Global Heat Exchangers Inc.
Deirdre Collins, buyer-expediter for Global Heat Exchangers Inc. (GHE), was faced with an important purchasing decision. A large new client had just signed for a substantial order, and production was scheduled to begin in a couple of days. Unfortunately, the original pricing of the project was now being threatened because a GHE supplier had just raised its prices considerably. Company Information. Global Heat Exchangers Inc. (GHE) was established in 1920 and had since established a strong reputation as a leading designer and manufacturer of a wide range of specialized heat transfer equipment. Their refined manufacturing process had enabled GHE's heat exchange systems to find applications in a wide variety of industries, including pulp and paper, power generation, electrical transmission and distribution, and other process-related industries. Some of these systems were known to last more than 20 years, so long-lasting relationships in the industry were normal. GHE had operated as a distinct entity under ' various ownerships during its evolution and maintained a leadership position in the industry. In 1991, GHE was acquired by Zest Industries, and became a member of the Zest Heat Transfer Group. Zest was a large privately held corporation in the United States with more than 12,000 employees.
GHE's facility was divided into two principal areas: (1) the manufacturing facility, and (2) the office building. The manufacturing building consisted of fabrication, machine shop, assembly, testing, and research and development areas, totaling approximately 94,000 square feet with 80 employees. The office building consisted of sales, purchasing, engineering, estimating group, accounting, and management, totaling approximately 9,000 square feet with 60 employees. GHE's renowned international reputation was supported by various sales offices across North America as well as foreign offices in Australia, China, Pakistan, Sweden, and the United Kingdom. Some of the more recent large international projects included hydroelectric installations in India, electric transmission systems in Europe, giant water-pumping systems in California, and several waste-to-energy facilities in the Far East. The Purchasing Department. Deirdre was a 10-year veteran of GHE. She worked with Charlie Bond in the purchasing department and they were each responsible for the procurement of different parts. They each worked very closely with managers in the engineering and estimation departments. Deirdre believed that "communication" was the key to the successful coordination of these groups, I am always in contact with the people in engineering and estimation because we want to make sure that the system we design at GHE is of the highest quality but still reasonably priced. This takes a great deal of coordination amongst ourselves so that the operation runs smoothly. Deirdre also commented on the importance of her position and the effect on profits, The money I can save is free-and-clear profit. Purchasing is very critical to the bottom line and every penny counts towards the estimate.
The Estimating Process. The complexity of the purchasing decision depended on whether an order was for a standard or custom heat exchange system. A standard unit usually required only one motor and a simple design and could be ordered from GHE's catalogue. The price was relatively low (approximately $5,400 for an average standard system) and thus stock was either readily available or could easily be replenished. An order for a custom unit, on the other hand, entailed a complex estimation process. Custom units were much larger and at least 20 times more expensive than standard units. They required several motors and were often designed and manufactured with specific materials in mind. Before a large custom order was filled, GHE policy required that an estimate be sent back to the prospective client for approval. An estimate request typically...
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