pay the supplier

* Centralized purchasing system would be undermined. * This deal cost much more money than the approved supplier so Southwestern University won’t achieve cost saving. * Must add the Flyer company into approved supplier lists based on weighted average evaluation system. * Maybe some employees will see the bad example and they will decide to do not follow the policy from Purchasing department

2. If Heather decides to go back to suppliers and use the quotations to negotiate the lower price

* The Purchasing department would pay the cancelation penalty. * It takes long time to buy folding machine from approved suppliers because it must get approval from Purchasing department before make commitment with the supplier. * The office of registrar needed staffs to manually stuffing mails during the negotiation process.