You and Paul are on your way to Toronto Factory Supply. You go to the back of the production facility, and there is the van. You are surprised by what you see: a 13-year-old, 12-passenger commercial van converted to a 2-passenger van. It looked pretty rough: rusted and dented. As you and Paul are driving to Toronto Factory Supplies, the brakes squeaked, and the vehicle was not driving straight. When you arrived at the suppliers' you noticed the tires on the company van were almost bald.

The Toronto Factory Supplies facility was surprisingly large; the outside grounds were well maintained. As you walked into the building, it was clear this was a very organized business. Paul was greeted by Joe Gust, who is the Sales Manager for Toronto Factory Supplies. Paul went with the suppliers' warehouse worker to observe the gear motor get loaded into the van, so you and Joe have a chance to talk alone.

Joe was curious why we still pick up our own parts when they provide a Supply Management Outsourcing solution that is a 100% vendor managed service, which is guaranteed to save the company money. Joe ran through a list of benefits:

We go beyond the typical 3PL solution; we are a full Supply Management Outsourcing solution

Every time you generate a PO, it costs you approx. $200, which would no longer be necessary with our system since we are onsite

We would set up a parts cage (at no expense to the Best Auto Parts Company) with a secure entrance at your facility, and we would manage it ourselves. The cage would remain our property, and we would supply the personnel to manage the cage and ordering system for $30,000/year

Our typical cost reduction for all of your MRO purchases as experienced by most of our customers is 7% to 13%

We would provide one invoice per month with a detailed report on usage for your auditors

We would take care of everything: delivery requirements, reverse logistics, and all obsolescence and overstock issues

Your millwright is the most expensive delivery driver on the planet considering his hourly rate, guessing $40/hour. "I see Paul here so much I mistake him for one of our guys. He is here usually 3 or 4 times a week".

Our transport vehicles are maintained to the highest standards.

Joe advises that if we seriously consider the offer he would be happy to meet with our management/implementation team members (CFT) to provide any additional information required. "Toronto Factory Supply is a very transparent supplier, and we embrace mutually beneficial relationships."

When you get back, Susan is anxious to hear how the trip went. She was surprised to hear about the condition of the van, although she had never been in it. Susan was most interested in the offer made by the supplier; supply management outsourcing or third-party logistics/MRO suppliers have not been considered in the past. Susan thinks the timing is right for implementing some vendor-managed inventory systems for non-critical items and has asked you to start working on this project.

Additional Information (8 marks)

Describe two sections, explain and their importance.

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