Assignment
Walton Industries
On May the 12th, Angel Martinez, purchasing supervisor at the Walton Industries plant in London, Ontario, was reviewing a proposal from New Age Wireless. Angel was dissatisfied with Walton Industries paging service from its current supplier and had been approached by New Age about switching service providers. She knew that the sales representative at New Age was expecting a reply later that day and needed to finalize her decision.
Walton Industries
Walton Industries was established in the mid-1800s and was the one of the largest corn refining operations in North America. The company operated six wet-milling plants, four in the United States and two in Canada. Walton Industries was an industry leader and maintained this position by continuously developing new products, technologies, and manufacturing processes. The London plant had been operating for over 20 years and employed more than 100 people. It produced high-fructose corn syrup, starch, and glucose, which were used as supply inputs for a variety of industries including baked goods, beverages, candy, corrugating paper, and processed foods. Walton Industries competed primarily in the business-to-business segment and recognized that customers demanded both reliability and consistency.
The Purchasing Department
Walton Industries purchasing department had to ensure that the plant ran efficiently and was responsible for replenishing a variety of supplies at the plant, ranging from chemicals to communications equipment. A current initiative for Walton Industries, and particularly for the purchasing department, was reducing the level of working capital. This had been a focus in the purchasing department for over two years, and the departmental target was an annual decrease of $450,000.
Angel Martinez was the purchasing supervisor at the London plant and had one employee reporting to her. In general, the purchasing department had a large degree of autonomy because most decisions did not have to be cleared by Angel's boss, the plant controller.
The Paging System
The majority of Walton Industries' products were manufactured through a continuous flow process. Therefore, down-time at the London plant was extremely costly and was estimated at $150,000 per hour. In an attempt to minimize plant downtime, management implemented an automated software program and an electronic pager system 12 years ago. The software program, called Falcon, monitored Walton Industries' equipment. If an unusual condition, such as heat failure, was detected, this system automatically sent out a warning message to a pager. Pagers were grouped by process so that, in the event of a malfunction, only the appropriate technicians and supervisors were notified. The plant had a total of 25 pagers, and this number included a variety of different models.
Usually one warning was experienced per week. Depending on the message sent by the system, pages could report a machine malfunction or simply inform staff about potentially anomalous machine operating statistics.
The Current System
Walton Industries initially approached Falcon, a large international wireless company, 12 years ago because they offered the only paging service that could be used in conjunction with the Falcon software system. The current contract with Falcon was open-ended and required 30 days' notice if Walton Industries wished to terminate the contract. Falcon did not provide Walton Industries with a designated service representative. Instead, if a problem occurred, someone would call a 1-800 number and then wait on hold until his or her call was taken to speak with a customer service representative. This process could become an issue if Walton Industries was placed on hold during a plant emergency for an extended period of time.
Several recent events had caused Angel to become dissatisfied with the current arrangement with Falcon. In December, Angel contacted Falcon with a routine request to replace a broken pager. Angel was dissatisfied with Falcon's service, feeling that she spent too much time on the phone arranging the order, and it took Falcon over a month to send out the replacement pager.
Angel contacted Falcon again in March to replace another pager. She was informed that Falcon no longer carried this model and that the option of renting the pager hardware would be discontinued in the near future. Angel ordered a comparable product, valued at approximately $200, but felt a little unsettled by the new information. Walton Industries budget was tight and she preferred renting this equipment instead of purchasing for cash flow reasons. Although annoyed with the disappointing level of service from Falcon, Angel was consumed with more pressing issues at Walton Industries and brushed off both incidents.
The New Age Proposal
In late April, a New Age sales representative, Nancy Norman, contacted Angel to present a proposal outlining the benefits to Walton Industries of switching to New Age's services. New Age offered a simpler fee structure and also a lower overall cost than Falcon (see Exhibit 1). Additionally, by switching to New Age, Angel would be able to directly access Nancy by e-mail or by phone if any service issues arose.
Although New Age was a large wireless services company, it did not have the established reputation in the area of in-plant wireless messaging systems, nor did it have the local service history that Falcon did. Angel wondered about New Age's current customers and was unclear whether New Age had the necessary experience to handle the technological requirements of Walton Industries account. Falcon also required notice upon termination of the agreement, and Angel recognized that the paging service time frames could overlap due to this constraint, effectively forcing Walton Industries to pay for paging services from both companies during the transition. Additionally, if Walton Industries did switch suppliers, all of the existing pager numbers would need to be changed, and plant staff would need to be informed of the switch.
Since the initial meeting had gone well, both Angel and Nancy had agreed to move forward with the process and schedule a trial of New Age's hardware. This test was necessary to confirm that New Age's pagers would be compatible with the relevant applications in the Falcon software. After Angel spoke with Walton Industries systems group, a trial was scheduled for the first week in May.
Angel was not able to be present for the trial, but her contact in the systems group advised her of the events. Unfortunately, the pagers did not immediately function with the Falcon software. However, after several attempts to solve the functionality issue, Walton Industries systems group resolved the snags in the hardware and reworked the connection after completing some reprogramming. It appeared that the problem was under control, but Angel was worried about how easily the New Age system could be implemented. Also, she was unsure about how the systems group perceived the functionality problems and if this would be an issue going forward.
Decision Criteria
Angel often used a structured set of criteria to approach purchasing decisions at Walton Industries. Although she had the final decision-making authority with this issue, she recognized that the systems group would have to support this switch. The systems group was primarily concerned with functionality, and providing that the New Age product could perform to the similar level of functionality of Falcon, they would not have any objections to switching suppliers.
Angel wondered which criteria were most important to the decision of supplier selection and how these issues should be ranked. Angel knew that before a recommendation could be made, she would have to apply her evaluation framework and proposed criteria to the alternatives.
It was Monday morning, and Angel had taken some time to think about the issues of the New Age hardware testing that had taken place the previous Friday. She had expected the trial to be executed without incident and wondered if the decision to switch suppliers was as simple as she had initially thought. Angel wanted to be certain that she had considered all of the implications involved with switching suppliers before making a decision. She knew that the change to New Age was an option but recognized that Walton Industries could also remain with Falcon and was now wondering if there were any other alternatives. However, Angel understood that it had been nearly a week since the New Age sales representative had presented her proposal, and she was expecting Angel's response by the end of the day.
EXHIBIT 1 Per-Unit Comparison of Service Terms for Falcon and New Age
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Falcon
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New Age
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Monthly fee for airtime (per pager)
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$17.95
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$14.95
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Monthly fee for phone number (per pager)
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$2.95
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None
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Monthly fee for equipment rental (per pager)
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$9.95
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None
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Yearly maintenance fee (per pager)
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$50.00
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None
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Service provided (no additional cost)
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1-800 # help line
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Direct sales representative
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Task
A. How would you compare the services and pricing between New Age and Falcon?
B. Name three actions that could be done at Walton Industries to reduce net working capital.
C. What are risks associated with switching to New Age? Do the cost savings outweigh the risks and how much money will be saved by switching?