Question

CASE STUDY: GOODHAIR INC.

Goodhair Inc. is a manufacturer of hair care products, including shampoos, conditioners, and hair gels. The company, located in Khobar, bottles the shampoos and other various hair products in their manufacturing plant, but sources the content from a number of chemical suppliers. The company has historically competed on cost and has used competitive bidding to select suppliers and award yearlong contracts. The Director of Sourcing, Akbar Shah, has managed the competitive bid process for the past 10 years, having moved up the ranks from purchasing. He was particularly proud that the company was cost-competitive in its market segment.

One recent day the president of the company, Fadi Adnan, called for a meeting with Mr. Akbar Shah. Akbar Shah could tell from the tone of Fadi Adnan’s message that the meeting would be accompanied by less- than-stellar news. As Akbar Shah took the infamous ride up the wood-paneled elevator with green marble floors to the top of their office building, he contemplated what he could have possibly done wrong. He had followed the same type of supplier bidding process for years and the company was doing well financially. He was anxious to hear what Fadi Adnan had to say.

Akbar Shah entered Fadi Adnan’s vast office, a room highlighted by ceiling-to-floor windows. He could see Mr. Fadi Adnan sitting at the end of the long, dark wooden table, with each one of his two aides accompanying him on each side. The man on the right was Bader Sadek and the woman on the left was Mariam Ghadeer; neither were taken lightly within the company. Akbar Shah could always tell when it was going to be a bad day.

‘‘Darn hippies,’’ Fadi Adnan rumbled. ‘‘Bader Sadek and Mariam Ghadeer have some troubling news. This swing towards animal rights and ‘quality goods’ is about to cost me a lot of money,’’ Fadi Adnan continued, making mocking ‘‘bunny ears’’ with his bulbous index and middle fingers. ‘‘Apparently market trends are changing again and not for the better.’’ Fadi Adnan continued to explain that there was going to be a change in the competitive strategy of the firm. The competition in the hair care market had become fierce and there was greater focus on quality. Specifically, the recent trend in animal rights and natural, organic products meant ensuring that the shampoo content did not go through animal testing and that it was ensured to be hypoallergenic. The current products were produced to compete for price and did not agree with the new demands. Fadi Adnan wanted to see products on the retail shelf with this quality standard as soon as possible. ‘‘Do it,’’ Fadi Adnan continued and sat back down. This concluded the meeting. Luckily Mr. Akbar Shah had an easy exit as he had only gotten one foot in the door before his task was demanded.

Akbar Shah was rather pleased with his new detail as he cared greatly for nature and had always refrained from purchasing his own company’s products due to their lack of consideration for both the individual and the environment. However, Akbar Shah was now confronted with a problem. His current suppliers offered the lowest cost in the business and would likely not be able to provide the needed quality assurances. His expertise had been in procuring the least expensive ingredients available and he did not know where to begin changing his sourcing practices.

CASE QUESTIONS

1. Identify the steps that Akbar Shah should take to solve his problem.

2. Should Akbar Shah ask for the required changes from the current suppliers? If they do not comply, should he solicit new suppliers? How might he do this?

3. Should Akbar Shah go through competitive bids in the future? If so, should he do it for all purchased products or just some products?

4. What are the differences when looking for suppliers to meet cost standards versus quality standards?

Answer 1

Q1) Below is how Akbar Shah can handle the new requirements in the sourcing process to ensure the required quality while still being cost effective -

1. Akbar Shah needs to create criteria in the form of scorecard for evaluating suppliers based on which they can be ranked. The top ranked suppliers should be selected for long-term strategic sourcing.

2. The criteria to evaluate suppliers based on the new requirements should include -

i) Using the new requirements, the suppliers should use natural and organic products in their chemicals instead of animal products.

2. Quality of the materials supplied should be high.

3. Faster delivery

4. High customer service level and Fill Rate

5. Low costs.

Q2) As the firm has long-term relationships with the suppliers, Akbar should convince the suppliers to provide the materials of required quality and make instead of soliciting new suplliers. If by no means, the suppliers are complying, he should look for new suppliers who fulfill the requirements and create RFPs and BPAs accordingly.

Q3) Akbar Shah should go for competitive bids in future if its current suppliers fail to supply the materials with the new requirements of quality, health conscious and natural ingredients as desired by Goodhair. RFPs for competitive bids must ensure the detailed specifications, requirements and the key factors for qualifying for the bids.

Q4) The main differences when looking for suppliers to meet cost standards versus qualiy standards include -

Suppliers who supply the materials at low costs normally don't put too much emplasis on the quality of the materials as better quality means improvement of processes, using high quality ingredients and conducting quaity inspections, all of which involve higher costs.Suppliers who supply high quality materials charge higher prices from the manufacturers.