AVION, INC

1.What parts of the supply chain are involved with the situation in this case? What is
the responsability of each part in order to maintain a smooth flow of material?
In this case, several parts of the supply chain are involved with the situation and
they are as follows:
Production management, Foster Technologies
Their responsability is to produce the material that the company Avion inc requires
by the contract.Iftheycannot
fullfilledwhatisrequestedandtheyneedtochangethem,they should communicate to
the material management of Avion, Inc.
Procurement management, Avion, Inc.
Their responsability is to communicate with the production group and with the
material group more often. If they had known that the monthly volume
requirements and the lead time was changed by the production group they would
have not blame to Foster Technologies. Also, they should work with engineering
more closely so they can locate more sources of technology and select suppliers
efficiently. The flow of information with the supplier is also very important to identify
the problems.
Production management, Avion, Inc.
Their responsability is to produce the goods ordered. They should not have changed
the requirements for the material. If they need to change them, they should
communicate to the material management group.
Material management, Avion, inc.
They should have pay more attention to the inquiries made by Poster Technologies.
2.What inicially appears to be the problem? What really is the problem?
At first glance, the problem appears to be that the Avion's supplier, Foster
Technologies did not meet all the requirements required by the contract. It looked
that the supplier was not able to produce what they say they could. That seemed to
be reason of the deteriorating performance in the material quality and in the on
time delivery areas. It also looked that Avion firm was trying to blame
FosterTechnologieswithoutcollectingtherequiredfacts.Afterafurtherreview,theproblem
is really an internal issue with Avion, Inc. Avion, Inc. was mistaken in the initial
supplier review. They changed the requirements for the material. Avion's
procurement management group gave a contract for a monthly volume requirement

of 2,500 units a month with a two week lead time. Then, they changed to 4,000
units a month and ten days lead time. There was a lack of communication in
Eloisa Maria Compostizo de Andres 09/02/2014
Avion, inc between the production and the procurement teams. Avion's material
management group also ignored the attempts Foster Technologies made to contact
them
3.How easy is to switch suppliers? What could complicate a firm's ability to switch to
a new supplier?
It is not easy to switch supplier, there are time, costs and activities changes
involved i n this issue. Firstly, it takes a long time. It could take months. Costs could
increase considerably. A firm have to perform visits to the nwe suppliers they are
looking for. Some of the tooling have to be changed and replaced to be adapted to
the new supplier and this could really cost. The switch could be complicatedif
thereisalackoftrust,alackofinformationflowbetweensupplierandthefirmora high
switching cost.
4.What does it mean to get to the root cause of the problem?
It means that if a company could get the root cause of a problem, they could find
were the problem has started and they change the cause of this problem from the
beginning. A problem in a supply chain leads to other problems, finding were the
first problem was, could made a firm save time managing with the problems derived
from the first problem. In this case the root cause of the problem was the lack of
information flow with the supplier.
5.What does it mean to be a good customer? Why does a buying firm want to be
percived by a supplier as a good customer? Provide specific examples of what a firm
must do to be a good supply chain customer.
To be a good customer means to fullfill the requirements projected in the contract
and to ensure that the supplier is also benefitted in the process.A firm want to be
perceived as a good customer for future contracts with suppliers. If it is known that
a firm is not a good customer they could loose contracts for the future with other
firm and this is not good for the firm economy. To be perceived as a good customer
also can make reduce the switching cost of supplier and long -term relationships
between supplier and firm can be developed.
Examples:
-Fullfill terms signed in the contract. If a firm signed a monthly volume requirement t
hey should continue with the same amount of units until the contract is completed.

-Closely communication with the supplier. If there is any change in the requirements
signed in the contract they should inmediately communicate them to the supplier.
-Atmosphere of trust should be built
-Encouraging to the supplier to improve continuosusly
6.Explain the role of performance measurement in managing supply chain activity.
Firms need to capitalize on Supply Chain capabilities and resources to bring
products and services to the market on time, at the lowest cost and with the best
possible quality. Performance measurement are important to the effectiveness of
Suply chain. Firms can not optimize their operations excluding their suppliers' and
customers' operations. This measures serve as an indicator of how well the Supply
Chain activity is working. Measurement in Supply Chain performa nce can facilitate
to understand the Supply Chain and improve it. Measurement is necessary to
compete in continuously changing enviroment
7.Why can changes within a supply chain disrupt the normal flow of goods and
services within a supply chain?
A supply chain is planned and figured out in one way. This way is how everything
should work properly. As a chain, everything is connected, if a change is made the
following processes in the chain will be changed and by the end goods and services
will be different as they were planned and itwill
beadisruptionofthenormalflowofthem.
8.Why might Avion want to reduce the lead times on its purchased material
components?
They might want to increase their production, reduce their production disruption
and stocks out of inventory and match fluctuations in the demand. It is one of the
most important ways to improve
competitive edge. If a firm want to reduce the lead time might be because their
customer demand it and they have to meet the request on time.
9.Why do firm single-source contracts?
This kind of contracts are useful because they provide firm with alternatives. Firms
may initially select a supplier and then choose a new one due to inadequancies.
These contracts allow firm to move from supplier to supplier if they are not satisfied
with the results. single -source contracts are tipically open to negotiation. Suppliers
need business and they are willing to acommodate firms and modify contracts
terms in order to step ahead of their competition.
10.Develop an action plan for Avion that adresses the issues presented in this case.
Be prepared to fully explain your recommendations.

The main purpose of Avion, Inc firm is to provide the best quality products at the
lowest price as soon as possible. There were a deteriorating performance in the
areas of material quality and on - time delivery. Avion, Inc firm made some mistakes
in the development of its work.
The action plan would be to look for a secondary supplier to fullfill the new orders
that Foster Technologiesarenotabletofullfill.Whiledoingthis,Avion
wouldhelpFosterTechologiesto improve the capacity to fullfill the requirements. This
help would be considered as a sign of trust. If Foster technologies is able to improve
the capacity, Avion would reduce the orders with the secondary supplier. All of this
would be done improving communication between both firms, for example
organising meetings every week at least at the beginning.

The Global Sourcing Wire Harness Decision

1.
Original Wire quote:

Unit price = $30

Packing costs = $.75 per unit
Tooling = $6,000 one time fixed charge
Freight cost = $5.20 per hundred pounds

The per unit cost (based on an annual supply)

Yearly Unit Cost=

(annual demand *( unit cost + packaging cost )) + tooling charge

( 60000 *( 30 + .75 )) + 6000

(60,000 * 30.75+6,000=$1,851,000

Unit Cost = $1,851,000/6,000= 30.85

Yearly Freight Cost =

#units * unit weight * freight cost

60000*10 *.0520 = $31,200

Unit Freight Cost = 31200/60000 = .52

Total Unit Cost = Unit cost + Freight Cost

30.85 + .52 = $31.87

2.
HLA Quote:
Unit price = $19.50
Shipping lead time = 8 weeks
Tooling = $3,000

The per unit cost (based on an annual supply)

Yearly Unit Cost=

(annual demand *( unit cost + packaging cost )) + Tooling charge

(60000 *(19.50 + 0.00)) + 3000 = $1,173,000

Total Unit Cost = 1173000/60000 = $19.55

Monthly Freight Cost = $41,366

Unit Freight Cost = 41,366/5000 = 8.28

Total Unit Cost = Unit cost + Freight Cost

19.55 + 8.28 = $27.83

3.

Sheila should recommend Happy Lucky Assemblies because it has a cheaper per
unit cost than Original Wire.

4.

There is a need to warehouse at least four weeks of inventory in Detroit at a

warehousing cost of $1.00 per cubic ft per month. The costs associated with
committing corporate capital for holding inventory must also be calculated.
Corporate cost of capital rate of 15 %. The cost of hedging currency broker fees =
$ 400 per shipment. Additional administrative time due to international shipping =
4hrs per shipment x $25 hr. Elements such as quality and technology need to be
assessed as well. If one supplier clearly has better quality, than this may affect the
total cost of ownership associated with using a given supplier. If a supplier is also
developing new technology that could result in breakthrough products, they should
be considered for early supplier involvement and become part of a development
team. In this case Original Wire is eager to support the business relationship with an
on-site engineer and the likelihood of joint continuous improvement is likely to
increase. The firm should investigate how involved the supplier will be in working
with them and if they are equipped to operate at the same level, for example
having the same technology processes. There should be further discussions with the
supplier to learn what is happening in certain areas, with opportunities to discuss
joint future research and development streams if required.

5.

International purchasing is much more complex due to so many additional costs

that are incurred from the transportation and storage costs as well as other fees. In
addition to costs, the lead time for the international firm in this case is 8 weeks as
opposed to the local firm who is only 20 miles away. Therefore, Auto-link is able to
carry fewer inventories and receive it much faster. They must then deal with the
currency differences if they outsource it which can be a big hassle due to
fluctuations. Also shipments of the inventory are coming over by ships, which
means uncertainty on lead times and can spell trouble should be short on
inventories. Since there are so many negatives to the positives, it is not worth the
effort of outsourcing.

Purchasing Ethics :Bryan Janz

Scenario 1

1. Bryan should not accept the clock because it may affect his views of the supplier
and persuade him into doing business with them for the wrong reasons. If he
accepts the gift he is getting himself and his company involved in Mr. McEnroes
unethical behavior which will negatively impact his company. The gift could
persuade him into using that supplier even though it might not be the best for the
company. This could hurt Bryans organization, as well as make him look bad.

2. According to the Institute of Supply Management, accepting gifts as a reward for

a decision in favor of the supplier is unethical and could have a negative influence
on the company. It is also the most common form of unethical behavior.
Sometimes it is hard to distinguish if someone is being unethical and using a gift as
a bribe, or if it is just a small way of saying thanks.

3. The supplier sent the clock to his home and addressed it to his wife to avoid the
negative consequences of bribery. It looks more harmless if it addressed to
someone who doesnt work at Bryans company. Sending the clock to his home
address also makes it seem more like a small gesture of gratitude instead of an
incentive to do business.

4. Sending the clock to Bryan was an unethical act. If the gift had been sent to
Bryans company as a favor for doing business with them, it might not be
considered unethical. But the fact that Mr. McEnroe personally sent the clock to win
their business makes it seem like a bribe. I dont think sending a clock on one
occasion makes Mr. McEnroe and unethical person. However, if Bryan were to
accept the clock and Mr. McEnroe continued to send more gifts, I might consider him
a unethical person.

Scenario 2

1. Troy Smyrna of Sealgood Instruments is practicing unethical behavior because he

is trying to get Lisa to engage in reciprocity. This means the only way Troy Smyrna

will partner with Assurance Technologies, is if they only buy from Sealgood
Instruments and use their equipment instead of a competitor. Reciprocity reduces
competition because competing suppliers know that business is not open to new
suppliers and competition because it is locked in by one supplier. It may also lead
the supplier to produce a lesser quality produce because they know they have the
companies business.

2. Lisa should not make a deal with Troy Smyrna because he is acting unethically. It
will be better for her company to just work with another company that doesnt
believe in reciprocity. But if working with Sealgood Instruments is the best option
for her company, she should address the issue with and point out his unethical
behavior in the hopes that he might change his mind.

Scenario 3

1. Ben Gibson is acting legally because he is not committing complete fraud.

However, he is acting unethically because he is using sharp practices. In other
words he is manipulating the situation by requesting low bids from unqualified
buyers for the sake of lowering the price from Southeastern Corrugated.

2. As the Marketing Manager for Southeastern Corrugated, I would address the

situation with Coastal Products and ask if they could request bids from only qualified
buyers. If they dont agree, then I would try to compromise with Costal Products
and come to a new price consensus that makes them happy without being too low.

Scenario 4

1. When it comes to financial conflicts of interest, the Institute of Supply

Management states that it is unethical behavior to award business to a supplier
because the buyer has a direct interest in a supplier. In this case, Dave is acting
unethically because he is telling Sharon to buy from Micron because his brother-inlaw is a part owner there even though the better choice is Apex.

2. In this scenario, there is a possibility for Sharon to be affected by the

organizational environment because her managers as well as other employees have
a strong opinion to offer which may sway her decision. The culture at the workplace
may also affect her opinion because there is dishonestly coming from the manager
and gossip from co-workers. The personal environment had some effect on Sharon
because talking to her manager one on one made her rethink her decision.
However, when she talked to Mark, he had a different opinion which made her
revert to her original decision. Finally the industry environment may affect her
ethical perspective because when you are working with buyers and sellers, some
companies will do whatever it takes to be successful.

3. Sharon should go with her instincts and use the supplier that she feels is the best
for the company. If she listens to Dave and chooses Micron, she is allowing her
manager to act unethically and will ultimately be hurting the company.

Insourcing/OutsoucingThe FlexCon Piston Decision

This case addresses many issues that affect insourcing/outsourcing decisions. A

complex and important topic facing businesses today is whether to produce a
component, assembly, or service internally (insourcing), or whether to purchase
that same component, assembly, or service from an external supplier (outsourcing).

Because of the important relationship between insourcing/outsourcing and

competitiveness, organizations must consider many variables when considering an
insourcing/outsourcing decision. This may include a detailed examination of a firms
competency and costs, along with quality, delivery, technology, responsiveness,
and continuous improvement requirements. Because of the critical nature of many
insourcing/outsourcing decisions, cross-functional teams often assume responsibility
for managing the decision-making process. A single functional group usually does
not have the data, insight, or knowledge required to make effective strategic
insourcing/outsourcing decisions.

FLEX-CON'S INSOURCING/OUTSOURCING OF PISTONS

FlexCon, a $3 billion maker of small industrial engines, is undergoing a major

internal review to decide where the company should focus its product development
efforts and strategic investment. Executive management is arguing that too much
capacity and talent are being committed to producing simple, commodity-type
items that provide small differentiation within the marketplace. FlexCon concluded
that in its attempts to preserve jobs, it has insourced parts that are easy to
manufacture, while outsourcing those that are complex or challenging. Producing
commodity-like components with mature technologies is adding little to what
FlexCon's customers consider important. The company has become increasingly
dependent on suppliers for critical components and subassemblies that make a
major difference in the performance and cost of finished products.

Part of FlexCon's effort at redefining itself involves creating an understanding of

insourcing/outsourcing among managers and employees. The company has
sponsored workshops and presentations to convey executive management's vision
and goals, including educating those who are directly involved in making detailed
insourcing/outsourcing recommendations.

One presentation given by an expert in strategic sourcing focused on the changes in

the marketplace that are encouraging outsourcing. The expert noted six key trends
and changes that influence insourcing/outsourcing decisions:

The pressure for cost reduction is severe and will continue to increase. Cost
reduction pressures are forcing organizations to use their productive resources more
efficiently. A recent study found that over 70% of firms surveyed expect no change
or a decrease in purchased material costs through 2005. As a result, executive
management will increasingly rely on insourcing/outsourcing decisions as a way to
manage costs.

Firms are continuing to become more highly specialized in product and process
technology. Increased specialization implies focused investment in a process or
technology, which contributes to greater cost differentials between firms.

Firms will increasingly focus on what they excel at while outsourcing areas of
non-expertise. Some organizations are formally defining their core competencies to
help guide the insourcing/outsourcing effort. This has affected decisions concerning
what businesses a firm should engage.

The need for responsiveness in the marketplace is increasingly affecting

insourcing/outsourcing decisions. Shorter cycle times, for example, encourage
greater outsourcing with less vertical integration. The time to develop a production
capability or capacity may exceed the window available to enter a new market.

 Wall Street recognizes and rewards firms with higher ROI/ROA. Since insourcing
usually requires an assumption of fixed assets (and increased human capital),
financial pressures are causing managers to closely exam sourcing decisions.
Avoidance of fixed costs and asset is motivating many firms to rely on supplier
assets.

Improved computer simulation tools and forecasting software enable firms to

perform insourcing/outsourcing comparisons with greater precision. These tools
allow the user to perform sensitivity analysis (what-if analysis) that permits
comparison of different sourcing possibilities.

One topic that interested FlexCon managers was a discussion of how core
competencies relate to outsourcing decisions. FlexCon management commonly
accepted that a core competency was something the company "was good at." This
view, however, is not correct. A core competence refers to skills, processes, or
resources that distinguish a company, are hard to duplicate, and make that firm
unique compared to other firms. Core competencies begin to define a firm's long
run, strategic ability to build a dominant set of technologies and/or skills that enable
it to adapt quickly to changing market opportunities. The presenter argued that
three key points relate to the idea of core competence and its relationship to
insourcing/outsourcing decisions:

A firm should concentrate internally on those components, assemblies,

systems, or services that are critical to the finished product and where the firm
possesses a distinctive (i.e., unique) advantage valued by the customer.

Consider outsourcing components, assemblies, systems, or services when

suppliers have an advantage. Supplier advantages may occur because of
economies of scale, process specific investment, higher quality, familiarity with a
technology, or a favorable cost structure.

 Recognize that once a firm outsources an item or service, it usually loses the
ability to bring that production capability or technology in-house without committing
significant investment.

The manager or team responsible for making an insourcing/outsourcing decision

must develop a true sense of what the core competence of the organization is, and
whether the product or service under consideration is an integral part of that core
competence.

The workshops and presentations have given most participants a greater

appreciation of the need to consider factors besides cost when assessing
insourcing/outsourcing opportunities. One break out work session focused
exclusively on developing a list of the key factors that may affect the
insourcing/outsourcing analysis at FlexCon, which appears in Exhibit 1.

Exhibit 1
Key Factors Supporting Insourcing/Outsourcing Decisions

|Factors Support Insourcing:

|
|

|
|Factors Support Outsourcing:

|1. Cost considerations favor the buyer

the supplier
|
|

|1. Cost considerations favor

|2. A need or desire exists to integrate internal plant

research and know-how, which |
|operations
|

|2. Supplier has specialized

|creates differentials in cost and quality

|3. Excess plant capacity is available that can absorb fixed |3. Buying firm lacks the
technical ability to build an item |
|overhead
|

|4. A need exists to exert direct control over production and|4. Buyer has small
volume requirements
|
|quality
|

|5. Product design secrecy is an important issue

constraints while the seller |
|

|does not

|5. Buying firm has capacity

|
|

|6. A lack of reliable suppliers characterizes the supply

add permanent workers
|
|market
|

|7. Firm desires to maintain a stable workforce in a

requirements are uncertainbuyer wants to |
|declining market
|
|

|6. Buyer does not want to

|7. Future volume

|transfer risk to the supplier

|

|8. Item or service is directly part of a firm's core

and available from many
|

|8. Item or service is routine

|competency, or links directly to the strategic plans of the |competitive sources

|
|organization
|

|
|

|
|

|9. Item or technology behind making the item is strategic to|9. Short cycle time
requirements discourage new investment |

|the firm. The item adds to the qualities customers consider|by the buyerusing
existing supplier assets is logical
|
|important.
|

|10. Union or other restrictions discourage or even prohibit |10. Adding capacity at
the buyer requires high capital
|
|outsourcing
|
|

|start-up costs
|

|11. Outsourcing may create or encourage a new competitor

technology is mature with minimal likelihood of |
|
the purchaser |

|
|11. Process

|providing a future competitive advantage to

THE PISTON INSOURCING/OUTSOURCING DECISION

FlexCon is considering outsourcing production of all pistons that are part of the
company's "R" series of engines. FlexCon has machined various versions of these
pistons as long as anyone at the company can remember. In fact, the company
started fifty years ago as a producer of high quality pistons. The company grew as
customers requested that FlexCon produce a broader line of products. This
outsourcing analysis has generated a great deal of interest and emotion among
FlexCon engineers, managers, and employees.

FlexCon produces pistons in three separate work cells, which differ according to the
type of piston produced. Each cell has six numerically controlled machines in a Ushape layout, with a supervisor, a process engineer, a material handler, and 12
employees assigned across the three cells. Employees, who are cross-trained to
perform each job within their cell, work in teams of four. FlexCon experienced a
30% gain in quality and a 20% gain in productivity after shifting from a process
layout, where equipment is grouped by similar capabilities, to work cells, where
equipment is grouped to support a specific family of products. If FlexCon decides to

outsource the pistons, the company will likely dedicate the floor space currently
occupied by the work cells to a new product or expansion of an existing product.
FlexCon will apply the work cell equipment for other applications, so the outsourcing
analysis will not consider equipment write-offs beyond normal depreciation.

While different opinions exist regarding outsourcing the pistons, FlexCon engineers
agreed that the process technology used to produce this family of components is
mature. Gaining future competitive advantages from new technology was probably
not as great as other process applications within FlexCon's production process. This
did not mean, however, that FlexCon could avoid making new investments in
process technology if the pistons remained in-house, or that some level of process
innovation is not possible.

Differences over outsourcing a component that is critical to the performance of

FlexCon's final product threatens to affect the insourcing/outsourcing decision. One
engineer threatened to quit if FlexCon outsourced a component that could "bring
down" the entire engine in case of quality failure. He also maintained, "our pistons
are known in the industry as first-rate." Another engineer suggested that FlexCon's
supply management group, if given support from the engineers, could adequately
manage any risk of poor supplier quality. However, a third engineer noted,
"opportunistic suppliers will exploit FlexCon if given the chancewe've seen it
before!" This engineer warned the group about suppliers "buying-in" to the piston
business only to coercively raise prices. Several experienced engineers voiced the
opinion that they could not imagine FlexCon outsourcing a component that was
responsible for making FlexCon the company it is today. Several newer members of
the engineering group suggested they should wait until the outsourcing cost
analysis was complete before rendering final judgment.

Management has created a cross-functional team composed of a process engineer,

a cost analyst, a quality engineer, a procurement specialist, a supervisor, and a
machine cell employee to conduct the outsourcing analysis. A major issue
confronting this team involves determining which internal costs to apply to the
analysis. Including total variable costs is straightforward because these costs are
readily identifiable and vary directly with production levels. Examples of variable
costs include materials, direct labor, and transportation.

The team is struggling with whether (or at what level) to include total factory and
administrative costs (i.e., fixed costs and the fixed portion of semi-variable costs).

Factory and administrative costs include utilities, indirect labor, process engineering
support, depreciation, corporate office administration, maintenance, and product
design charges. Proper allocation of overhead is a difficult, and sometimes
subjective, task. The assumptions the team makes about how to allocate total
factory and operating costs can dramatically alter the results of the analysis.

The aggregated volume for pistons over the next several years is critical to this
analysis. Exhibit 2 provides a monthly forecast of expected piston volumes over the
next two years. Total forecasted volume is 300,000 units in Year One and 345,000
units in Year Two. The team arrived at the forecast by determining the forecast for
FlexCon "R" series engines, which is an independent demand item. Pistons are a
dependent demand item (i.e., dependent on the demand for the final product).

Exhibit 2
Aggregated Two Year Piston Demand

|
|

|Year One Expected Demand

|January
|

|
|

|34,000
|

|30,000
|

|Year Two Expected Demand

|34,000

|30,000

|March

|
|30,000

|February
|

|
|

|34,000
|

|
|

|April
|

|27,000
|

|May
|

|
|Total

|27,000

|21,000

|
|

|25,000
|

|300,000

|
|

|27,000

|23,000

|December

|25,000

|23,000

|November

|25,000

|22,000

|October

|27,000

|21,000

|September

|28,000

|23,000

|August

|28,000

|25,000

|July
|

|
|25,000

|June
|

|31,000

|
|

|345,000

Although this is a long-term decision likely to extend beyond ten years, the team
has confidence in its projections (including supplier pricing) only through two years.
While maintaining piston production internally would require some level of process
investment in years three through ten, the team believes any projections past year
two contain too much uncertainty. (Conducting a net present value for expected
savings from outsourcing, if they exist, is beyond the scope of this assignment).

Insourcing Costs

The team has decided that a comprehensive total cost analysis should include all
direct and indirect costs incurred to support piston production. FlexCon tracks its
materials and labor by completing production worksheets for each job. The team
collected data for the previous year, which revealed the three work cells produced
288,369 pistons.

Direct Materials FlexCon machines the pistons from a semi-finished steel alloy
purchased directly from a steel foundry. The foundry ships the alloy to FlexCon in
50 lb. blocks, which cost $195 per block. Each piston requires, on average, 1.1 lbs.
of semi-finished raw material for each finished piston. This figure includes scrap
and waste.

The team expects the semi-finished raw material price to remain constant over the
next two-years. Although FlexCon expects greater piston volumes in Years One and
Two compared with current demand, the team does not believe additional material
economies are available.

FlexCon spent $225,000 last year on other miscellaneous direct materials required
to produce the pistons. The team expects to use this figure as a basis for
calculating expected Year One and Two costs for miscellaneous direct material
requirements.

Direct Work Cell Labor The direct labor in the three work cells worked a total of
27,000 hours last year. Total payroll for direct labor was $472,500, which includes
overtime pay. The average per hour direct labor rate is $17.50 per hour
($472,500/27,000 total hours = $17.50 per hour). As a rule of thumb, the team
expects to add 40% to direct labor costs to account for benefits (health, dental,
pension, etc.). The team also expects direct labor rates to increase 3% a year for
the next two years. The team does not expect per hour production rates to change
significantly. The process is well established, and FlexCon has already captured any
learning curve benefits.

Work cell employees are responsible for machine set-up, so the team decided not to
include machine set-up as a separate cost category.

Indirect Work Cell Labor FlexCon assigns a supervisor, material handler, and
engineer full-time to the three work cells. Last year, the supervisor earned $52,000,
the material handler earned $37,000, and the engineer earned $63,000 in salary.
Again, the team expects to apply an additional 40% to these figures to reflect fringe
benefits. The team expects these salaries to increase 3% each year.

Factory Overhead and Administrative Costs This category of costs is, without doubt,
the most difficult category of cost to allocate. For example, should the team prorate
part of the plant manager's salary to the piston work cells? One team member
argued that these costs are present with or without piston production, and therefore
should not be part of the insourcing calculation. Another member maintained that
factory overhead supports the factory, and the three work cells are a major part of
the factory. Not including these costs would distort the insourcing calculation. She
noted that the supplier is most assuredly considering these costs when quoting the
piston contract. Another member suggested performing two analyses of insourcing
costs. One would include factory overhead and administrative costs, and the other
would exclude these costs.

The team divided the factory into six "zones" based on the function's performed
throughout the plant. The piston work cells account for 25% of the factory's floor
space, 28% of total direct labor hours, and 23% of plant volume. From this analysis,
the team has decided to allocate 25% of the factory's overhead and administrative
costs to the piston work cells for the analysis that includes these costs. Exhibit 3
presents relevant cost data for the previous year. The team expects these costs to
increase 3% each year.

Exhibit 3
Total Factory Overhead and Administrative Costs

|Previous Year Expense/Cost

|Cost Category

|Administrative staff
|

|$1,200,000
|

|Staff engineering
|

|Total

|
|

|$1,500,000
|

|
|

|$500,000
|

|Plant Maintenance
|

|$120,000

|Insurance
|

|Utilities
|

|$900,000

|Taxes
|

|
|

|$800,000
|

|
|

|$5,020,000

Preventive Maintenance Costs FlexCon spent $40,250 on preventive maintenance

activities on the 18 machines in the three cells last year, and expects this to
increase by 10% in each of the next two years (due to the increasing age of the
equipment).

Machine Repair Costs An examination of maintenance work orders reveals that the
18 work cell machines, which are each 5-7 years old, required total unplanned
repair expenses of $37,000 last year. The maintenance supervisor expects this
figure to increase by 8% in Year One and 12% in year Two of the analysis due to
increasing age and volumes.

Ordering Costs Although FlexCon produces pistons in-house, the company still
incurs ordering costs for direct materials. The team estimates that each monthly
order to the foundry and other suppliers costs FlexCon $1,500 in direct and
transaction-related costs.

Semi-Finished Raw Material Inventory Carrying Costs FlexCon typically maintains

one month of semi-finished raw material inventory in inventory as safety and buffer
stock. The carrying charge assigned to this inventory is 18% annually.

Inbound Transportation FlexCon receives a monthly shipment of semi-finished alloy

that the work cells use to machine the pistons. Total transportation costs for the
previous year amounted to $31,500 (which resulted in 288,369 pistons produced).

The team expects transportation charges for other direct materials used in
production to be $0.01 per unit in Years One and Two of the analysis.

Consumable Tooling Costs The machines in the work cell are notorious for "going
through tooling." Given the consumable tooling costs realized during the previous
year, the team estimates additional tooling expenses of $56,000 in Year One, and
$65,000 in Year Two.

Depreciation The team has decided to include in its cost calculation normal
depreciation expenses for the 18 work cell machines. The depreciation expense for
the equipment is $150,000 per year.

Finished Piston Carrying Costs Because FlexCon coordinates the production of

pistons with the production of "R" series engines, any inventory carrying charges for
finished pistons are part of the cost of the finished engine and are not considered
relevant to this calculation.

Opportunity Costs The team recognizes that opportunities may exist for achieving a
better return on the space and equipment committed to piston production.
Unfortunately, the team does not know with any certainty what management's
plans may be for the floor space or equipment if FlexCon outsources piston

production. The team is confident, however, that management will find a use for
the space. If the facility no longer engages in piston production, then FlexCon must
allocate fixed factory and overhead costs across a lower base of production. This will
increase the average costs of the remaining items produced in the plant, possibly
making them uncompetitive compared with external suppliers.

Outsourcing Costs

The following provides relevant information collected by the team as it relates to

outsourcing the family of pistons to an external supplier. While it is beyond the
scope of this case, the team has already performed a rigorous assessment of the
supply market, and has reached consensus on the external supplier in the event the
team recommends outsourcing. This was necessary to obtain reliable outsourcing
cost data.

Unit Price The most obvious cost in an outsourcing analysis is the unit price quoted
by the supplier. In many respects, outsourcing is an exercise in supplier evaluation
and selection. Insourcing/outsourcing requires the evaluation of several suppliers in
depththe internal supplier (FlexCon) and external suppliers (in the marketplace).
The supplier that the team favors if FlexCon outsources the pistons quoted an
average unit price of $12.20 per piston (recall that this outsourcing decision
involves different piston part numbers). The team believes that negotiation will
occur if FlexCon elects to outsource, perhaps resulting in a lower quoted price.
Since the team does not yet know the final negotiated price, some members argued
that several outsourcing analyses are required to reflect different possible unit
prices. Quoted terms are 2/10, net 30. The supplier says it will maintain the
negotiated price over the next two years.

Safety Stock Requirements If the team decides to outsource, FlexCon will hold
physical stock from the supplier equivalent to one months average demand. This
results in an inventory carrying charge, which the team must calculate and include
in the total cost analysis. While FlexCon likely will rely on or draw down safety stock
levels during the next two years, for purposes of costing the inventory the team has
decided not to estimate when this might occur. Inventory carrying charges include
working capital committed to financing the inventory, plus charges for material
handling, warehousing, insurance and taxes, and risk of obsolescence and damage.
FlexCon's inventory carrying charge is 18% annually.

Administrative Support Costs FlexCon expects to commit the equivalent of onethird of a buyer's total time to supporting the commercial issues related to the
outsourced family of pistons. The team estimates the buyer's salary at $54,000,
with 40% for fringe benefits. The team expects the buyer's compensation to
increase by 3% each year.

Ordering Costs The team expects that FlexCon will order monthly, or twelve
material releases a year. Unfortunately, suppliers in this industry have not been
responsive to shipping on a just-in-time basis or using electronic data interchange.
While FlexCon would like to pursue a JIT purchasing model, the team feels that
assuming lower volume shipments on a frequently scheduled basis is not
appropriate. The company expects the supplier to deliver one-month of inventory
at the beginning of each month. The team estimates the cost to release and
receive an order to be $1,500 per order.

Quality-Related Costs The team has decided to include quality-related costs in its
outsourcing calculations. During the investigation of the supplier, a team member
collected data on the process that would likely produce FlexCon's pistons. The team
estimates that the supplier's defect level, based on process measurement data, will
be 1,500 ppm. FlexCon's quality assurance department estimates that each
supplier defect will cost the company an average of $250 in nonconformance costs.

Inventory Carrying Charges FlexCon must assume inventory carrying charges for
pistons received at the start of each month and then consumed at a steady rate
during the month. For purposes of calculating inventory-carrying costs for finished
pistons provided by the supplier, the team expects to use the average inventory
method. The formula for determining the average number of units in inventory
each month is:

((Beginning Inventory at the Start of Each Month + Ending Inventory at the End
of Each Month)/2) x Carrying Cost per Month

For calculation purposes, the team assumes that ending inventory each month is
zero units (excluding safety stock, which requires a separate calculation). The team
expects production to use all the pistons received at the beginning of each month.

The carrying charge applied to inventory on an annual basis is 14% of the unit value
of the inventory.[1] Appendix 1 and 2 will help in the calculation of monthly
carrying charges associated with holding supplier-provided piston inventory.

Transportation Charges While it is FlexCon's policy to have suppliers ship goods

F.O.B. shipping point, the company does not accept title or ownership of goods until
receipt at the buyer's dock. However, the company assumes all transportationrelated charges. The team estimates that transportation charges for pistons will
average $2,100 per truckload, with 14 truckloads expected in Year One and 16
truckloads expected in Year Two. The outsourcing supplier is in the U.S., which
means the team does not have to consider additional costs related to international
purchasing.

Tooling Charges The supplier said that new tooling charges to satisfy FlexCon's
production requirements would be $300,000. The team has decided to depreciate
tooling charges over two years, or $150,000 per year.

Supplier Capacity The team has concluded the supplier has available capacity to
satisfy FlexCon's total piston requirements.

Appendix 3 provides a worksheet to help in the insourcing/outsourcing cost analysis.

CASE DISCUSSION

1. Perform a quantitative insourcing/outsourcing analysis using the data provided.

What qualitative issues might affect your final decision? Identify any costs or issues
that are not part of your analysis that might affect your decision. What is your
recommendation regarding what FlexCon should do with its family of pistons?
Support your arguments with evidence gathered during your analysis.

When considering the insource/outsource decision, for the insourcing cost

analysis, the opportunity cost for achieving a better return on the space and
equipment committed to piston production should be added to the total cost, that
would not be a tiny amount, on the other hand, that would be the key element to
decide whether to insource or outsource.
Besides, for the outsource decision, the potential cost of the failure quality of
the piston
outsourced, and because this part is that could bring down the whole
engine, which means the bring down cost could be a huge, maybe cause the
collapse of the entire business.

2. Assume your group decided to outsource the pistons to the external supplier.
Identify a plan that would enable FlexCon to carry out this recommendation. Be as
thorough as possible.

1) The first step in the strategic sourcing plan is reviewing the vision for the
facility management enterprise. Many outsourcing ventures have failed because of
insufficient attention upfront to where the facility management organization is
headed and what it wants to accomplish through outsourcing. The direction of the
facility management enterprise needs to be analyzed in relation to the overall
corporate vision to make certain facility management goals and objectives are in
sync with those of the organization.
2) Develop a broad-based advisory committee who can provide the facility
organization with invaluable expertise for developing the request for proposal and
evaluating proposals from outsource providers. After all, expertise within the
company can lend valuable assistance in developing the scope of work for
outsourcing, establishing criteria for evaluating outsourcing providers, identifying
key success factors and communicating back to customer organizations about
changes in service delivery,
3) The next step is to find prospective outsourcing providers. Locating potential
outsourcing providers that strike the proper balance between technology
capabilities and cultural fit with the organization. To gather the information, both the
facility staff and others on the advisory committee should attend conferences to
acquire information on companies providing the desired outsource services.
4) Once an outsourcing provider is selected, the facility organization must take
steps to create the right relationship, one based on a blend of accountability mixed
with a true sense of partnership from the beginning. If necessary, the organization
should provide technological and managerial support to the suppliers

3. Discuss the primary reasons when and why insourcing/outsourcing decisions

occur.

When the company wants to expand the existing product or the cost of
manufacturing internally becomes higher for this industry, for example, the material
or labor cost becoming higher, the company will consider the insourcing/outsourcing
decisions.
Besides, another situation will also trigger the desire to conduct this decisions,
that is the future demand is uncertainty, so the buyer intend to transfer the risk to
supplier.

4. A major challenge with an insourcing/outsourcing analysis involves gathering

reliable data. Discuss the various groups that should be involved when conducting
an insourcing/outsourcing analysis such as the one presented in this case. What
information can each of these groups provide?

The process engineer would provide the information about the manufacturing
process to analysis the related cost during the cost.
The profession from the procurement specialist would provide the information
about the procurement cost when insource and outsource.
The quality profession would provide the information about how to assure the
quality during the manufacturing comparing the insource and outsource.
The supervisor would provide the information about an overview about the whole
process regarding to the overhead expenses or administration expenses.
The machine cell employee will provide the detail about how the process works
and related problem that would make up for the detail issues that the supervisor
doesnt notice.
The cost analyst will analysis the cost related to the whole process provided by
the supervisor, engineer and workers.

5. Discuss the major issues associated with an insourcing/outsourcing analysis and

decision.

Firstly the outsource process is related to the core competency of the company or
not, not every process could be outsourced even that cost a lot to produce
internally, but thats what makes the company be competitive.

Secondly the total cost comparing each decision, not just the manufacturing cost,
the material cost, but more importantly the hidden cost , like the opportunity cost,
the potential quality failure cost.

Thirdly, considering the opinion from the employees who really put their hands on
this process, because thats where the real feedback comes from, by which will
uncover some tiny but critical issues regarding to outsource decisions.

Fourthly, the internally and externally information should also be considered

thoroughly. For internally, the strategy of the company and the SWOT analysis will
make this decision more clear, unclosing some future considerations. For externally,
the information regarding to the industry development, the market research, in
addition, the suppliers strategy and development also needed to be included.

Appendix 1
Year One Inventory Carrying Charges
Outsourcing Option

|
Inventory

|Beginning Inventory
|Inventory Carrying Costs|

|
|January
9,009

|15,000
|

|0

|$
|

|15,000

|
|27,000

|
|$

|
|0

|
|13,500

|
|$

|
|

|
|25,000

|
|0

|
|12,500

|
|$

|
|

|
|25,000

|
|0

|
|12,500

|
|$

|
|

|
|23,000

|
|0

|
|11,500

|
|$

|
|

|
|21,000

|
|0

|
|10,500

|
|$

|
|September
6,606.6

|$

|
|August
6,306.3

|
|0

|30,000

|
|July
6,906.9

|15,000

|
|June
7,507.5

|0

|
|May
7,507.5

|30,000

|
|April
8,108.1

|Average

|
|March
9,009

|
|30,000

|
|February
9,009

|Ending Inventory

|
|22,000

|
|0

|
|11,000

|
|$

|
|

|October
6,906.9

|23,000
|

|$

|23,000

|0

|11,500

|$

|December
6,306.3

|11,500

|
|November
6,906.9

|0

|21,000

|0

|10,500

|$

|
$90,090

|
|

|Total Inventory Carrying|

|
|

|Costs

Appendix 2
Year Two Inventory Carrying Charges
Outsourcing Option

|
|
Inventory
|
|January
10,210.2
|
|February
10,210.2
|

|Beginning Inventory
|Inventory Carrying Costs|
|

|
|Ending Inventory

|
|34,000

|
|Average

|
|0

|
|17,000

|
|$

|
|

|
|34,000

|
|0

|
|17,000

|
|$

|
|

|March
10,210.2

|34,000
|

|$
|

|14,000

|
|0

|
|$

|
|14,000

|
|27,000

|
|$

|
|0

|
|13,500

|
|$

|
|

|
|25,000

|
|0

|
|12,500

|
|$

|
|

|
|25,000

|
|0

|
|12,500

|
|$

|
|

|
|27,000

|
|0

|
|13,500

|
|$

|
|

|
|27,000

|
|0

|
|13,500

|
|$

|
|December
7,507.5

|
|November
8,108.1

|
|0

|28,000

|
|October
8,108.1

|15,500

|
|September
7,507.5

|
|August
7,507.5

|
|0

|28,000

|
|July
8,108.1

|$

|
|June
8,408.4

|
|31,000

|
|May
8,408.4

|17,000

|
|April
9,309.3

|0

|
|25,000

|
|0

|
|12,500

|
|$

|
|

|
103,603.5

|
|

|Total Inventory Carrying|$

|
|

|Costs

Appendix 3
Insourcing/Outsourcing Cost Factors Worksheet

|
|

|Insourcing
|

|
|Year Two

|Year One
|

|
|

|Direct Labor
$29,400
|
|

|
|$1,480,275

|Purchase Cost

|
|$701,785.4

|
|

|
|

|Transportation

|
|

|$681,345
|$ 33,600

|Year One
|

|
|

|$1,287,225
|$4,209,000

|Other
|

|Outsourcing

|Year Two

|Semi-Finished
$3,660,000

|Direct Materials
|

|
|

|Indirect Labor
$150,000
|
|

|$219,184
|$150,000
|

|$226,759.5

|
|

|
|

|$1,292,650
|$80,204
|

|$1,331,439.5
|

|
|
|Ordering
$375,000
|
|

|
|

|Depreciation
$18,000

|$18,000
|

|$150,000
|$18,000
|

|Inventory Carrying
|
|
|
|

|
|$4,475.5

|$18,000
|$375,000

|
|$150,000

|
|Inventory Carrying

|Safety Stock
|

|
|

|Quality-Related Costs |
|

|Ordering

|$231,660

|$266,409

|Inbound Transportation |$36,000

|$4,400,358
|$4,996,407.5

|$3,996

|$44,275

|Machine Repair
|
|

|Administrative Support |

|Preventive Maintenance |$44,275

|$90,090
|$103,603.5
|
|

|Factory Overhead and |

|
|
|Administrative
$77,868

|New Tooling

|
|$41,400
|

|
|Other Costs

|
|

|Total Outsourcing

|
|

|Consumable Tooling
|$56,000
$-380,023
|$-666,588.6
|
|

|$65,000

|
|$ 266,635.4

|
|

|(40%)

|
|

|Less: Taxes on Savings |

|
-933,224

|$4,020,335
|

|Total Savings (1)

|

|
|

|Total Insource
Savings|

|Other Costs
$152,009.2

|$4,329,818.9

|
|

|
|

|Net Outsourcing

|
|

|$-532,032.2

|$

(1)
Total Savings = (Total Insourcing Costs - Total Outsourcing Costs) x
(Total Volume). Note: The total savings could be negative if the analysis shows that
outsourcing costs are greater that insourcing costs.

Supplier Quality Management in a Flat World : Integrated Devices

A multibillion dollar global consumer electronics brand and medical devices company

While the Company is seen as a premium brand in consumer electronics and appliances, its products for diagnostic imaging, patient monitoring and cardiac care are equally
recognized in the medical and health service industry.
Just like any other large-scale manufacturer of industrial-grade machinery with complex mechanical, electrical and electronics design, the Company has a global supply base
comprising of over hundreds of suppliers for thousands of parts and components on its bills of materials. Monitoring and managing supplier quality is as critical for it as is its
internal quality processes because each stage in the entire supply and manufacturing chain has to conform to a common set of standards to ensure reliability of the endproducts. Moreover, as medical devices is a regulated industry, the Company has to meet compliance obligations and reporting requirements such as Current Good
Manufacturing Practices (cGMPs), device safety standards, marketing laws, industry mandates (like ISO 13485) and country specific guidelines such as the US FDA 21 CFR
Part 11 and Part 820 (Quality System Regulation). As a result, the Company has the onus of managing liabilities and mitigating risks arising from its own operations as well as
from its large supplier ecosystem.

Challenge

The Company introduced an initiative to create an online communication platform and single interface for its supplier management. A critical part of making this project
successful was providing integrated functionality for supplier quality management, particularly the Supplier Corrective Action Request (SCAR) process the cornerstone of a
closed-loop quality management program.

The SCAR program, accepted at a high level, had standardized information collection and flows based upon the industry standard 8D methodology to analyze, resolve and
prevent quality issues. However, the implementations were different across locations and businesses and hence the process was inefficient and not fully traceable. The data
was collected, stored and handled in many different ways by different groups. Some parts of the process were paper-based, requiring hardcopies of records to be signed and
stored in document vaults. Others used local systems developed on legacy and proprietary technologies or standalone client-server applications. In all cases SCAR data was
emailed (as attachments), faxed or mailed between the Company and suppliers and entered into various systems manually, by the employees.

The Company wanted to harmonize and consolidate all supplier facing processes and systems to decrease cost and to increase efficiency and speed. To fully realize this
vision, the Company was looking for a solution that could extend this platform for supplier quality management
centered on the SCAR process.
Why MetricStream was Selected
While laying out the criteria for selecting the right solution, the Company identified key challenges that had to be
overcome for the success of the project and many were unique to its business setup and environment. Moving

Complete visibility into suppliers' quality processes

from various heterogeneous backend systems to a common enterprise-wide data model for all its internal business

for driving continuous improvement

and suppliers, supporting the complex organizational hierarchy and providing secure web-based access for internal
and external users, integrating with existing SAP ERP, QN and BW systems and providing quality metrics for
measuring supplier performance were some of the critical success factors.

Powerful supplier scorecards and reporting for

monitoring quality metrics and supplier performance

Transparent environment for suppliers and

manufactures to collaborate and coordinate in realSolution

time

By implementing the MetricStream solution, the Company has achieved tremendous efficiencies and complete
traceability in its supplier quality management process, across it businesses and supplier base. MetricStream was
selected after an extensive evaluation of various offerings in the market. Primary factors that led to MetricStream
selection were its feature rich solution with embedded best practices being employed by the Customer,

Web-based architecture with an intuitive and easyto-use user interface

MetricStreams expertise and experience in implementing applications for regulatory compliance (particularly in the
life sciences industry) and its robust Enterprise Compliance Platform (ECP) that provides the configurability and

Flexibility to meet specific requirements and to adapt

extensibility essential for the long term success in complex IT environments typical of larger corporations.

to changing business processes

SCARs can be initiated directly in the system based on supplier quality issues identified during receiving and

Standards-based integration with external systems

incoming inspection of parts or based on issues logged at the production line via the SAP QN (Quality Notification)

and enterprise applications

application. Though its integration with SAP, MetricStream allows users to search for issues in the QN application
(QNs) and initiate a SCAR for one or more QNs. The real-time integration transmits all the relevant data from SAP to
MetricStream for QNs for which SCARs are triggered, eliminating duplicate data entry and ensuring information integrity.

The flexibility of the system is leveraged in many ways, for example, the solution supports workflows for Information Only type SCARs to make supplier aware of failures for
trending purposes and internal investigation as well as Analysis Required type SCARs that require the supplier to respond to the Company with a detailed root cause analysis
and corrective and preventive action plan.

The SCAR record includes detailed and standardized information fields such as SCAR type, part number and details, serial and traceability numbers, quantities received failed
and returned and RMA number. The solution also supports calculation of Cost of Poor Quality based on direct and indirect costs such as defective PPM metrics and time and
capacity loss data used by the Company for supplier performance monitoring and negotiations.

The SCAR solution supports information flow and data gathering based on the industry standard8D Problem Solving Methodology. The initial stages allow the SCAR owner to
record problem symptoms, emergency responses, team members, problem descriptions and containment strategies to be adopted. After an internal review, the SCAR is
assigned to the supplier for documenting the subsequent steps for the root cause analysis, permanent corrective action plan and implementation, preventive action plan and
implementation. The supplier response is routed back to the SCAR owner review and closure after specifying if an audit or a follow-up activity is needed to ensure the
effectiveness of the SCAR. At each stage of the workflow, users can add comments and upload supporting information such as images and reference documents as
attachments that become a part of the SCAR record.

While the Company has over 1,500 suppliers, the distribution follows the Pareto principle with a minority of suppliers accounting for a majority of business interactions. To this
set of core suppliers, the Company wanted to provide direct web-based access to the MetricStream system for managing SCARs. But for many suppliers, the limited SCARrelated interactions did not justify providing them with access to the system. MetricStream provided an innovative approach to support both these categories of suppliers.
Suppliers who have access to the application get SCAR assignments that they can respond to by directly logging into the web-based system. For the remaining suppliers,
SCAR assignments are sent as emails with an MS Excel spreadsheet template that contains the SCAR information. Following the instructions provided, suppliers can enter their
responses in the spreadsheet itself and email it back to the SCAR owner. This spreadsheet is uploaded directly into the MetricStream solution and the data entered by the
supplier is parsed and stored as a standard SCAR record. This has enabled the Company to follow a common data model, ensuring consistent business practices for SCARs
across its supplier base while avoiding any error prone and inefficient manual data entry.

The MetricStream solution maps the Companys 6-level organization hierarchy covering corporate as well as all the divisions, business groups, business lines and locations. For
these organizational entities, roles are defined for carrying out various activities and responsibilities. Employees are mapped to appropriate roles in the system enabling flexible
user administration with easy management of access rights and privileges. The system front-end is linked with the supplier portal (built on SAP Enterprise Portal technology)
from where users can directly access the MetricStream solution through single sign-on based on shared authentication of credentials.

Beyond the efficiencies gained by streamlining the SCAR process, the Company has greatly benefited by the access to data and metrics provided by MetricStream powerful
reporting and search capability. Users can easily find and track SCARs using flexible search criteria such as date range, owner and status. The system provides comprehensive
metrics for measuring supplier performance based on PPM data, Cost of Poor Quality and SCAR results. Users have easy access to scorecards and dashboards that present
data analytics such as SCARs per supplier per business unit per year/month/week and SCAR cycle times.

Designed to support over 2,000 users globally, the MetricStream supplier quality management solution handles 12,000 SCARs across 1,500 suppliers of the Customer.

Benefits

Complete Tracebility: Achieved tremendous efficiencies and complete traceability in its supplier quality management process across it businesses and supplier base.

Improved Throughput Time: Improved average CAPA throughput time significantly by reducing process waiting time, ensuring immediate communication and setting clear
priorities.

Cost Savings: Realized significant savings from elimination of redundant paper archiving and through productivity gains in activities such as information routing, trending and
data analysis and data entry.

----------------------[1]
The 14% figure is less than the 18% figure applied to safety stock
carrying charges. The supplier does not receive payment until at least four weeks
after FlexCon receives the pistons. This makes FlexCon's working capital committed
to financing production inventory somewhat less than the capital committed to
financing safety stock.