Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Business and
Organizational Customers
and Their Buying Behavior
Text © The McGraw−Hill
Companies, 2002214 Chapter 7
Suggested Cases- Republic Polymer Company 6. Three Rivers Steel Company
- The government market is obviously an extremely
large one, yet it is often slighted or even ignored
by many firms. Red tape is certainly one reason,
but there are others. Discuss the situation and be
sure to include the possibility of segmenting in
your analysis.
16. Some critics argue that the Foreign Corrupt Prac-
tices Act puts U.S. businesses at a disadvantage
when competing in foreign markets with suppliers
from other countries that do not have similar laws.
Do you think that this is a reasonable criticism? Ex-
plain your answer.
Computer-Aided Problem7.Vendor Analysis
CompuTech, Inc., makes circuit boards for micro-
computers. It is evaluating two possible suppliers of
electronic memory chips.
The chips do the same job. Although manufacturing
quality has been improving, some chips are always de-
fective. Both suppliers will replace defective chips. But
the only practical way to test for a defective chip is to as-
semble a circuit board and “burn it in”—run it and see if
it works. When one chip on a board is defective at that
point, it costs $2.00 for the extra labor time to replace it.
Supplier 1 guarantees a chip failure rate of not more
than 1 per 100 (that is, a defect rate of 1 percent). The
second supplier’s 2 percent defective rate is higher, but
its price is lower.
Supplier 1 has been able to improve its quality be-
cause it uses a heavier plastic case to hold the chip. The
only disadvantage of the heavier case is that it requires
CompuTech to use a connector that is somewhat more
expensive.
Transportation costs are added to the price quoted by
either supplier, but Supplier 2 is further away so trans-
portation costs are higher. And because of the distance,
delays in supplies reaching CompuTech are sometimes a
problem. To ensure that a sufficient supply is on hand to
keep production going, CompuTech must maintain a
backup inventory—and this increases inventory costs.
CompuTech figures inventory costs—the expenses of
finance and storage—as a percentage of the total order
cost.
To make its vendor analysis easier, CompuTech’s pur-
chasing agent has entered data about the two suppliers
on a spreadsheet. He based his estimates on the quantity
he thinks he will need over a full year.
a.Based on the results shown in the initial spreadsheet,
which supplier do you think CompuTech should
select? Why?
b.CompuTech estimates it will need 100,000 chips a
year if sales go as expected. But if sales are slow,
fewer chips will be needed. This isn’t an issue with
Supplier 2; its price is the same at any quantity. How-
ever, Supplier 1’s price per chip will be $1. 95 if
CompuTech buys less than 90,000 during the year. If
CompuTech only needs 84,500 chips, which supplier
would be more economical? Why?
c.If the actual purchase quantity will be 84,500 and
Supplier 1’s price is $1.95, what is the highest price at
which Supplier 2 will still be the lower-cost vendor for
CompuTech? (Hint: You can enter various prices for
Supplier 2 in the spreadsheet—or use the analysis fea-
ture to vary Supplier 2’s price and display the total
costs for both vendors.)
For additional questions related to this problem, see
Exercise 7-3 in the Learning Aid for Use with Basic Mar-
keting,14th edition.