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GLOBAL TECHNOLOGY CORPORATION – CASE #1

In January 2019, Brandon Wilson, procurement specialist for Global Technology Corporation, Jessup,
Georgia, and three teammates were responsible for recommending which of four (4) potential suppliers
should receive a purchase order for the next year’s requirement of 12-inch touch-screen color LCD
panels/monitors.

The panels/monitors were expected to be of exceptional quality, with extra high resolution. Global
Technology Corporation was recognized as a leading manufacturer of several lines of handheld tablet
style computers. The touch-screen capability enables a user to work with the computer without a
mouse or keyboard.

The latest in this line of products was the PT 1000, a high-quality computer with a 10-gigahertz
processor, 500 megabyte hard-drive, and an optional removable DVD writer. The PT 1000 was
designed for industry use in harsh climates and operating environments.

In its nearly three years of operation, Global Technology Corporation had grown from a single product
manufacturer with annual sales of around $250,000 to a multi-product $5 billion global firm. The
company has always had a reputation for high-quality. Funding has never been compromised where
research and development is concerned especially with qualified suppliers.

Global Technology Corporation intends to buy the touch-screen panels/monitors from one of the four
potential suppliers. It estimates that the demand for next year would be 1.0 million monitors.

Forecasts indicated that this demand was expected to grow at an annual rate of 10 percent over the next
three years. In order to maintain a uniform quality, the company policy was to use a single source of
supply, if possible, to ensure quality and assurance of delivery.

In determining the supplier for the touch-screen panels/monitors, Brandon was assisted by the
following co-workers, who brought a varied line of expertise to the sourcing team:

• Courtney McCaffrey, the senior engineer, had been with the company for fourteen years and
currently was its R&D chief whom he believes is critical. She held an engineering degree from a
Midwest university and an M.B.A. from the University of San Diego.

• Jordon Williams, financial analyst, had recently joined Global Technology Corporation after
moving from Los Angeles, where he worked for three years with Pasadena Financial Corporation.
He held an M.B.A. from UCLA.

• Tyra Smith, quality assurance, had been with the company for eight years. She had an engineering
degree from MIT and had a reputation for being a very tough person when quality was in question.
Quality must be number one according to Tyra.

The responsibilities of the team included:

1. Identifying potential suppliers.
2. Preparing a brief comparative statement of the key suppliers’ financial and operational metrics plus
industry metrics.
3. Developing a brief analysis of each potential supplier.
4. Recommending the supplier with whom the order should be placed. This recommendation was to be
made to a senior executive corporate-level review board (CEO, COO, CFO, CIO, CPO, others).

1
After a preliminary review, including visits to all potential suppliers and a detailed review of their
facilities, equipment, management systems, and supply departments, the team had narrowed the list of
potential suppliers to four suppliers/manufacturers:

1. Mega Monitor Corporation, the largest manufacturer of LCD panels under consideration, with
annual sales of about $6.5 billion, had been in existence since 1984 and was the industry price
leader. Recently management changed policy that the company would not be interested in any
order of less than $500 million per annum. This decision was made after competitors had put in a
bid for the Global Technology Corporation contract. Mega Monitor’s proposed LCD unit price is
$275 per unit plus $5.00 per unit for transportation. The proposed LCD base unit price will
escalate 2.5% annually.

2. LED Manufacturing had recently entered the market with a new range of touch-screen
panels/monitors. In its short life of four years, LED Manufacturing had established a reputation for
quality and innovation. LED Manufacturing maintained that its success was largely based on heavy
R&D expenditures. LED quoted a LCD price of $280 per unit which includes transportation. The
proposed LCD base unit price will remain the same annually over the life of the contract.

3. Display Industries, the smallest of the four potential suppliers, looked attractive since it quoted an
aggressive LCD unit price of $265 plus $8.50 per unit for transportation, which was about 4
percent lower than Mega Monitor or LED and about 6 percent below that of Clear Screen
Corporation. If selected, Display Industries would devote almost 100% of its production capacity
to the Global Technology Corporation contract. Industry experts viewed the company as one of the
most aggressive new corporations in the industry after its first year in business but are watching its
sustainability. The proposed LCD base unit price will escalate 5.0% annually.

4. Clear Screen Corporation was a large and highly renowned manufacturer of computer equipment,
including LCD panels/monitors. With sales of nearly $2 billion, more than half of which were
through the sale of monitors, the firm was the second largest of its kind in the area. Its LCD unit
price is $275 plus $5.50 per unit for transportation. The proposed LCD base unit price will
escalate 2.25% annually.

Since the estimated contract was for approximately $275 million the 1st year and over $900 million
at the end of the three-year term, Brandon was aware of the critical nature of the decision over the
next three years. He had to present to the team’s recommendation within a week.

Case Questions: to 3
year contract 0
1. Analyze the financial, non-financial and operational data provided in Exhibit 1 for each of the four
potential suppliers. What are the financial, non-financial and operating metrics indicating about each
supplier? (Compare the figures between suppliers and with industry averages where necessary.)

2. On the basis of your analysis of the information contained in Exhibit 1, which potential supplier(s)
looks most attractive? Why? Explain the rationale for selecting the most attractive supplier(s).

2
 EXHIBIT l
Comparative Financial and Other Data

For Potential Suppliers

Monitor Clear Display LED Ind. Avg.

Screen
Previous year's sales (in millions) $6548.00 $1850.05 $253.80 $593.70
Net fixed assets (in millions) 1091.80 212.90 20.63 75.80

Current stock price $63.77 $55.98 $11.63 $45.98

Price earnings ratio 18.50 6.45 34.5 15.15 12.00

Liquidity ratios:
Current ratio 1.89 2.12 1.78 2.56 2.19
Quick ratio 1.14 1.02 0.99 1.28 1.08

Activity ratios:
Average collection period 30 days 28 days 40 days 27 days 30 days
Inventory turnover 12.65 12.34 18.25 13.96 12.50
Fixed asset turnover 6.00 8.69 12.30 7.83 5.80

Profitability ratios:
Gross profit margin 16.8% 15.8% 13.8% 15.4% 14.6%
Net profit margin 9.48% 6.78% 8.6% 7.35% 6.57%
Return on equity 16.6% 18.6% 18.7% 12.8% N/A
Return on investment 14.56% 14.75% 12.5% 10.7% 14.2%
Debt ratio 0.3 0.55 0.65 0.2 0.5
Times interest earned 16.8 8.5 2.6 10.6 6.0

Other data:
R&D expenditure (as a % of sales) 2.30 4.67 5.5 8.29 3.9
Installed capacity 97% 95% 85% 88% N/A
Actual production current usage 102% 91% 97.3% 95.1% N/A
Sales growth (3 years) 8.2% 11.67% 32.1% 18.82% N/A

Price quoted ($ per unit) $275.00 $275.00 $265.00 $280.00

Transportation ($ per unit) $5.00 $5.50 $8.50 $0.00

Quoted Price escalation (% annually) 2.50% 2.25% 5.00% 0.00%

Proposed on-site staff No Yes Yes Yes

Vendor Managed Inventory (VMI) No No Yes Yes

Ability to meet seasonal demand No Maybe Maybe Yes

Distance from manufacturing facility (miles) 50 30 25 20

Guaranteed Reliability of LCD monitors 90% 95% 95% 99%

Guaranteed On-Time Delivery 90% 97% 97% 98%