Case Study Background Pure Vision Manufacturing’s Sourcing vs. Inventory Challen

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Case Study Background

Pure Vision Manufacturing’s Sourcing vs. Inventory Challenge

It is no secret; the economy has been pretty tough in the last few years. Pure Vision Manufacturing

produces vision systems used in a variety of industrial manufacturing applications. These systems help

manufacturers check for quality specifications on high speed manufacturing lines. Even though Pure

Vision Manufacturing was the first to market with their vision systems and still maintains the largest

market share many overseas electronics companies are entering the market with newer versions of ABC

Manufacturer’s technology. In order to compete in the changing global competitive environment the

company has realized that the only way to revamp the company’s competitiveness is to invest in the

supply chain organization. As a result, the company’s President has decided to hire a group of recent

GGU gradates with graduate degrees to pioneer the new Strategic Sourcing Program reporting directly

to the Procurement Manager. The President hopes that establishing a strong Strategic Sourcing

Program that the company can reduce their cost of goods sold resulting in increased profit margins

while holding prices stable for their customers.

The supply chain is fairly stable and contains many legacy suppliers that have become accustomed to

consistent blanket purchase orders, getting little push back on price increases as long as they could

explain the increase effectively and not having to manage their outbound logistics to Pure Vision

Manufacturing’s facility in Livermore, California. As the Strategic Sourcing Team it is your task to find a

new source for a component the company has been buying for years. The current supplier is going out

of business, so the decision to re-source this product needs to happen as soon as possible. The

following provides more detail that will help you answer the questions in the case study.

§ The component you are trying to source is an electrical connector that connects the vision

system camera to the display used by the operator. It’s fairly simple connector with a two pin

connection with a two wires wrapped in conduit to protect from them from the elements. The

Harmonized Tariff Schedule used to classify this product is 8536.90.8085.

§ The annual usage for this component is 30,000 units. They are used on first fit applications

(complete new systems), in replacement kits and in warranty repairs. Due the high demand for

this component Pure Vision Manufacturing holds at least two weeks supply of inventory on

hand at all times.

§ One of your teammates has worked industrial manufacturing prior to being hired at Pure Vision

Manufacturing and has a few sourcing options your group can consider; two domestic suppliers,

one German supplier and one supplier in Japan. Depending on the transit mode and time

inventory may need to be added/subtracted from the current inventory stocking level.

Supplier Options

Supplier #1 – Reno, NV

§ A well known distributor with multiple distribution locations

§ Stocks many different types of connectors, ranging in price and complexity from all over the

globe

§ Local representative available to work on new projects and issues

§ Willing to do consignment/vendor managed inventory

Supplier #2 – Charleston, South Carolina

§ Experienced electronics company with primary US location in Charleston

§ Major customers are from the automotive industry

§ Non-union workforce

§ Recently received their ISO9001:TS16949 Certification

§ Various models already on the shelf

§ Global engineering team located in Germany, with domestic account representatives

Supplier #3 – Taiwan

§ Relatively new company (within the last 5 years)

§ Customers in the medical industry

§ Specializing in simple connectors and electrical components (sensors)

§ English speaking

§ Labor costs are the lowest and raw materials sourced from China

§ State of the art engineering programs with quick prototyping capabilities

Supplier #4 – Frankfurt, Germany

§ Well established company with a reputation for quality and efficiency

§ Primary customers are some of the worlds top high performance car manufacturers

§ English speaking Customer Service and Engineering teams

§ High labor costs and raw materials sourced from India

§ Quick Engineering turn-around time for new projects

What are the landed cost versus inventory holding cost trade-offs for each of the sourcing

options?

Explanation / Answer

In above case the Pure Vision manufacturing company manufactures the electrical connectors .Now they are the origin in this product.They have covered the huge market share.Still for managing the competition president decided to make effective supply chain.The objective of the supply chain is to reduce the cost while maintaining the customer price constant.

Now if we analyze the data given for supplier following conclusion be made.

Supplier 1

Features :

Local supplier , Ready to mange the vendor managed inventory , Strong distribution network etc

Supplier 2

Features : Most Experienced , In Automotive industry , Maintain Inventory etc

Supplier 3

Features : New in the field , Labor costs are low , Material source from china etc

Supplier 4

Features : Known for quality & Efficiency , Reputed Customers , High labor cost.

If we the annual demand which is 30000 .Here we have to maintain the inventory of 2 weeks .That means in a year there are 52 weeks .

So Inventory = (30000/52)* 2

= 1154 Nos

By considering the objective to minimize the supply chain cost by maintaining the sale prices constant ,

If we see the data the most suitable suppliers are

Supplier 1 & Supplier 3 are more reliable.

Supplier 1 for Vendor managed inventory , Being local , Strong distribution etc

Supplier 2 for Low labor cost

But the supplier 3 is new in this field. So there may be chances of quality issues .So Select supplier 1

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