Mars Incorporated Online Procurement Harvard Case Solution & Analysis

COMPANY INTRODUCTION:

Mars Incorporated was one of the leading material purchasers in the world. The company was an American based confectionery and pet food manufacturer. The founder of the Mars Incorporated began its operations by making candies in 1911 and sold them door–to–door. The concept of Mars Incorporated was initiated by Frank C. Mars in 1929 and was a company that is well known for the confectionery items, for example, milky ways, M&M, Twix, skittles, 3 musketeers, snickers candy bar and mars bar. They also produce non-confectionery foods and other snacks, for example, Uncle Ben’s branded rice, Combo and pasta sauce brand Dolmio, stuffing mixes as well as pet foods, such as Pedigree brands and Whiskas. They were also engaged in the state of the art electronic payment system that were used in the telephone booths, public transit ticketing system and also in vending machines. The Mars Incorporated had recently matured its business from $300 million in the 70’s to a $14 billion business in 2002. Mars had its business operations in over 100 countries. The Mars Incorporated is one of the largest privately owned company in the world with the bulk of $4 billion annual raw material purchases from a small number of greatly appreciated suppliers who dealt with the company’s supplier development department.

The Mars Incorporated valued its business to such a high level based on 5 core principles, namely Quality, Responsibility, Mutuality, Efficiency and Freedom. These 5 frameworks provided a guideline for supplier relationship management and purchasing negotiations. They used different type of contracts and negotiations to address a large number of situations involving different parties such as brokers, monopolies, government organizations, cartels and also different private businesses. Normally it’s too often that a supplier works with the manufacturer for a long period of time with mutual consent because it is normal that the contract do affect by the disagreement over delivery conditions, in-transit handling of material, difference between quality specified and quality delivered, information sharing, after sales services, choice over best fit supplier skills and the requirements of the buyer and payment terms etc.

Mars Incorporated Online Procurement Case Solution

PROBLEM SITUATION:

The major threat the Mars Incorporated was facing in the industry was that the competitors and also the non-competitors were saving around 5% of their material procurement cost through an online procurement system. The problem related to Mars Incorporated material procurement system was that the previous procurement method was unable to leverage up the competitive supply conditions, which affected the company’s performance adversely. The previous system was also a threat in term of time consumption as the process was too lengthy and hectic. The procurement process was also unable to generate supply synergies and economies of scale with the Strategic Business units (SBUs) and with different brands. So, the management of the Mars Incorporated was keen to go for the Online Procurement Process so that they can also save their investment, time and generate incomes as the trend in the market. For this problem’s solution the company has decided to use online auctions websites to conduct reverse auctions where a set buyer and pre-defined suppliers negotiated at a private web-based exchange. Note that in reverse auction the low bidder won.

Question No. 1: Describe a model that Mars can use to operate an online procurement auction. Start with a basic model where all demands are met and cost is minimized.

Answer:

By using Linear Programming Technique, Mars Incorporated can established a cost minimization primary objective which will meet all demands and at the same time minimized all costs. A linear programming problem states that as the problem of maximizing profits or minimizing costs a linear function is based on to the system of linear constraints. The constraints may be equalities or inequalities. The objective function is called the linear function. As shown in exhibit, the cost minimization function or linear minima function is:

Objective Function=Minimize2050 x1 + 350 x2 + 1199 x3 + 220 x4 + 4639 x5 + 199 x6 + 1199 x7 + 1350 x8 + 350 x9 + 2200 x10 + 999 x11 + 1700 x12

In the above linear objective, Mars Incorporated’s complete demand can be satisfied hence at the same time minimizing the cost of procurement process......................

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