Thomas Manufacturing Company

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Thomas Manufacturing Company
Mr. Thomas, president of Thomas Manufacturing Company, and Mr. McDonnell, the vice president, were discussing how future economic conditions would affect their product, home air purifiers. They were particularly concerned about cost increases. They increased selling prices last year and thought another price increase would have an adverse affect on sales. They wondered if there was some way to reduce costs in order to maintain the existing price structure. McDonnell had attended a purchasing association meeting the previous night and heard a presentation by the president of a tool company on how his firm was approaching cost reduction. The tool company had just hired a purchasing agent with a business degree who was reducing costs by 15%. McDonnell thought some of the ideas might be applicable to Thomas Manufacturing. The present purchasing agent, Mr. Older, had been with Thomas Manufacturing for 25 years, and management had no complaints. Production never stopped for lack of material. Yet a 15% cost reduction was something that could not be ignored. Thomas suggested that McDonnell look into this area and come up with a recommendation. McDonnell contacted several business schools in the area. He said he would be interested in hiring a new graduate. One of the requirements for applicants was a paper on how to improve the company’s purchasing function. Several applicants visited the plant and analyzed the purchasing department before they wrote their papers. The most dynamic paper was submitted by Tim Younger. He recommended the following: 1. Lower stock-reorder levels (from 60 days to 45 days) for many items, thus reducing inventory. 2. Analyze specifications on many parts.

3. Standardize many of the parts to reduce the variety of items. 4. Analyze items to see whether more products can be purchased by blanket purchase orders, with the ultimate goal of reducing the purchasing staff. 5. Look for new and lower-cost...
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