Question
Case 14-1 : Trojan Technologies
Review the Trojan Technologies Case Study (Case 14-1.) Johnson/Flynn textbook).
1.- What are the key background items to be considered in this case?
2.- What are the potential price savings and what will it take to break even? Show calculations and clearly identify several potential savings scenario, and complete costs of off-shore sourcing
3.- What is the overarching key issue for this case? Provide a clear issue, support with appropiate rationale.
4.- What does the data tell us? Do the comparisons and come up with some solid conclusions.
5.-What recommendations should Joyce Guo make to Randy Haill? Reallistics recomendation from Joyce to Randy
426 Purchasing and Supply Management Case 14-1 Trojan Technologies As Joyce Guo, senior buyer at Trojan Technologies Inc. 4) environmental contaminant treatment, and (5) indus- in London, Ontario, Canada, finished her presentation rial process. Systems for commercial and government cus- Randy Haill, materials manager, made the following com tomers ranged from approximately $50,000 to more than ments to her S1 million. These systems, which typically had a product life cycle of 7 to 10 years before being replaced with a new design, were designed and manufactured at the London facility, and modified to meet individual customer require- ments. In a typical year, Trojan manufactured 500 to 600 sys- tems for its commercial and government customers. It appears there is a lot of opportunity and I want to proceed to the next step. Joyce, I need you to lay out an implemcntation plan for low-cost region sourcing that we can take to the president for his approval. Our plan will have to include the sourcing process, a schedule and timeline for implementation, a budget and the expected savings. We will also have to identify the risks and our THE PURCHASING ORGANIZATION contingency plans. Get to work on this and let's meet Trojan's purchasing organization had seven buyers re- sponsible for six commodity groups: Friday morning next week to follow-up. It was Thursday, February 23 and, as Joyce packed up her laptop and notes, she recognized that she had a lot 1. Lamps, quartz sleeves, and ballast. more work to do before her meeting with Randy the fol 2 Electrical parts and panels. lowing week. 3. Stainless steel fabrication parts. 4. Machined and plastic parts. 5. Hydraulic parts and sensors. TROJAN TECHNOLOGIES water 6 MRO. Trojan Technologies Inc. (Troja) was a leading water treatment technology company with the largest installed Purchases in the first two commodity groups base of ultraviolet water treatment systems in operation for approximately 60 percent of Trojan's $45 million around the world. Trojan specialized in the design, manu- spend on direct materials. However, most of these compo- facture, and sale of pressurized and open-channel, ultra nents were high-technology items and were locked up in accounted and water treatment systems for indus- strategic sourcing agreements. The remaining 40 percent trial, municipal, commercial, and residential applications. comprised approximately 400 SKUs that were sourced pri- Trojan's head office was in London, Ontario, Canada. The marily to North American suppliers. company had sales of $140 million and employed approxi- mately 400 people in offices around the world, and served its customer base through an extensive network of dealers THE LOW-COST REGION and representatives. SOURCING PROJECT Trojan was owned by Danaher Corporation (Danaher), which had acquired the company in 2004. Danaher was a Following its acquisition of Trojan, Danaher implementerd diversified global manufacturer, with businesses in pro several new initiatives aimed at improving corporate per- fessional instrumentation, industrial technologies, and formance. One area targeted was global sourcing-an ini tools and components. Sales revenues were $6.8 billion tiative Randy was asked to champion with a net profit of $746 million, and Danaher employed Randy turned to Joyce to lead a project investigating approximately 37,000 people. Management used its Da- potential opportunities at Trojan for global sourcing and to naher Business System (DBS) of continuous improve recommend what action, if any, the company should ake. ment to guide and measure operations and business ac- Joyce had joined Trojan, approximately one year prior fol- tivities. lowing completion of her MBA at the Richard Ivey School Trojan's current product line consisted of 10 systems of Business, as senior buyer for stainless steel fabrication across its five markets: (1) residential water treatment, parts. With her background as a purchasing manager for a (2) municipal drinking water, (3) municipal wastewater, state-owned enterprise in China before returning to school
Explanation / Answer
1. For the Trojan case, the key factors to be considered for the low cost region sourcing include the cost of the material being sourced, the quality of the material procured, regulatory and compliance, trade and transportation cost, inco term negotiation with suppliers and also the suppliers being in high corruption zone, the FCPA( foreign corrupt practices Act) should also be considered for the evaluation.
2. As per the items identified that can be sourced from the low cost zones, there is a potential savings as the product of price difference and the volume. However additional duty and transportation + admin cost also needs to be calculated.
The breakeven would be attained if the volume is considerable and the inco terms are negotiated well to be EXW/ FCA. Then further negotiation on the freight pricing with the freight forwarders needs to be attained.
3. The mahor challenge is the additional duty and transportation cost that will come with the imports. In addition, with the increase in regulations and strict promotion of indigenous production the import could cause lot of challenges.
With imports being there, the lead time for the raw material increases, hence increasing the inventory carrying cost. Any chnage in the demand will either lead to stock out and backorders or high inventory and damage.
4. The data in exhibit one indicates that the items are the critical items , and outsourcing these especially for imports could be a risky proposition due to increase in the lead time for obtaining the same. Any change in regulations could impact the supplies, also the involvement of external uncontrallable factors like customs and clearances at port could lead to additional delays and external dependencies.
