Spartan Heat Exchangers Inc. is a leading designer and manufacturer of specialized industrial heat transfer equipment for more than 10 years. The company’s primary products are transformer coolers, hydro generator coolers, air-cooled heat exchangers and transformer oil coolers. Their USP – Fin tube type heat exchangers and long lasting products. They are into highly customized heat equipments & because of new competition from European & Korean companies they have changed their corporate policy, which emphasize on reducing the product variety & standardized the product. The new business policy also states of reducing the current lead time from 14 weeks to 6 weeks.
The Materials Department headed by Rick Coyne has to take a lot of initiatives internally to incorporate various implications of the new strategy, and submit his report to his boss Max Brisco of the changes suggested by him within a week. His major challenges are:
Change from responsive to anticipatory model.
Keep-up with the increased competition in the industry.
Inventory turns from present 4 times to 20 times.
Eliminate material shortages & stock outs.
Reduce cost of Purchase goods by 10%.
Reduction in the custom lead time from 14 weeks to 6 weeks.
Analysis of Key issues & options:
Interpretation of new corporate strategy. (ok, might need some rephrasing of words) In our view the key issue is to find out how to adapt the supply chain strategy from a responsive model to an anticipatory model. The previous corporate strategy was based on customization of each of their products which is now being changed to standardization. This change can be best illustrated by comparison of figures 1.1 and 1.2 in Appendix 1, wherein the possible corporate structures may tend to three different values, i.e. cost, differentiation and responsiveness; Spartan strategy has shifted from a focus in differentiation and responsiveness to a cost and responsiveness value proposition.
Job shop method of production to Hybrid.
The new corporate strategy implies re-engineering from a job shop method of production (which involved manufacturing operations with several departments, each of which produced particular components, Ref Case) to a hybrid method of production which is a flow operation, where multiple work stations can be working simultaneously, which will mainly allow Spartan to increase volume of production, reduce lead time, it will further lead in cutting down the carrying cost of inventory, even though the inventory will be high. •
Raw materials procurement
The customization strategy required the presence of many vendors and a high level of inventory in the warehouse. On the contrast, the new corporate strategy reduces variety to 3-4 basic lines for each product category will require less variety of raw material but in higher quantity. This will give the company a higher negotiation power for better overall conditions, including delivery time, transportation cost, price, quality & budget. •
Lead time reduction from 16 to 4 weeks
One of the main concerns for the company is to reduce the lead time from 16 to 4 weeks in order to keep up with the competition in the market. This should be discussed with the vendors at the time of negotiation & should also be a clause in the PO. Now since the process is already standardized, Rick should also insist on improved communication between sales, materials department & vendors will help in the prediction of demand. There is also an option of keeping a buffer stock in case of an inconsistent demand. We believe that this goal can be achieved with an adequate supply chain strategy. The fact that we are reducing the number of vendors required will allow us to be more selective and procure only from the vendors that provide a service in accordance with our new needs, i.e. only from those who in the past have consistently delivered in few days lead time or those who can...
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