Thomas Manufacturing Company

A Case Study on Supply Chain Management

Outline
Background Information Problem Statement

Analysis of Facts
Alternative Courses of Action Conclusions and Recommendations Summary

Review of Background 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 Statement
What supply chain strategy should Thomas Manufacturing pursue to remain competitive despite the threat of increasing costs?

Battle
Purchasers
Mr. Older
increase inventory levels

of the

Tim Younger
lower stock re-order levels and reduce inventory

maintain good relations with current suppliers explore lower-cost suppliers and disregard public relations

Battle
Purchasers
Increase number of requests for bids make aggressive negotiations and fewer concessions

of the

maximize discounts
purchase to current requirements rather than to market conditions standardize parts place blanket purchase orders

Analysis of Facts

Competitive Priorities
1. Cost importance 2. Quality importance

3. Delivery Time Schedule

4. Flexibility Importance

Competitive Priorities
1. 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 costefficient

Competitive Priorities
2. Quality importance implied as firms 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 Priorities
4. Flexibility Importance firm shows flexibility in openness to changing supply chain strategy to maintain value delivered to customers and remain competitive

Tims 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

Alternative Courses of Action

ACA 1 Maintain current system and implement Mr. Olders recommendations

maintain good relations with few current suppliers increase inventory levels

Advantages
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

Disadvantages
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 firms trade secrets high inventory costs

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

Advantages
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

Disadvantages
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

Conclusion and Recommendations

Conclusion
Thomas competitive strategy is differentiation, not cost leadership Reduce cost without completely redesigning supply chain ACA 1 is the more attractive solution

Consider Tim Youngers other inputs

Recommendations for Vendor Relations

Long-term relationship with suppliers is firms 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 Inventory Management

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

Summary

Summary
A firms supply chain strategy must always be aligned with the operations strategy

It should support the firms competitive priorities and provide value to the product.

Thank you!