Old Oak Furniture Case Study
By: Chris Nguyen
MKTG 444.02
January 29, 2007
Chris Nguyen
January 29, 2007
Supply Management
Old Oak Furniture Case Study
Statement of the Problem:
Silas Milo III must go over Petula’s memorandum and decide whether the policy on
evaluating the company’s suppliers is working and whether it is in the best interest of the company to
continue this policy. Particularly intangibles like service, technical information, and advice should be
taken into account. Silas must also decide how to respond to Upholstery Suppliers of America’s
complaint so that Old Oak can keep USA as a supplier.
Background:
Under Petula’s management Upholstery Suppliers of America just lost a $20,000
order from Old Oak because the bid was $75 over the lowest quotation. Old Oak and USA have
been doing business for over twenty years and USA has repeatedly met all of Old Oak’s
demands, consistently supplied quality furniture, and also offered advice to the company when
needed. The company that underbid USA has only been in business for three years. Also under
Petula’s management she managed to ease two buyers into retirement and hired recent graduates
as their replacements.
Under her management expenditures for purchased materials had
remained constant while production and sales had risen by 6 percent and purchases as a
percentage of sales continued to decrease. These are for from stellar results. In addition Petula
has limited supplier’s communication with Old Oak. She now wants suppliers only to bid on a
specific quantity by a set date, and any remarks as to quantity, quality, or delivery are not taken
into consideration.
Discussion:
USA has been a trusted and loyal supplier to Old Oak for over twenty years. USA have
been committed to supplying Old Oak with furniture while also providing advice and customer
service. You can not put a price tag on intangibles like dependability, customer service, and
good communication. The simple fact that USA has written a letter of concern to Old Oak
shows the great relationship that had existed between both companies in the past. The policy
that Petula put into place of the lowest bidder getting the business is a very dangerous practice.
One can not just simply buy on price alone. The company that underbid the competition in this
instance has only been in business for three years. Suppose that Petula accepts a bid from a
brand new business that has a horrible reputation and poor quality product. While Old Oak
might have saved a little money the repercussions can be very harmful. Some of your customers
might not like the quality of the product and simply go else where for goods such as Great
American Furniture Company which is already High Point’s leader in the furniture industry. Old
Oak must focus their attention on other things in order to close the gap on Great American
Furniture’s competitive advantage. Old Oak should focus on their attention on their policy of
evaluating suppliers as well as implementing some new marketing strategies and maybe some
new pricing strategies.
Recommendations:
Old Oak Furniture must take more then just price into account when selecting suppliers.
Furthermore, a written memorandum listing the reasons of changing suppliers should be
approved by Silas before accepting bids from other suppliers. The new buyers that Petula hired
should be trained in customer service. It is necessary for them to make lasting relationships with
suppliers because Old Oak may be doing business with these suppliers for a long time. In the
letter that will be sent to USA apologize for this misunderstanding and thank USA for their
continued commitment to Old Oak and assure them of your continued business with them. All
of your buyers should be trained to take into account the intangibles such as good service,
quality, and performance. Inform Petula that all important decisions or changes must be
approved by you. Also put a board together or hire a company to determine what areas of your
business need change. It might not be the supply area that you have to improve it might be
another area of your business.