Case Study 3 Assignment
Background
Bids were taken from three companies (Brady Company, Deer Park, Rotterdam) to supply and deliver one rig to the Middle East. Each company has different lead times and costs. The best option is to be chosen considering total costs. It is assumed that all bidders will be able to deliver in the time frame indicated. Pulled straight from the case the bids are as follows:
Brady Company bids:
· $18 million, design identical to the prototype, and can have it delivered in 23 months. They decline to bid on breaking up the 75-ton base. Logistics for delivery will be substantially identical to the prototype and is included in the bid price.
Deer Park bids:
· $17.5 million, delivery in 24 months, and agrees to break the 75-ton piece apart which is included in the price. The cost of the transportation and per diem for the welders is included in the price.
Rotterdam bids:
· $17 million, delivery in 25 months if it leaves the large piece intact.
· $16.5 million, delivery in 26 months if it must break the 75-ton piece apart and send welders to the Middle East. The cost of the transportation and per diem for the welders is included in the price.
Analysis
Chart 1 details the cost calculations for the bids on hand. The lead times range from 700 to 791 days. Chart 1 was used to determine the price of the rig and the holding cost during the lead time.
Bidders
Brady Company
Deer Park
Rotterdam
RFQ Options
1
2
3
4
Delivery Type
1 Unit - 75 tons
2 Units - 75 tons
1 Unit - 75 tons
2 Units - 75 tons
Bids - USD
18,000,000.00
17,500,000.00
17,000,000.00
16,500,000.00
Lead Time -Months
23
24
25
26
Lead Time-Days
700.000
730.000
761.000
791.000
Holding Costs Percentage
25%
25%
25%
25%
Holding Costs - USD
$8,640,000.00
$8,750,000.00
$8,840,000.00
$8,951,250.00
Total Costs - Millions USD
$26,640,000.00
$26,250,000.00
$25,840,000.00
$25,451,250.00
CHART 1
Bid and Holding Period Costs
Per chart one, the obvious choice is to go with the Rotterdam 2 Unit bid with a lead time of 791 days. With a cost of $25,451,250, it is certainly the cheapest bid. What is not calculated is the effect of a quicker delivery. Chart 2 factors in the lead times and operating profit.
700
730
761
791
Brady Company
26,640,000.00
26,040,000.00
25,420,000.00
24,820,000.00
Deer Park
26,250,000.00
25,630,000.00
25,030,000.00
Rotterdam (1 Unit)
25,840,000.00
25,240,000.00
Rotterdam (2 Units)
25,451,250.00
CHART 2
Operating Profits Vs. Lead Times
When taking into consideration the operating profit of $20,000 per day, shorter lead times become more imperative. For example, the 700-day vs 791-day lead time includes 91 days profit of $1,820,000. In fact, the operating profit makes the shorter lead time’s total cost cheaper across the board. Chart 2 shows that the faster the asset is put into service, the cheaper its overall costs are compared to the other options.
Additional Factors Considered
Using the cost analysis, the Brady Company has been chosen as the winn...
