Platinum Box - Supplier Selection

Topics: Costs, Cost, Transaction cost Pages: 9 (2561 words) Published: March 16, 2011

Executive Summary2
Issue Identification3
Environmental and Root Cause Analysis5
Recommendations & Implementation7

Executive Summary

Platinum Box Ltd. is at a strategic juncture; it has enjoyed a phase of consistent growth over the last few years, and built on this growth is planning to expand operations to take advantage of new markets in the USA. Critically, the equipment (printing presses) that have enabled Platinum’s growth and success are approaching the end of their life-cycles, as evident in doubling of their maintenance costs over the last two years. If this equipment is not replaced in the near future, Platinum cannot expect to expand production or to effectively push into new markets.

There are three potential suppliers available to Platinum to replace the existing machinery; JabaKing, the existing supplier, who enjoys a very close strategic relationship with Platinum, Merakuri – a supplier out of South Korea who offers cutting edge technology, and Pnutype – a relatively new supplier in the market who offers preferable financing options, service and superior technology.

In order to arrive at a decision on choice of supplier (or mix of suppliers) I have taken the approach of a Total Cost Analysis, which explores all costs associated with the purchase of the equipment in addition to examining which option might bests meet the strategic business needs of Platinum, while best mitigating the inherent risks to the business – like lost productivity due to reliability issues. Examining the total cost of ownership presents a better understanding of the impact that the selection of machinery might have on the business, and in this case revealed that while JabaKing’s price and financing was cheaper than its competitors, that their total cost of ownership was substantially higher. In addition to the total cost of ownership, consideration was given which supplier’s offering would most likely enable Platinum to meet its long-term strategic goals, while minimizing Platinum’s exposure to risk.

It is my recommendation that Platinum uses Pnutype presses to replace the existing JabaKing presses. In addition to offering a substantially lower total cost of ownership, the Pnutype machines offer better capacity and productivity, which allows Platinum the opportunity to delay the purchase of further presses in the future in order to meet the projected potential production demands. In addition the risk associated with using the relatively new supplier is mitigated through their superior parts and service warranty. Issue Identification

Platinum Box Ltd. is a design house and printing operation that began in 1985, and has enjoyed steady growth in a competitive printing industry, owing largely to the superior design work offered by Platinum. In 1992, change in the ownership structure allowed Platinum to raise equity. This equity was reinvested in the business to facilitate Platinum’s growth, and was largely invested in printing presses. These presses were supplied by JabaKing, whose president is a close personal friend of Platinum’s owner. The option to purchase these presses was made affordable, based largely on the understanding that Platinum would turn to JabaKing to provide presses for Platinum’s future needs.

Platinum needs to select a supplier to replace the aging equipment currently in use. Several factors have made it clear that Platinum should replace their current operational presses sooner rather than later. Most telling is the maintenance and repair costs associated with the presses, which have doubled (from $20K to $40 per year) over the last two years, clearly indicating that the presses are approaching the end of their lifespan, which has already exceeded the expected 10 year industry standard. Additionally, Platinum is enjoying successful growth, and has recently made the decision to build on this success by pushing into the US...
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