Trail Frames Chassis (TFC) of Elkhart, Indiana, is a major manufacturer of chass

Question

Trail Frames Chassis (TFC) of Elkhart, Indiana, is a major manufacturer of chassis for the motor home and van markets. Two unemployed truck-manufacturing engineers founded TFC in 1976. Since then, the company has grown into one of the largest suppliers of chassis. In the past, TFC has produced only a pusher type of chassis, one that is powered by a diesel engine located in the rear. This design offers many advantages (e.g., no tunnel for the transmission, reduced engine noise, better handling). However, these chassis tend to be expensive, and they are used in motor homes that are very expensive ($150,000 and up). Recently, TFC entered into an agreement with Gulf Stream to produce low-end pusher-type chassis for motor homes priced under $100,000. These new designs offer some of the features of the higher-end pushers, but at a lower cost.

Today’s market for motor homes and vans is increasingly made up of people in their late 40s to 60s. These older customers want a motor home that rides like a car, and they are willing to pay for innovations such as ABS (anti-lock breaking systems), assisted steering, and computer-balanced suspension. TFC is the technological leader in this market. TFC sells to large manufacturers such as Winnebago, Airstream, and Gulf Stream. In general, these companies order small quantities (5 to 10 in a batch), and many of the units in a batch are customized to a specific customer’s requirements.

Achieving continued success in the motor home and van markets is difficult because of the rate of change taking place. TFC has become successful because of its ability to develop new product designs in a timely fashion. This ability stems from TFC’s extensive experience with motor home users and TFC’s knowledge of new technological advances. It is generally recognized that no one in the industry can match TFC’s design and marketing knowledge base. Until recently, TFC could design and build a chassis in less than 30 days. However, the lead times have been growing. As a result of limited capital, TFC has found itself unable to keep up with demand. Management has identified the design department as the major bottleneck. While pondering this problem, the management team was approached by Computer-Images, a design house located in Grand Rapids, Michigan. Computer-Images has made an attractive offer to take over the design responsibilities for the low end of TFC’s product line. Furthermore, Computer-Images has offered to work with TFC as a virtual corporation—one in which specifications would be generated by TFC and sent electronically to Computer-Images. The new drawings would then be designed and electronic copies sent back to TFC. Outsourcing the low-end work to Computer-Images would free up TFC’s staff to focus on meeting the demand for medium-to high-end chassis.

Based on the information provided in Table 10-4, complete the insourcing/outsourcing analysis. Prepare a report for the company president with the findings and your recommendation. Only one option can be recommended

TABLE 10-4 Information for the Analysis TFC Make Option Not applicable $490 per chassis (arrived at by summing Computer-Image Proposal Contract Period 3 years (with option to cancel after first yearwith 45 days warning) $225 per chassis Cost per Design direct labor computers and including corporate overhead) Number of Chassis per Year 1,000 minimum to 2,500 maximum 2,000 chassis maximum (assuming stable growth in other chassis lines) (1.250 expected TFC must commit to 1,250 designs per $200,000 (to expand design capacity) 5 to 10 working days Feasibility of designs based on Setup Costs (one-time cost) $300,000 (computer systems, training. establishing computer linkages) Lead Times (sending specifications to 2 working days receipt of new design) Quality All designs to be tested via computer simulation and certified feasible expertise of designers Time until Delivery of Design Other Terms and Conditions Immediately To significantly expand design capacity 3 months Understood that Computer-lmages would be free to work with any other chassis builder would require a period of between 6 and 8 months All designs generated by Computer- Images would remain the property of Computer-Images Computer-Images insists on a training period of 6 months in which the designers of TFC would teach Computer-lmages designers aboutthe critical design tasks encountered in the motor home market

Explanation / Answer

the answer is-

I feel the company stick with TFC Make Option and not Computer-Image Proposal unless three provisions in the terms and conditions are changed which are:

•Computer-images would be free to work with any other chassis builder

•All designs generated by computer-images would remain the property of computer-images

•Computer-Images insists on training period of 6 months in which the designers of TFC would teach Computer-Images designers about the critical design tasks encountered in the motor home market

By training Computer-Images designers without any assurance of keeping designs confidential or working for another chassis builder, TFS could lose its competitive advantage as the technological leader in this market. It could end up losing clients in the long run espcially since TFS is training other company employees.

If these provisions are replaced with confidentiality clauses which safeguards TFS s designs, then in terms of cost outsourcing is cheaper in the long run once training is completed. TFS could even outsource for few years while they build up in house capabilities if demand increases as well.

thanks and please thumbs up.

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