• The steel contracts account for about 60% of the total cost.
• In the production phase, suppliers are expected to provide defect-free products with JIT delivery.
• MasTech won a bid to produce a cross-member part for the new frame of a new Ford truck model, & will be using Uxbridge as their steel supplier.
• MasTech requires 130,000 tons of steel annually (260,000,000lbs) to complete the cross-member deal.
• Steel is paid for in hundredweight (100lbs = 1 unit).
• Uxbridge indicated that it would add another line for its business with MasTech.
• Both MasTech & Uxbridge negotiated a price of $30 per hundredweight, FOB MasTech.
• As standard practice in the industry, Uxbridge used Vaughan Steel Processing …show more content…
MasTech selected Uxbridge to be their steel supplier, and required 130,000 tons of steel annually, or 260,000,000lbs to complete the cross-member deal. Between Uxbridge & MasTech, a negotiated price of $30 per hundredweight of steel was concluded, meaning a cost of $30 for every 100lbs of steel. This being said, it would cost annually $78,000,000 for the steel ((260,000,000 / 100) x 30). In addition to the deal made between Uxbridge and MasTech, Uxbridge added that would add another line of production, just for MasTech operations. Working with Uxbridge, Vaughan Steel Processing would be in charge of completing the secondary processing for the steel, such as pickling, slitting, and edge trimming, then once completed would ship the finished steel to MasTech. Functioning on a JIT schedule, MasTech required materials and resources on a fixed schedule, sometimes even every 4 to 8 hours. If they cannot replenish their inventory levels, then MasTech puts themselves at a risk of idling production. This being said, it would cost MasTech $1,500 per idle production line, and $300,000 per idle car assembly plant. Unfortunately, Vaughan had only been able to supply 75% of the required materials, which resulted in alternate sourcing costing them a 10% price premium. Robert Fisk mentioned that, “Vaughan is not carrying the …show more content…
To begin the new deal, we would ensure that Colgon / Ashgrove would provide us with 100% of our supply requirements. This was a large problem with Uxbridge / Vaughan due to the fact that they were only supplying 75% of the required materials, which resulted in alternative sourcing and additional price premiums. To ensure Colgon / Ashgrove would be able to supply us with our materials, we would be willing to negotiate the price per hundredweight to provide them with more capital and assets to make sure shipments are not late and arrival on time. Although not profitable within recent years, I believe that constructing this new del with Colgon / Ashgrove will provide both us and them a profitable experience. While MasTech has not used Ashgrove for processing steel, they come ready to work with a good reputation. Anxious to secure additional volume, we believe that supply Colgon / Ashgrove with more capital will give them more motivation to perform well and create a solid foundation to work off of. Our business is too important to them to pass up, so I believe that this new deal will give them that extra incentive to execute at their optimum level. Also, a key reason we would be open to negotiate price is to lessen or completely eliminate the risk of idling production lines and plants.