Service and Operations Management

PACECO: The Purchasing Decision for the Fénix Project

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PACECO ESPAÑA is a leading engineering company specializing in the design, manufacture and assembly of cranes for loading and unloading containers, mainly in port facilities. Its American parent company was the first to patent ship-to-shore container cranes as we now know them. PACECO ESPAÑA is now undertaking one of the biggest projects in its history: to supply four ship-to-shore quay cranes to one of its main customers. Since the customer already has six cranes with very similar characteristics, PACECO ESPAÑA must adjust its cost structure to achieve a positive net profit margin without compromising on the project customization it's known for, and while ensuring that a tight delivery deadline is met. If costs are not adjusted as quickly as possible, the project could take a heavy toll on the company. Javier Vázquez, the head of Purchasing and Procurement, must decide how to significantly reduce costs on mechanisms, the second most significant purchasing category in terms of costs. Javier is considering three options, but all of them entail certain risks, including economic risks, as well as risks related to delivery time, compliance with technical requirements, and the company's internal organization.
Bibliographic citation: Mediavilla, Miguel; Lago, Alejandro, "PACECO: The Purchasing Decision for the Fénix Project", IESE, P-1158-E, 12/2016
Date: 16/12/2016
Author(s): Mediavilla, Miguel; Lago, Alejandro
Document type: Case
Department: Production, Technology and Operations Management
Sector: Engineering
Languages: Spanish / English
Year of the events: 2013
Geographic area: Spain
Learning objective This case can be used to introduce the various dilemmas that arise in purchasing management. One key point is the importance of defining the product or service as the fundamental element when it comes to optimizing purchase prices, or for strategic management of purchasing categories using the Kraljic matrix, which holds that not all categories should be managed based on the same purchasing strategy. The case can also be used to present the tactical process of purchasing, including definition of the product or service, finding and approving suppliers, management of contracts, serial procurement, and the evaluation of different suppliers. Finally, it can be used to introduce the dilemma a company faces when it must choose between local purchasing (reliable and convenient) and international purchasing (more economical, but also more difficult to manage). This case also presents a third, mixed option, which shows how a good technical definition can allow for the implementation of innovative purchasing strategies.