Case Jhundu
Case 20-1 Spartan Heat Exchangers Inc. Aaron Nelson
Summary
Spartan, who was a leading designer and manufacturer of specialized industrial heat transfer equipment earns sales revenues of $25M. The company has prided themselves on creating a Make-to-Order system that allows customers the option of customizing their orders to their needs. Customization is what gives Spartan the competitive edge over their competitors. Meanwhile, however, countries like Korea and Europe are currently changing industry standards. Korean firms have a low cost base and compete primarily on low cost. European firms have begun to focus on standardizing their product lines to a few high-volume products and compete on delivery lead times and price. Rick Coyne, Materials manager for Spartan, is faced with a proposal of “renewing” Spartans business strategy. Spartan would like to reduce customer lead times for finished products from 14 weeks to six weeks. Second, Spartan would like to move from an inventory turnover rate of 4/year to 20/year. Third, Spartan would like to include some form of standardization in hopes of lowering costs for purchased goods.
Quantitative Analysis
Inventory Turnover (Purchasing $14M of inventory/year or 56% of revenues)
- (Spartan) 4 turns/year: Holding costs of $875,000/year. (3.5M * 25% inventory carry costs)
- (Competitors) 20 turns/year: Holding costs of $700,000/year (2.8M * 25% inventory carry costs)
Raw Materials
- (Spartan) $3.5M * 40% = $1.4M
Qualitative Analysis
Basis of Competition
- (Spartan) Make-to-Order - Customization
- (Competitors) Make-to-Standard - Availability/Delivery Lead Time, Cost
Delivery Lead Times
- (Spartan) 14 weeks
- (Competitors) 6 week lead times
Inventory Levels
- (Spartan) Regular shortages, stock outs, and write-offs
- (Competitors) No inventory stock outs. Finished goods held in stock in anticipation of customer orders.
Product Lines
- (Spartan) Customized design and manufacturing (Requiring 350 suppliers)
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Summary
Spartan, who was a leading designer and manufacturer of specialized industrial heat transfer equipment earns sales revenues of $25M. The company has prided themselves on creating a Make-to-Order system that allows customers the option of customizing their orders to their needs. Customization is what gives Spartan the competitive edge over their competitors. Meanwhile, however, countries like Korea and Europe are currently changing industry standards. Korean firms have a low cost base and compete primarily on low cost. European firms have begun to focus on standardizing their product lines to a few high-volume products and compete on delivery lead times and price. Rick Coyne, Materials manager for Spartan, is faced with a proposal of “renewing” Spartans business strategy. Spartan would like to reduce customer lead times for finished products from 14 weeks to six weeks. Second, Spartan would like to move from an inventory turnover rate of 4/year to 20/year. Third, Spartan would like to include some form of standardization in hopes of lowering costs for purchased goods.
Quantitative Analysis
Inventory Turnover (Purchasing $14M of inventory/year or 56% of revenues)
- (Spartan) 4 turns/year: Holding costs of $875,000/year. (3.5M * 25% inventory carry costs)
- (Competitors) 20 turns/year: Holding costs of $700,000/year (2.8M * 25% inventory carry costs)
Raw Materials
- (Spartan) $3.5M * 40% = $1.4M
Qualitative Analysis
Basis of Competition
- (Spartan) Make-to-Order - Customization
- (Competitors) Make-to-Standard - Availability/Delivery Lead Time, Cost
Delivery Lead Times
- (Spartan) 14 weeks
- (Competitors) 6 week lead times
Inventory Levels
- (Spartan) Regular shortages, stock outs, and write-offs
- (Competitors) No inventory stock outs. Finished goods held in stock in anticipation of customer orders.
Product Lines
- (Spartan) Customized design and manufacturing (Requiring 350 suppliers)
-