Question

Help needed for Project procurement to answer Questions 1-10:

Building Trust

Pauly Shore is a junior procurement manager for the Goldwell Restaurant Group. He is responsible for the procurement of IT commodities for the data center. After months of negotiating with the three best and lowest-priced bidders for the computer paper contract, Pauly selected Frankie’s Paper Company.  Pauly’s decision was made after a round of golf at Frankie’s country club. On the eighteenth hole, Frankie extended his hand to Pauly and said trust me; I will not let you down.  Frankie handed Pauly a business card with his mobile number and home number written on the back of the card.

The paper contract consisted of twice-weekly deliveries between 10:00 a.m. and noon on Monday and Friday. The only exception was during a long weekend which required a delivery on Friday and a delivery on Tuesday. Based on the size of the data center storage area, they could only store four days of paper which was to be delivered in the lobby and placed in a closet near the data center's secured facility door.

During the first few months of the contract, Pauly made two weekly calls to Frankie to place the order. While on the phone, they often talked about golf, family, and Pauly’s passion for fishing. A year after the contract was signed, Frankie stopped taking his calls and the secretary transferred Pauly to a Customer Service representative. The customer service representative informed Pauly that they had him on their regular schedule for delivery and that a phone call was not necessary.  Pauly reluctantly agreed.

On the Sunday morning before Memorial Day, Pauly got a call from the Data Center Manager informing him that the Friday paper delivery had not been made. They had run out of paper on Saturday night and had to shut down their printing operation.  Paulycalled Frankie’s cell phone and got his voice mail. He then called his home number and left a message with Frankie’s wife explaining the issue and the importance of making a delivery immediately.  Frankie’s wife informed Pauly that she would give him the message but they were headed out of town for the rest of the weekend.

Pauly drove to work in the rain early Tuesday morning. When he pulled his car into the parking lot, he noticed a truck with Frankie’s Paper Company on the side. A man was stacking the last of 40 cases of paper on the loading dock.

1) Under what circumstances would Pauly want to continue this business relationship?

2) Explain how this situation could have been avoided.

3) Did Pauly clearly explain his expectations to Frankie’s Paper Company? Could Paulyhave done anything to contribute to this situation?

Contract Risk

Pauly walked into his office and placed his soaked umbrella on the floor. He reached for the phone to call Frankie’s office when he noticed the flashing message light.  Pauly dialed his voicemail and listened to the messages that he had received from Frankie. The first one was from Friday morning when Frankie had called to explain that the paper company that they order their product from had a fire on Thursday night and no shipments were going to be made to his company and therefore he would not have any paper to deliver to the Goldwell Restaurant Group.  Frankie apologized for the problem and promised that they would contact one of his other suppliers and have the shipment made as soon as possible. In the absolute worst case, Frankie assured Pauly that he would drive up to the nearest supplier on Monday night and pick up the paper himself.  

The next message was left on Sunday which acknowledged that he had received Pauly’s call but did not have any other number but Pauly’s office number. He again restated his promise to drive the fifty miles on Monday night and pick up the paper if they could not get it delivered before then. The final message had been left only an hour ago. It explained that Frankie had just got back in town with the paper and that he had turned over the truck load of paper to one of his delivery guys. He apologized for not delivering it himself but he needed some sleep.

Pauly placed the phone down and pulled the Frankie Paper Company contract out of his file cabinet. He remembered a long conversation about keeping supplies on hand but was uncertain about the final decision. The contract confirmed that there was no provision to address the risk that a shipment would not be made to Frankie’s company. When Paulylooked at the other bidders that competed for the contract, he noticed that they all had included a provision for keeping two weeks of paper on hand in their warehouse which included a 10% premium on all orders.  Pauly looked at the risk assessment report that his team had developed and noticed that it was listed as a low probability. The savings calculations that supported the decision had justified the risk.

Pauly continued to flip through the contract and noticed the contract end date of August 1 of this year.  Pauly smiled and placed the contract back in his file cabinet.

4) Was the risk assessed correctly? How would you have assessed this risk?

5) Should Pauly renew the contract with Frankie Paper Company or put it back out for competitive bid? Why?

Bid

By mid afternoon the fallout from the Print Production shut down over the long weekend was over.  Pauly had to attend several meeting with the Senior Management team at Goldwell Restaurant Group but he was success in explain how well Frankie Paper Company performed to resolved the issue. He also explained to them that in order to avoid this risk in the future that they would have to agree to pay some level of premium a vendor to maintain an acceptable supply at their facility or allocate space in the data center for storage.

A few weeks after the smoke had cleared, Pauly’s boss, Roger Lakeland called him into his office to discuss how to handle the paper contract that was about to expire. What type of contact are you considering he asked? “I would like to try a Sole Source Negotiation with Frankie’s Paper Company, Pauly told him.” “At first I was worried about their performance but Frankie has demonstrated with the last issue we had that he is a man of his word. As I remember, Frankie also cautioned us about the risk that something could happen that would prevent them from delivering on time.” “Sounds like you trust this guy, Roger stated.”   “Yes, I do trust him and I also believe that I can get him to carry a back up supply for us at a lower price than his competitors and wrap this hold thing up in last than a few weeks.” “What about a competitive bid?” “If we have to go and do a competitive bid with the top three to five vendors it will take us over a month just to get their responses back. Then we would have to start analyzing the bids. The whole process could take as much as three months to wrap up. A Sole Source Negotiation with Frankie’s company could be done in less than three weeks and save us a lot of time and effort.”  

Ok, Roger replied. “Draft a plan and we can review it before you start the Sole Source Negotiation with Frankie Paper Company.”

6) Is a Sole Source Negotiation contract the right contract? Why or why not? What would you do?

7) What should Pauly’s negotiation strategy be for getting Frankie Paper Company to lower the premium and carrying the backup supply of paper?

Contract Administration

Pauly Kramer put the finishing touches on the Sole-Source contract for Frankie’s Paper Company and e-mailed it to his peer Jon Anderson, as requested by his boss. In less than five minutes, Pauly received an e-mail from Jon with twelve questions and a request for a face-to-face meeting. Pauly rubbed his chin as he reviewed the e-mail. He knew that Jon was an experienced contract negotiator and highly respected by their boss and other peers. Pauly sent an invitation to Jon for a meeting the next morning.

The next morning Pauly and Jon met in the cafeteria over a cup of coffee. “What do you mean by all these questions?” asked Pauly.

“Look, Pauly,” responded Jon. “I just saw a few areas that could be improved. As you can tell by my questions and comments, you are not addressing any of the contract administration items. Based on the problem you had recently with Frankie’s Paper Company, these changes can greatly reduce some of the risk.”

Jon handed Pauly a printout of the contract and pointed out a few contract clauses that could be re-worded in the company’s favor. He then handed Pauly a copy of a Contract Administration Plan and a Change Management Process.

Pauly reviewed the plan and noticed the communications log sheet. “You don’t expect me to keep a log of all my contacts with a vendor?” he asked.

“Yes," replied Jon. “It is a best practice and we are all pledged to follow the best practices of the industry and standards of the organization.”

Pauly shook his head and finished reviewing the documents, then pushed the stack of paper back to Jon. “Look, Jon, I have a strong relationship with the vendor and I do not need all of this overhead just to manage a simple project.”

Jon pushed the papers back to Pauly and said, “If you don't follow the process, you will be putting the organization at risk.”

8) What should Pauly do?

9) Was there anything wrong with the way Jon approached Pauly? How so?

10) Will Pauly be placing the organization at risk if he does not accept Jon’s recommendation? Why or why not?

11) Extra Credit can be earned for this question (assuming you have responded to the prior 10J): What lessons learned can be applied to this case?

Answer 1

*NOTE: as per Chegg policy on "How to Answer" relating to Multiple Questions I am answering only the ONE ie the first question.

1. Under what circumstances would Pauly want to continue this business relationship?

• Irrespective of the personal relationship between Pauly and Frankie, what needs to be considered is the contractual agreement between Goldwell Restaurant Group (GRG) and Frankie’s Paper Company (FPC).
• Pauly needs to do three things:
  • Check the penalty clause FPC has agreed to, specifically, in the event of a delayed delivery. Also, what are the supplier’s commitments, with respect to delivery schedule adherence, as per the contract.
  • How many such breaches have happened since the contract was signed? There are no indications of such breaches in the case. This instance might very well be the first.
  • Pauly should call as well as send an e-mail to the customer representative and ask for a root cause analysis for the delay in delivery, while mentioning the relevant clauses in the contract between GRG and FPC. Based on the analysis provided by FPC he should determine whether this was a genuine one-time aberration or this is because of weak processes in place at FPC. If the latter is true, then Pauly should offer suggestions on how to streamline or improve the processes at FPC. This will strengthen the bond between GRG and FPC as well as highlight Pauly’s professionalism.

• The case does not indicate in any way that Pauly gave FPC any undue advantage over the other bidders. Therefore, FPC is offering the best product at the lowest price, and, maintaining this relationship is in the best interest of both parties.

2. Explain how this situation could have been avoided.

• The delivery should have taken place on Friday between 10 am and 12 noon. The Data Center Manager informed Pauly on Sunday. A delay of almost 48 hours.
• The Data Center stocked out on Saturday night. This means that Pauly has already incorporated a safety stock of almost 2 days.
• In case a red flag would have been raised on Friday itself, Pauly might have been able to prevent the shutdown of printing operations from happening.
• FPC should put in place a policy that in case there is a possible delay, they should immediately intimate the customer ie GRG. Pauly should get this implemented immediately. Notifications for dispatch of shipment and delivery of shipment should be generated through FPC's ERP/MRP system.
• A day end stock check report needs to be implemented. At the end of each day the Data Center team should publish the stock status report of all the IT consumables. The format for the report will have to be created by Pauly and given to the Data Center Manager. This will enable Pauly to be up to speed about the availability of all items in the inventory.

3. Did Pauly clearly explain his expectations to Frankie’s Paper Company? Could Pauly have done anything to contribute to this situation?

• A contract was signed between GRG and FPC. A contract is binding document between two consenting parties. These two parties agree to a contract only after due consideration and deliberation.
• Agreeing to a contract means that FPC is fully aware of its commitment to fulfill the requirement of computer paper as per the agreed upon schedule.
• Pauly did not do anything to directly contribute to this situation. But he should have put in place some measures to prevent this from happening. His personal relationship with Frankie has no bearing on the contractual agreement between GRG and FPC.
• Pauly should have put in place some mechanism to raise an alarm in case of a missed or delayed delivery.
• As the FPC customer service representative had informed Pauly that, “they had him on their regular schedule for delivery and that a phone call was not necessary”, Pauly should have maintained a Control Chart of the deliveries tracking the variation, if any, in delivery times. Using the control chart he would be able to determine any variations and possibly preempt a stock out.