QUESTION 1

You are a recently appointed junior buyer at Vulcan Boilers, who manufacture a range of condensing oil burners for domestic heating systems. You have been asked to review the supply of two items.

(a) One is a standard stainless steel 6mm nut and bolt, used through-out the product range, for which the current supplier, based in Dublin, has quoted a price of €3.10 per 100. The previous price was €2.60 per 100. You know from your research that the market price of stainless steel has risen by 8% in the recent past. There are many vendors of this standard item, and you have received further quotes of €2.80, from a vendor based in Spain, and €2.60, from a vendor based in China. All prices are ex-works. Discuss these prices, outline the other information might be required, and other issues that might impact on your decision, whether or not to stay with the current supplier.

(b) The other part is unique to your range, it was designed by your own engineering department. It is a pressure release valve. This part has been made in the firm’s own workshop up to now, but there have been many quality problems, due to the manufacturing department’s inability to meet the very exact specifications of the item. Consequently, the firm has asked you to look into buying it in from an outside supplier. Fischer Fabrications, based in Germany, has quoted €42.50 each for the part, delivered. The Accounting department has informed that the unit cost of making it in-house is as follows:

Material 5.90

Labour 30.00 (2hrs @€15/hr)

Overheads 15.00 (based on labour cost)

Discuss the cost and the other issues that need to be considered before making a final decision.