CENTRAL ISSUE:
Sabor, Inc. is facing a potential shortage of supply of marconil, a new high-tech raw material for air filtration. During the past three weeks Sabor has been approached by three suppliers advising of this potential shortage and encouraging Sabor to sign long-term supplier contracts for the product to hedge against shortage. Sabor is not well-informed on the manufacturing process for marconil, however we are aware that two of the three component raw materials used to produce marconil are by-products from industrial processes and are reasonably stable. The third component raw material is the unknown. Further, we have heard rumors in a few years a much lower-cost substitute material for marconil might be developed. …show more content…

Given this, we have developed the following forecast for marconcil air filters using linear regression for the past three years of data:

Using this formula, we forecast an increase in sales for the marconil air filters to $159 million annually in the next three year time period. If this is the case, the air filter business will likely increase in volume to approximately 15 - 20% of Sabor Inc.’s total sales volume.
Our next step is to identify what our options are to assure future supply. For this analysis, we are unable to do research into the unknown third raw material, although in a real-world situation we would need to take that approach to have a better understanding of all our options. As is, we have reviewed the following as potential courses of action:
1. Enter into a contract with one or more of the current supplier(s), utilizing best terms and conditions
2. Find one or more new supplier(s) of marconil
3. Review the costs and benefits of manufacturing marconil internally
4. Find an available substitute for third raw material component of marconil
5. Carry safety stock to fill future needs
6. Pool our needs with other businesses to form a consortium
7. Divest ourselves of this part of the business
We will next assign probabilities to our options to make a more informed decision. This requires us to pull together the financial details, assign probabilities and make a decision tree to form our strategy in moving forward with this