Thomas Manufacturing CompanyA Case Study on Supply Chain Management

Outline Background Information

Problem Statement

Analysis of Facts

Alternative Courses of Action

Conclusions and Recommendations

Summary

Review ofBackground Information

Thomas Manufacturing producer of home air purifiers

faced with supply cost increases

another price increase will have adverse effect on sales

wishes to maintain existing price structure by reducing cost

Problem StatementWhat supply chain strategy should

Thomas Manufacturing pursue to remain competitive despite the threat of increasing costs?

Purchasers

Tim Younger

lower stock re-order levels and reduce inventory

explore lower-cost suppliers and disregard public relations

Mr. Older

increase inventory levels

maintain good relations with current suppliers

Battleof the

Increase number of requests for bids

make aggressive negotiations and fewer concessions

maximize discounts

purchase to current requirements rather than to market conditions

standardize parts

place blanket purchase orders

Purchasers

Battleof the

Analysis of Facts

Competitive Priorities1. Cost importance

2. Quality importance

3. Delivery Time Schedule

4. Flexibility Importance 

Competitive Priorities1. Cost importance – firm does not

primarily compete on cost it is only recently that management has

become rather critical of supply costs firm only seeks to reduce costs, not

completely drive them down still have a lot of areas where cost can be

reduced current inventory investment is not cost-

efficient 

Competitive Priorities2. Quality importance – implied as

firm’s competitive priority

3. Delivery Time Schedule – firm rarely encounters problems regarding time

current inventory levels are always high production never stopped for lack of

material

Competitive Priorities4. Flexibility Importance – firm

shows flexibility in openness to changing supply chain strategy to maintain value delivered to customers and remain competitive

Tim’s two categories

Complement

analysis of specifications

standardization

blanket purchase orders

Mutually Exclusive

lower stock re-order levels and reduce inventory

explore lower-cost suppliers and disregard public relations

everything else

AlternativeCourses of Action

ACA 1 Maintain current system and implement Mr. Older’s recommendations

maintain good relations with few current suppliers

increase inventory levels

presence of long-term ‘partnering’ relationships

partners understand objectives of Thomas and its customers

creates learning curve that yields both lower and transaction and production costs

partners can provide design innovations and technological expertise

may establish and take advantage of Keiretsu network

Advantages

allows economies of scale

more efficient

tried and tested quality

less control risk: already have established controls

builds loyalty through ample inventory

no opportunity loss and opportunity cost

Advantages

higher costs of materials

firm continues to carry burden of reducing cost

more risk of poor supplier performance

more dependent on suppliers

high cost of changing partners

exposes some of firm’s trade secrets

high inventory costs

Disadvantages

ACA 2 Hire Tim Younger and implement his suggestions source many lower-cost suppliers

and disregard current ones

reduce cost through competitive biddings and aggressive negotiations

reduce inventory investment

switch to pull-type production planning

allows firm to source lowest-cost parts

transfers burden of reducing cost to supplier

less risk of poor supplier performance

less dependent on suppliers

low cost of changing partners

can safeguard trade secrets

low inventory costs

Advantages

gives up benefits of long-term relationships

diffused volume limits the use of economies of scale

less efficient

untested quality

vendor evaluation and development costs

more control risk

opportunity loss from back orders

Disadvantages

Conclusion andRecommendations

Thomas’ competitive strategy is differentiation, not cost leadership

Reduce cost without completely redesigning supply chain

ACA 1 is the more attractive solution

Consider Tim Younger’s other inputs

Conclusion

Long-term relationship with suppliers is firm’s competitive advantage

Maintain good relations but be aware of other options

Do not play favorites

Use cost-based and market-based pricing in negotiating

Recommendations for Vendor Relations

Analyze specifications and do standardization

Retain push type production planning

Place blanket orders and use forward contracts

Lower inventory investment is good as long as it does not cause back orders and opportunity loss

Increase stock turn and lower inventory levels through aggregate planning

Recommendations for Inventory Management

Summary

A firm’s supply chain strategy must always be aligned with the operations strategy

It should support the firm’s competitive priorities and provide value to the product.

Summary

Thank you!