Purchasing: Cost and Executive Management Team

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Case 3-1: Iowa Elevators
Name: Ying-Tsung Cheng, Corey Hutchins, Hsuan-Tzu Yu, Ting-Yu Lin, Kai-Hsiang Ho Date: September 22, 2011

SITUATION
Scott McBride, director of purchasing at Iowa Elevators, prepared for a meeting with the executive management team to present a five-year plan for the purchasing department. Iowa was a large grain-handling company in the U.S. with annual revenues of $2.3 billion and more than 2,500 employees. Its two business units were the grain-handling and marketing division and the farm supplies division. The grain-handling and marketing division operated approximately 300 grain elevators in Midwest and represented approximately 75% of total company revenues which has declined by 20%. The farm supplies division had doubled its revenue over the past five years, but operating margins had remained flat. The data collection focused on two questions:

· How much money did Iowa Elevators spend with its outside suppliers? · How much inventory did the company carry?
1,500 suppliers, with 20 accounting for 45% of the total spend and the top five representing 35% Farm supplies inventory of $120 million with annual purchases of $310 million Plan needed to reduce cost and increase profitability

BASIC ISSUES
Capture cost reduction in a large service organization
Large organization- decentralized
Too many suppliers
Excessive inventory

TASKS
Prepare a five-year plan to the executive management team considering the following: - Farm supplies account for nearly 35 percent of the total annual spend. - Transportation services: Improving our logistic system. - Inventory control.

- Among those suppliers that the company was dealt with, 20 suppliers accounted for approximately 45 percent of the total spend and the top five represent 35 percent. - The MIS proposal about the additional spending.

-Establish a budget and human resource requirements that would be needed...
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