Brassco Manufactured Copper Fittings

Case Study 12-1 Brassco

Overview of the case:

Brassco manufactured copper fittings for a variety of industrial users. Materials manager, Harry Jones was responsible for finding new ways to reduce daily waste production by replacing many of its disposable paper products with reusable linen equivalents. As a result of the change, Harry decides to look for quotes from commercial launders for existing uniform rental and cleaning and for new Linen Towel Service. He received four bids for Brassco laundering from Able Cleaners, Cleano, Wilkens and Riddirt. Throughout this process, Harry learned that Riddirt's current contract price of $40,000 floor mats and clothing was about 30% higher than the lowest alternate option. Later, Harry received a letter from a Riddirt supplier who was refusing his request to terminate Brassco's linen laundering contract. Apparently, the supplier had a different interpretation of the contract and did not saw any exit clause with proper 60-day notice.

Case Questions

1.The advantages or disadvantages of splitting the laundering purchases as follows:

- Advantages :

a). The current price bid from Wilkes on uniform rental and cleaning service was $30,100 which is about 30 percent lower than Riddirt's $40,000. This means that Brassco could potentially save up to $9900 per year, if Harry would sign the contract for uniforms with Wilkes. Therefore, Brassco would deal with multiple sourcing for laundering.

b). The price bid from Able Cleaners for towel service could not be compared, because no other company was able to quote the towel contract. Therefore, for the future contracts, if Harry would decide not to seek any further available options for the towel contract bidding, he could use Able Cleaners bid of $40,500. If Harry would decide to use different sources, by accepting a bid $30,100 from Wilkens for uniform and cleaning services, than his potential savings for the company would be $9900 per year, in comparison with Riddirt contract price.

Thus, it is obvious in given circumstances the advantages of splitting the laundering purchases would be in significant savings for Brassco.

-Disadvantages:

a). The administrative support and coordination efforts of two different laundering contracts would raise operational costs for Brassco.

2. To determine a fair price for a service one should calculate a current market value of the service. Also, it is essential to consider factors, such as service scarcity and use of the service. The overall desirability of the service must be checked by the prices of similar services on the market.

3. I would say the reasonable length of contract for a laundering service should be no more than 2 years, without a clause for automatic renewal of the contract at the end of expiration date. 5 years of Riddirt contract were an unreasonable period of time for the laundering services. The managers should consider the length of the relationship between

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