I. Major Facts

Placido Engine Company is a division of the General Products Corporation, a $2 billion company that enjoyed a worldwide reputation for quality and leadership in aviation, aerospace, and industrial products. So it is imperative that Placido Engine Company performs at its best and assures it delivers top quality products and services. Placido had built more than 45,000 gas engines for a wide variety of commercial, industrial, and military applications.

II. Major Problem

The major present problem Placido Engine Company is going through is that it started receiving complaints from its customers concerning corroded gearboxes on engines. The problem was significant and serious to the company that they created an Executive Corrosion Task Force to provide suggested solutions to the corrosion problem, as well as recommendations for implementing suggested programs. It was later determined that a large part of the corrosion problem centered in the Turbo 110 engine and its magnesium casting. It was found that a significant proportion of these casting were already corroded on receipt from Placido’s suppliers. The Task Force was under pressure and was ready to implement and take new initiatives to provide better quality products.

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III. Possible Solutions/ Alternatives

There are many possible solutions/alternatives for the issue to be fixed the following are:

a) Assurance that castings are corrosion free on receipt of shipment from our suppliers. Must provide Clean & Corrosion free castings by following strict procedures on how Placido Engine Company specifically wants the castings done. The supplier is responsible for delivering corrosion-free magnesium castings. Failure to do so necessitates an immediate rework at Placido to stop the corrosion process that may ultimately scrap parts. The cost incurred for the rework will be passed on to the supplier, along with negative quality ratings. A disadvantage for this possible solution would be acquiring short-term relationship with the suppliers or end of relationship due to high costs and high expectations. Perhaps Placido would have to find other suppliers that will meet the demands for a low cost, that would be an advantage for the company.

b) Another alternative should be using the negotiation method in order to develop a “win-win” situation. A negotiating party would have to be applied, “When a long period of time is required to produce the items purchased” (p 375). In these circumstances, suitable economic price adjustment clauses must be negotiated. Opportunities for various improvements may develop, such as the new manufacturing methods, new packaging possibilities, substitute materials, new plant layouts, and new tools. Negotiation permits an examination and evaluation of all these potential improvements. Competitive bidding does not. The advantage would be assurance of a long-term business with the Company along with reasonable profit for the supplier and reasonable cost for the buyer.

c) Special Legal Considerations would be another alternative for this issue. Inspection Rights, if a purchaser has not inspected the purchased material to ensure that it conforms to the terms of the contract, the law gives him or her a reasonable period of time to inspect the material after it is received. If the purchaser raises no objection to the material within a reasonable period of time, he or she is deemed to have accepted it.

d) Rights of Rejection, a purchaser has the right to reject material that does not conform to the terms of the contract. If an over shipment is received, the purchaser can either reject the complete shipment or reject the quality in excess of the amount stated in the contract. When a buyer does not wish to accept defectively delivered material, he/she is required only to notify the supplier of that fact, describing specifically the nature of the defects or default. The advantage would be that the buying firm is not obligated to pay for the material.

IV. Choice and Rationale

The best choice would be choice (B) the negotiation method. The companies should be able to come into a win-win outcome where it benefits both parties. After developing a plan and agreeing to it, a contract should be made and therefore it involves the law in any case of failing to meet certain specifications from both parties.

V. Implementation/ The Action Plan

The action plan would be for Placido and their supplier to come into an agreement on developing a long-term business relationship. Lowering prices to meet Placido’s specifications and procedures. It will be the supplier’s responsibility to deliver top quality castings. It will be Placido’s responsibility to pay them a fair amount for the procedures being performed and if possible have someone from the company take a look how the supplier is performing their job from time to time, or by random visits.


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