The General Manager of Image Office Furniture has reviewed your purchasing team’s requisition to buy several key materials and components from a list of potential suppliers recommended earlier (see Problem 1). Your team also recommended a preferred supplier for each item to be purchased. However, your General Manager wants your decision to be clarified further before your recommendations are approved by the President (her father) and before Purchase Orders are prepared.
The President started Image Office Furniture in 1959 and “tight control” of every aspect of the company has always been important to him. He is a very demanding, strict and is an “old style” leader who started his business in an era when a company did almost everything in house and only used suppliers when it was absolutely necessary. The competitive pressures, especially from lower cost suppliers in China and India, as well as improvements in manufacturing technologies over the years, has forced many firms to be extremely efficient, as well as focus on what they do best over what they can’t perform as well as other firms. During a strategic review in 1990, Image Office aligned its core competencies more closely with its strategic objectives and chose to focus on its fabrication capabilities. For Image this meant, cutting, bending, stamping, drilling and welding of steel – the core components of their office furniture – as well as the “finishing” aspects of their product including, fine wood working, painting, anodizing, sub-assembly and packaging for delivery. The company has invested over $1 million dollars in the past two decades to make these processes “world class”. Once the President accepted these competencies, he has applied them rigorously. However, due to increasing competitive pressures, he now even questions whether other aspects of what they do can be outsourced.
Consequently, with respect to the items that your team was to purchase from outside suppliers in Problem 1, the President is now questioning two aspects of the earlier decisions: 1. whether the whole desk top should be made and finished by an outside firm and supplied to image ready to install, rather than purchasing the raw plywood and finishing it in-house.
2. If the raw steel (in 20′ lengths) should be supplied to Image cut to the company’s required lengths.
The General Manager on the other hand is concerned about the possibility of outsourcing these items. First, based upon an initial analysis of the difference in cost for producing the components in-house was $5.00 for each desk- top and .05/ piece for the cut steel. The GM feels that Image should maintain control of these items to adhere to its strict quality requirements and look for efficiencies in these in-house processes to reduce the cost gap. The President’s argument, based strictly on cost, is that the cost gap is too great to overcome, especially for the desk- top.
For the moment you are to assume that the cost analysis is correct. Your team must therefore produce the following brief report for the General Manager and the President that includes:
question: Since the President and the GM may decide to purchase these components from an outside source (based upon your review) create a list of the important specifications that must be met by a possible supplier. Therefore, if the decision is to purchase these items from an outside supplier your company will be able to accept the component as “finished”, in compliance with your quality standards and ready to be attached to a completed desk.