Discussion Questions

Purchasing

• Describe and explain the pros and cons of subcontracting logistics for a building or moving enterprise.
• Provide recommendations to Claude Dakin in Case 16-1.
• Explain, in addition to Ross Wood’s reason, why taking over the responsibility for accounts payable might be the only way.
• Describe an alternative way and provide a rationale.

Case 16–1 Ross Wood

On Thursday afternoon right after lunch, Ross Wood, vice president of supply management at Dickson Electronics, was visited by Claude Dakin, chief accountant. Claude proposed that accounts payable be moved from accounting to supply.

DICKSON ELECTRONICS

Dickson Electronics, a multibillion international firm, was headquartered in Silicon Valley in California. The firm, established in 1971, sold a wide range of consumer, industrial, and military products. Major change had taken place at Dickson over the past two years as a new management team tried to improve the firm’s financial performance. A number of divisions had been sold and several acquisitions of smaller companies with consider- able growth potential had been acquired. The first signs that this major strategic shift was moving the company in the right directions were starting to show, but top management was still far from satisfied with the firm’s current performance.

ROSS WOOD

Ross Wood had been second in command in supply management at another California electronics firm. At a school gathering for his daughter, he met Jim Anderson, senior vice president of operations at Dickson Electronics. Jim Anderson indicated that Dickson was in the process of seeking a new head for its centralized sup- ply function. Since in Jim’s eyes Ross Wood had all of the qualifications necessary for the job, he offered Ross the position. Since Ross’s superior at his current firm was almost the same age as Ross, Ross believed his chances for promotion were limited. Moreover, he was intrigued by the challenge of aligning supply at Dickson to the new corporate strategy. He was also impressed with Jim Anderson’s enthusiasm and drive and accepted the offer.

Within three months of Ross’ arrival, Dickson’s president announced a drive to curtail Dickson’s head office headcount and to improve the bottom line significantly. For Ross Wood this translated into two targets: (1) Reduce supply’s head office headcount to 200, and (2) deliver savings of $200 million on the corporation’s $4.1 billion

spend with suppliers. It was two months after these targets were announced that Ross Wood was visited by Dickson’s chief accountant, Claude Dakin, with his request that sup- ply accept full responsibility for accounts payable.

Ross Wood had come to the conclusion that the only way in which he could meet the president’s directive on headcount was by outsourcing the logistics group in supply. He had started negotiations with several third- party logistics providers and believed that by moving all logistics personnel off his payroll he would be able to just meet the headcount target of 200 by year-end. He also believed that a number of initiatives, including strategic sourcing and going off-shore, would allow him to meet his savings target. Therefore, the accounts payable proposal was an unwelcome diversion at this time.

CLAUDE DAKIN’S PROPOSAL

Claude Dakin arrived on a Thursday afternoon right after lunch and was direct:

I want you to take over responsibility for accounts payable. Now, I know you are in a headcount squeeze and so am I. So, before you say no, hear me out. We’ve looked hard for efficiency improvements in our department and even brought in some work study specialists to measure productivity. From their work it became very clear that most of the delays and inefficiencies in accounts payable were caused by supply issues: Supplier invoices that do not match purchase orders because of different quantities, prices, or terms are a major problem. And when our accounts payable people try to clear up these matters, your people claim they are too busy, have trouble on the details, and cause multiple further delays. We have checked very carefully and believe that supply-related interference costs us at least 30 percent in productivity. Therefore, we believe that if we moved accounts payable closer to the supply people and have them report to you, significant improvements in communication and cooperation would result. Moreover, by far the largest amount of work in accounts payable relates to supply anyway. I currently have 16 people in this group and we believe this can be reduced to 11 if you take over.

Labor Relations

• Multinational corporations have grown and moved production facilities to developing countries. Although workers in these countries are often unionized, their wages remain low. Research a multinational corporation and make a recommendation on how organized labor can deal with working conditions in lesser-developed countries.
• Respond to at least one of your classmates. Do you agree with their assessment? Why or why not?

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