For this case just need to write Case introduction and Brief summary of the case.The main focus of your report should be the questions that Ella Trevor faces: Which vendor(s) should the contract(s) be awarded to? How will emergencies be addressed? What leverage can be used to negotiate the best overall agreement?Is there a better way that historical data can be analyzed to better forecast predicted demand? Before you can answer these questions, however, you should be clear about three more fundamental questions (which you may or may not want to discuss in your report): What happened? Why did it happen? How can it be prevented from happening again? Be sure to include supporting arguments in your written report. With larger font and reasonable margins.You should properly cite all references that you use.(The Bachelor of Commerce Co-op Program recommends APA as its standard citation style. More on the APA style)
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The Premium Forest Products Case (JDI Supply Chain Case Competition 2019)
The main focus of your report should be the questions that Ella Trevor faces:
Which vendor(s) should the contract(s) be awarded to? How will emergencies be addressed?
What leverage can be used to negotiate the best overall agreement? Is there a better way that
historical data can be analyzed to better forecast predicted demand?
Before you can answer these questions, however, you should be clear about three more
fundamental questions (which you may or may not want to discuss in your report):
What happened? Why did it happen? How can it be prevented from happening again?
Be sure to include supporting arguments in your written report. With larger font and
reasonable margins. You should properly cite all references that you use. (The Bachelor of
Commerce Co-op Program recommends APA as its standard citation style. More on the APA
style)
Require
We are going to each take one of the contracts from the case and do a brief analysis for them. We
have also taken a few of the questions from the deliverables to answer.
Need a brief summary of the case
Vendor 1 – Collies Enterprise, and “How will emergencies be addressed?”.
Vendor 2 – Beagle’s Debarkers, and “What leverage can be used to negotiate the best overall
agreement?”.
Vendor 3 – Shepherds and Sons, and “Is there a better way that historical data can be analyzed to
better forecast predicted demand?”.
Case introduction and summary.
PREMIUM FOREST PRODUCTS
Founded in 1882, Premium Forest Products (PFP) is a diversified conglomerate of privately owned
businesses. Atlantic Canada’s largest industrial player, PFP, Limited is made up of a team of 15,000
dedicated employees, with business units in Forestry & Forest Products, Transportation, Shipbuilding &
Industrial Marine, Retail, Industrial Equipment, Construction Services & Building Materials and
Consumer Products.
Since its inception over 130 years ago, the company has expanded to become the largest diversified
manufacturer and retailer of wood, commercial and naval ship building, repair, and construction within
the Maritime Region. Coordinating its relationships through a vast network of road, rail and sea-based
logistics, Premium Forest Products is made up of seven operating divisions, each dedicated to
developing quality products and complete service solutions for a global marketplace.
THE SAWMILL DIVISION
PFP currently has 11 sawmills across Eastern Canada and the US. Each sawmill produces various
products including maple, white pine, spruce, fir and cedar. Please see Appendix A for more information
on each Sawmill.
Sustainable forest management for quality products is PFP’s commitment to both customers and the
environment. All lumber products are certified under the rigorous standard of the Sustainable Forestry
Initiative (SFI).
All forestry activities are also certified under the Sustainable Forestry Initiative (SFI) and follow the
processes and procedures of the ISO 14001 Environmental Management System. These standards
provide third party verification that PFP’s forest management and on-the-ground activities are
environmentally responsible and sustainable. The US locations are also certified under FSC Standards.
PFP is focused on delivering quality products through continuous investment in people and
technology. Over the past 5 years, the Sawmill Division has invested $70 Million in ensuring the most up
to date technology in its operations. PFP has invested time and training to employ six sigma and lean
methodology throughout its operations to ensure efficient operations.
DEBARKERS
Debarkers are a set of grinding blades that remove the log’s bark to prepare the log for the
transformation into finished lumber. Removing the bark also helps to reduce the amount of fiber loss
from the logs. The bark that is dismantled from the log is then used to fuel the future pulping process.
Rocks, metals and other materials that were picked up in the lumber yard will also be removed at this
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point. The log is passed through various spinning knives. The bark is peeled off at the cambium layer of
the log. This style of debarking is known as the “Ring Type” and was originally executed in Sweden.
The Debarker is a critical piece to every sawmill. They remove the bark which is considered a waste to
the sawmill process. However, if the knives are improperly aligned, they can remove too much of the
wood fiber and waste the valuable fiber. The perfect Debarker will skin the wood creating a perfectly
white log. If the spinning knives strip off some of the fiber, this is considered money out the window.
The weather is also an influential factor as winter wood has bark that sticks like glue and fresh wood is
easier to debark. Due to all of these different conditions, when the mills find a supplier that works, they
tend to stick with them.
Please see Appendix A for a breakdown of how many Debarker machines are at each site and the yearly
production volume of each site.
CONTRACTS
For items that are related to maintenance, repairs and operations and are purchased several times a
year, PFP works to generate contracts with suppliers. Pricing is typically negotiated on an annual basis
and held for the duration of the year. When inventory on a particular contract item drops below the
required quantity in the ERP system, an order is automatically generated and sent to the supplier. With
the contract price already specified, this saves time and effort for both PFP’s team and the supplier.
Lead times, minimum order quantities and freight terms are also issues that typically come up for
discussion when a contract approaches renewal.
Two Debarker Spares contracts are quickly approaching expiry. These contracts include spare parts for
the Debarker machines at each of the Sawmills as overtime parts of the machine wear out and need to
be replaced. The contracts are currently divided among two suppliers. Some of the mills use Collies
Enterprise while others use Beagle’s Debarkers. The division of Sawmills and the number of Debarkers at
each location is outlined in Appendix A.
Projected quantities for each contract are determined by averaging three years of data. Some predicted
quantities are altered if the mill discusses an expected increase or decrease in quantity with the buyer.
Quantities could fluctuate for a variety of reasons. For example, if the mill has a planned maintenance
shutdown, various parts may be switched out to ensure quality.
Each Debarker contract is worth approximately $200,000. This value varies year to year depending on
various factors such as the economy, increased manufacturing costs, price of steel, contract terms and
conditions, percentage of total contract awarded to each vendor etc. There is a long history associated
with each contract and each mill has grown fond of their current vendor, their representatives and their
products. With that said, each mill is on a tight budget and willing to explore new opportunities that
could generate cost savings.
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CURRENT SITUATION
Ella Trevor is the Contract Buyer assigned to renegotiating the Debarker Spares contracts for the 20142015 year. Ella joined the PFP team three months ago and is working hard to learn about the details and
history of these Debarker Spares contracts. Luckily, she has access to various mill managers and the
Supply Chain Manager, Adrian Francois to gain insight.
Within the past year, PFP ran into a situation with Collies Enterprise that led to large costs and danger to
production. An order was placed for 32 Debarker Spares on March 6th. The items ordered typically have
a lead-time of 5 days and the mill expected to receive the order on March 11th. Collies Enterprise did not
have the spares on stock; they had to order them in from their manufacturer in Europe. The typical
manufacturer time is between 30-80 days.
Due to complications in Collies’ supply chain, the mill did not receive this critical order until, July 11th. In
discussions with Collies, Ella determined that PFP purchased much more of this item than what was
originally projected and Collies did not stock enough of the item. Only 1 was expected to be ordered
that year. As mentioned above, this predicted quantity of 1 was determined by averaging three years’
worth of orders. The mill currently has a reorder point of 1 and a reorder quantity of 1. Collies currently
stocks an additional 2 in their warehouse in Quebec.
The mill was furious with the outcome of the situation and wrote the following e-mail to Ella outlining
the potential costs…
Hi Ella,
The late delivery of Debarker Spares had an enormous cost to the mill. Below are just
some of the costs incurred…
•
•
•
Loss in chip (product) quality was $21,000
We cannot estimate impact of ware etc. on equipment
Total failure of a poor mill chipper would shut down the site; this is a $90,000 per shift
loss in total revenue. Not running the chip plan would put us on default of our wood
supply agreement with our chip customers (who are also our log supplies). Failure to
produce 50% of the site chip commitment would effectively remove 50% of our log
supply for the mill and would not allow us to run
We understand the price is what it is, however delivering them on the agreed time would
have been preferred over any reduction in price due to the risk to our business.
Thanks for your assistance in working to prevent this from happening again. Any
compensation for these costs would be extremely helpful.
Chris Wicker
T Sawmill Manager
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Moving forward, Ella needs to ensure that the right quantity is kept on hand in case of an emergency.
Collies is hesitant to hold more stock, especially if PFP does not purchase within the year. Collies is also
refusing to offer any compensation for the late delivery and views the upcoming contract negotiation as
an unrelated topic. They are willing to consider a revised inventory plan for critical items which is
described in their proposal.
PFP could stock additional emergency items, but at a cost. Below are three critical items with potential
long lead-times. The chart also outlines 2014 predicted demand, how many the mills currently have the
mill reorder point (ROP) and the mill reorder quantity (ROQ).
Table 1: Critical Spares List
Description
Knife top holder
Knife Base Holder
Side Anvil Insert
Predicted
Annual
On
Current
Quantity hand
ROP
ROQ
Price
16
2
1
1 $ 1,100 ea.
1
1
1
1 $ 1,900 ea.
7
2
1
1 $ 2,600 ea.
POTENTIAL PROPOSALS
With the contracts approaching expiry, Ella must evaluate each vendor based on the following
proposals.
Vendor 1- Collies Enterprise
•
•
•
•
•
•
•
Based in Quebec. Average lead time is 4 days with the critical items that are manufactured and
shipped from Europe.
Currently have 314 items on contract.
Proposing a 2% increase on pricing over last year. Collies has a long history with PFP, they know
all of the exact specifications for each of the items on the contract.
Free on Board (FOB) Mill Site with Collect freight terms
PFP Sawmills Division has spent $500,000 with Collies Enterprise over the last year.
For the critical items, Collies supplies the brand name. This product line is known to be of the
best quality. The mill has not run into an issue with these parts.
Collies has proposed the following inventory plan for the upcoming contract. If PFP would like to
add any additional inventory, PFP will have to guarantee that they will purchase the item within
the year.
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Table 2: Collies Enterprise Inventory Plan
Stock in
Description
Quebec
Knife top holder
Knife Base
Holder
Side Anvil Insert
Stock in US Non Stock
Warehouse Leadtime
6
24 20 working days
3
2
0 30 working days
0 80 working days
Vendor 2- Beagle’s Debarkers
•
•
•
•
•
•
•
•
Beagle’s is based in Quebec. Average lead time for most items is 3 days. Average lead time for
critical items is 25 days (on average)
Beagle’s currently holds the second Spares contract.
Manufacture the critical items according to specifications. Some of these items have not fit
properly in the past, which has caused some mills to stick with Collies.
FOB Mill site with prepaid and add for shipping terms
o PFP’s average freight costs are 5-10% of the purchase order value.
At this point Beagles stocks only one emergency item of each of the critical items.
Proposed pricing is 2% lower than what Collies has proposed
Approximately 15% of the non-critical items are purchased from other suppliers.
Approx. total spend with vendor: $2,000,000. PFP has other contracts and large purchases with
Beagle’s Debarkers.
Vendor 3- Shepherd and Sons
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•
•
•
•
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•
•
Shepherd and Sons is a new potential vendor that PFP has not done business with before. The
president is a well-known individual who played a major leadership role in a very successful
company. After retiring, he decided to get back in the industry and launched Shepherd and Sons
with his grandson in Canada.
Shepherds and Sons is a European manufacturer. All parts on the contract would come directly
from Söderhamn, Sweden.
Shepherds has quoted the contract 2.5 times higher than Collies.
They have stated that they predict that 50% of the items on the list will last double the time
than the competitor.
The freight terms would be FOB PFP’s site with collect freight.
Shepherds is interested in signing a 2 year contract
They have mentioned that they are open to discussing an inventory plan, but would like to keep
all emergency stock at PFP’s mill locations.
Shepherd has agreed to stock all projected quantities in their warehouse in Toronto
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•
As for the critical items, Shepherd’s is predicting that they will have a 4 week lead time. For the
Side Anvil Insert, Shepherd does not manufacture this part for any of their customers at the
moment so the estimated lead time would be in the 8-10 week period.
CONCLUSION
Ella knows she has many factors to consider to ensure overall mill satisfaction and a smooth delivery
process from the vendor to the mill. With cost savings, quality products, quality service and ensuring
each individual mill is satisfied, she knows she has her work cut out for her. Whatever decision is made,
she must provide evidence that supports her decision and ultimately gain approval from upper
management.
DELIVERABLES
Please put yourself in Ella’s shoes and analyze all key components within each proposal. You have been
asked to meet with the Supply Chain Manager and Sawmill Managers to present your findings. It is also
important that you fully understand the risk with each option and present ways to mitigate each case of
the risk.
Some questions that should be addressed include…
•
•
•
•
Which vendor(s) should the contract(s) be awarded to?
How will emergencies be addressed?
What leverage can be used to negotiate the best overall agreement?
Is there a better way that historical data can be analyzed to better forecast predicted demand?
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Appendix A: Sawmill Breakdown and Information
Table 3: Sawmill Information
Sawmill
T
S
M
D
E
V
L
K
Number of Debarkers
1
2
2
0
1
1
5
1
Current Supplier
Collies
Collies
Beagles
NA
Beagles
Beagles
3 Collies 2 Beagles
Beagles
Yearly Production (fbm/yr)
105,000,000
85,000,000
140,000,000
25,000,000
80,000,000
33,000,000
70,000,000
70,000,000
C
B
X
0
3
2
NA
Collies
Beagles
22,000,000
16,000,000
75,000,000
7
…
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