Assessment of the Crisis Facing Templeton Engine Company
The phone call made by the sales manager of Precision Cutting Tools Company, Dave Giltner, explaining the expected price increase of its products by six percent should be considered an issue of urgent attention (Dobler par. 1). Templeton Engine Company has a sole supplier of tooling kits and this means that it has few chances of escaping from the impending price increase. The Federal Aviation Agency (FAA) regulates the manufacture, quality, and supply of aviation tools and Precision Cutting Tools has a competitive advantage over other companies because of its compliance with the standards set by this governing body.
The increase in the competition among major aviation industry players necessitates the need to offer cheap but quality products to ensure the operations of a company are profitable, relevant, and have a future. Precision Cutting Tools is a single-source supplier of tooling kits to the Templeton Engine Company and this means that it has a high chance of arm-twisting it to follow its regulations including price increase.
Templeton Engine Company uses tooling kits worth $1 million annually (Dobler par. 9). Its decision to decide that Precision Cutting Tools will be its sole supplier was based on the quality of tooling kits it produced and the federal regulations that focused on the need to use tested and approved products. The manager of Templeton Engine Company should request a report from Precision Tooling Kit detailing the justifications for the price increase.
This will enable this company to understand that the reasons for the price increase were beyond Precision’s control. In addition, accepting the price increase and moving forward may be a simple alternative but this may have serious consequences on the profit and stock turnover of this company. Working with other departments to identify trends of tooling kits should be another alternative to be explored by this company; however, this may take a long time yet this company is working on a fixed schedule. Exploring the possibilities of outsourcing this product from other cheaper companies is another approach that may be taken by the manager; however, this may compromise the quality of products it uses in its operations.
Lastly, Neil may perceive this issue to be of great importance to the company and thus he must ensure it is managed carefully. This means that he may consider involving the president of his company and requesting that he consults with his counterpart in the supply firm. However, this may be perceived to be a cowardly move and the president may think that Neil is delegating his duties, becoming lazy and incompetent, and thus lacks the ability to defend the company’s rights.
Recommendations
Neil is in a dilemma that poses serious challenges to the future of his company depending on the decisions he makes. First, Neil should consider the option of advising the company to start producing its own products and stop relying on suppliers. The advantage of this alternative is that it will help the company to regulate the price of its products because it will be using its own raw materials. In addition, this will ensure the company incurs predictable expenses and not unexpected price increments. However, the disadvantage of this option is that the company will be forced to incur additional expenses to recruit or train employees. In addition, this alternative may take a long time to be operational and this will inconvenience the company.
Secondly, Neil may request a justification for the price increase by informing Precision Cutting Tools to explain the reasons for the price increase. This means that a price increase of inputs should be justified by statistics that will prove the need for a supplier to compel customers to buy their products at higher prices. The advantage of this alternative is that it will allow the supplier to present reasons that justified its price increase.
For instance, the supplier may explain that an increase in inflation has led to a high production cost and that is why the prices of its products are high. However, the disadvantage of this alternative is that the supplier may falsify the reasons for the price increase; moreover, there may be genuine reasons for doing so and this will force Neil to accept the offer.
Thirdly, he should work with other departments like the supply, manufacturing, and engineering to ensure he establishes the truth about tooling trends. This will help him to decide whether to accept or reject the price increase. In addition, this will be a good way of determining future trends about the quality, demand, and price of this product. This is a good way of ensuring that the company plans for the future increase in prices of its raw materials.
However, some aspects may not be easy to predict because of their nature. For instance, few companies manufacture aviation products, and thus there is limited information about them. Therefore, Neil may not get the required information to make informed decisions.
Neil may conduct research and evaluate the possibility of contacting other suppliers. This will help his company to know whether the price increase is justified or not. In addition, he will have a variety of suppliers and this will enable his company to have a say in determining the price of its inputs. However, this move may not yield the expected results if Precision Cutting Tools knows about this movie. It may impose other stringent measures that may affect the relationship between these companies.
Lastly, the phone call made to Neil requires him to act within 60 days. This period is short and he may not have time to explore other alternatives. Therefore, he may consider informing the president of his company and recommending that he contacts his counterpart to discuss the issue. This approach is good because presidents have the final say in the decisions of their companies; therefore, they may decide to water down the recommendation and continue operating as if nothing has changed. In addition, they have the power to influence the decisions of their subordinates without explaining their reasons for doing so.
However, the disadvantage of this alternative is that it may make him be perceived to be incapable of managing his responsibilities. In addition, the presidents of these companies are not the best people to address the problem because they may not have the professional abilities to manage this issue.
Conclusion
Templeton Engine Company should invest in producing what it requires and stop outsourcing key services to other companies because this exposes it to manipulation. Neil should seek explanations as to why Precision Cutting Tools increased the price of its products this will help him to evaluate whether they are genuine or not. Thirdly, the procurement department will develop an appropriate approach that will help the company to manage unexpected issues like an increase in the prices of its inputs if it works with other sectors. The possibility of contacting other suppliers will help this company to realize that there are companies that offer cheap products. It is easy for the presidents of these companies to decide the way forward for them because they have the final say in their organizations.
Works Cited
Dobler, Ronald W. Templeton Engine Company. Web.