Instructor’s Manual Abstracts

Issue 1 IM Abstract: Handling Sourcing Issues in Emerging Industries: Ecostrat’s Biomass Supply Dilemma

Fatih Yegul and Azim Shamshiev

Case Overview

This case study covers the dilemma Pat Liew, Director of Business Development, experienced when Ecostrat’s first shipment of woodchips to one of its key customers was rejected because it did not fit the boiler. The customer, a particular location of a Fortune 500 corporation in North America, acquired and installed a woodchip boiler as part of its sustainability program. The customer sent out RFQs to supply whole tree chips (WTC), and Ecostrat won the long-term contract. As a biomass aggregator, Ecostrat made deals with local WTC providers to regularly replenish the customer’s WTC stock. Things got complicated when the customer figured out that the specifications of the WTC in their region were significantly different from what the boiler provider recommended. The biomass industry was not mature enough, and the definition of WTC varied from region to region. Unaware of this complication, the customer did not mention detailed specifications in its RFQ and ended up receiving incompatible material. Liew had to decide whether to take the easy exit and cancel a valuable sales contract, or to put some effort into working out alternative solutions for the customer.

 

Learning Objectives

By working through this case, students should be able to

  1. Reflect on the significance of due diligence in capital investment projects.
  2. Elaborate on the role of RFQs in the procurement/purchasing function.
  3. Identify the types of biomass used as fuel and discuss why they are considered carbon-neutral.
  4. Resolve capital investment decisions using discounted cash flow and breakeven analysis.
  5. Recognize the factors that motivate organizations to adopt sustainable practices.
  6. Discuss the handling of customer relationships at times of conflict.

Course Suitability

The topics in this case study are an intersection of capital investment decisions, strategic customer relationship management (CRM), and procurement or sourcing management. It is ideal for undergraduate- or graduate-level finance courses where capital budgeting and net present value calculations are covered. It can be used in courses that cover purchasing and/or customer relationship management subjects.

This case study also brings a sustainability perspective to the problem, making it valuable for courses emphasizing responsible management practices.

Recommended Reading

Cho, R. (2011, August 18). Is biomass really renewable? State of the planet. Columbia Climate School. https://news.climate.columbia.edu/2011/08/18/is-biomass-really-renewable/

The European Business Review. (2021, January 30). Is acquiring new customers more expensive than keeping them? https://www.europeanbusinessreview.com/is-acquiring-new-customers-more-expensive-than-keeping-them/

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About the authors

name: Fatih Yegul

institution: Conestoga College

website: https://www.conestogac.on.ca/bios/Fatih-Yegul

name: Azim Shamshiev

institution: Conestoga College

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Issue 1 IM Abstract: Handling Sourcing Issues in Emerging Industries: Ecostrat's Biomass Supply Dilemma Copyright © by Fatih Yegul and Azim Shamshiev. All Rights Reserved.

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