Thomas Manufacturing
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Transcript of Thomas Manufacturing
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!