Marconil Case

As Ray Soles, I think the situation involving the purchasing of Marconil requires a deep analysis and strategic thinking, accommodating this process within the company’s supply chain strategic objectives that will consequently help to follow the strategy path of Sabor, Inc.
The current main issues concerning the next purchasing contracts for Marconil are that it is an input material on which we are very dependent and that if a shortage takes place, it can bring serious risks for our business in terms of reputation, sales revenues and customer loyalty. Last year, Sabor’s sales for air filtration systems accounted for $72 million dollars. With a profit margin of 72% (the manufacturing cost is 28%), Marconil enjoys a considerable importance in

For the sake of the analysis, I extended the forecast to two more years beyond the three initial. I will also assume – by the analysis that I did – that the growth in Marconil requirements is the same as the growth in sales. (Exhibit 2). Although, I verified some scale economies in the quantity requirements as quantities increase. As for the price growth, I assumed the average of last years growth, which is 9% y-o-y (Exhibit

As the first is a 5-year contract at a competitive price, the third one is a very flexible contract in terms of commitment, but without the cost advantage of the first. (Exhibit 3)
Having all factors in account, I think that the strategy to follow is to sign the contract with both Bilt Chemical Contract and Wharton, Inc.. Although representing a huge commitment from Sabor, it secures a significant part of our order fulfillment, guarantying our reputation with our customers. Also, with sales growing and the short life-cycle of our product, I do not feel the risk and consequences of excess inventory to be that significant when compared with the risk and consequences of a stock-out situation.
In fact, the best contract in terms of flexibility and price is the one of Wharton. However, only 10 000 pounds is not enough to fulfill our supply needs, making it very risky to rely on Marconil availability for the remaining beyond the 10 000 pounds. G. K. Specialities contract, though it is very flexible, having a 87.5% (100%-12.5%) exposure to the market availability of Marconil is too