Case study –1

Thinking globally and buying locally at Sony

At Sony, the basic global procurement strategy has been to procure local
parts (PLP) wherever possible and to produce in those countries where the
products are sold.

In Europe, approximately 90 % of the company’s value is localized; in Asia

30 to 50 % is localized.

When production is shifted to new area, local suppliers are developed,

wherever possible. As a back up, Sony often negotiates with Japanese
suppliers to set up local production in the new country of operation. Sony
does not contribute capital to suppliers to set up offshore production
facilities but will help them with training of personnel at new locations.

Thus the general policy is to produce as many parts locally at each location
as possible. The only exception involves optical parts and semiconductors,
which are shipped from Japan to its worldwide production locations.

Question:

Discuss about benefits of the strategies adopted by Sony?

Case Study - 2

Cost management

Let us look at the income statement of the imaginary automotive supplier

Venus Auto.

Revenue from sales - Rs. 2.5 Crores.

Cost of goods sold (COGS):

Cost of purchased goods and services -- Rs. 1.375 Crores (55 % of sales).

Manufacturing in house --- Rs. 0.825 crores (33 % of COGS).

Engineering and R&D --- Rs. 0.15 crores (6 % of COGS).

Selling and general administration – Rs. 0.15 crores (6 % of COGS).

Profit -0

The Chairman of the company wants to start making profit. He would like to
see a solid 10 % margin that is Rs. 0.25 crores over five years time.

Venus Auto has two choices:

1. Simply raise prices by 10 % across the products.

2. Second possibility, resorting to lay-offs, steep cut in salary- enough to

produce 0.25 crores of savings.

Both the above options are unrealistic. Are there any other options
available?
Case Study-3

In the late 1990’s John Deere, the global agriculture and heavy equipment
manufacturer, was doing quite well for itself. With sales of $ 13 billion and
worldwide employment of more than 45,000 people, the company was able
to weather periodic sector down turns and continue to show nice profits.

Deere could have done better, however, because the supply management
operation was not structured to yield optimum profit. Highly decentralized
with more than 14,000 active suppliers worldwide, it was hard, if not
impossible, for the company to get a handle on its spend- what the company
was buying in raw materials and production components and where it was
buying. No single system summarized exactly what the company was
buying in raw materials and production components, and from whom, and
how often.

Individually, Deere’s decentralized plans could point to very successful

operations, but centrally, it was impossible for Deere to leverage its global
size and optimize supply chain power. Global operations numbered seventy-
two, each of which maintained a separate supply chain, with different prices
and specifications.

And, the redundancies appeared in global product distribution as well. For

example bearings that were used in production in Sweden, Japan and Korea
were each sourced locally to a different supplier. Steel another heavy hitter
and a denominator in many of Deere’s globally produced products, was
controlled and bought by a highly decentralized group of supply chains. And
yet, with a $ 13 billion spend, even a savings of 1 % per year would have
resulted in $ 130 million to corporate coffers, more tan enough to fund a run
of new products or a couple of new plants.

Question:

1. Suggest various strategies for streamlining the procurement so that the

company can save at least 5 % saving each year?
Case study- 4

Respironics, which has its Head Quarters in Pittsburgh, Pennsylvania, is a

$ 470 million producer of medical products such as breathing equipment.
The company knew its margins were eroding, despite a booming annual
17 % growth rate and a long series of successful new products.

Benchmarking excellent supply chain performers, including Dell, Honda and

IBM, convinced Respironics executives that a supply chain management
iniative consisting of best practices, especially supplier development would
show strong results fast. With a nearly $200 million spend spread over some
1500 suppliers, the executives knew tremendous opportunities lay untouched
in the supply chain.

By creating a new strategic sourcing function, and adding two dedicated

professionals to work with costs and supplier development, the company
developed a plan designed to show results in a matter of months. A $10
million privately held key plastic facemask supplier was chosen for
Respironic’s first supplier development project. A few weeks of training and
experienced guidance from Dave Curry, a Honda purchasing veteran, things
started to look better. Team members picked a team name- TAT- for “ Take
action today”- and started to gather baseline data.

For five weeks, Dave Curry’s team observed and gathered data. Respironics
needed more production in the hospital facemask area, a product group
growing at ever increasing rate. But this key supplier was experiencing 18 %
rejections. So, four Respironics and four supplier process improvement team
members got to work and noted the following:

S No. Actual Goal

1. Production per day 2636 pieces. 3400

2. Line balance 81.3 % 90 %
3. Cycle time 77 sec 15 sec
4. Rejects 18 % or 300 pieces per day 150 or less
5. Wait time on assembly line 9 secs 5 secs.
6. Travel distance 527 feet under 400
7. Floor space 7153 sq.ft. 6500 sq.ft.
8. Inventory of raw material 20 days. 3 days.
A suggestion system received 50 responses from which 20 were found to be
useful.

The team established quantitative goals and set targets. Rejection levels
were high at about 18 % complicated by a difficult layout and ergonomics
challenges. With good margins but too much waste, the company was ripe
for transformation.

Question:

1. How will you transform the company?

Case Study - 5

Honda of America, with production locations in Ohio, strongly commits to

long-term relationships and supplier development. Honda purchases 80 % of
the total cost of its car parts from outside suppliers- the highest percentage
for an automaker in the world. It has also has a policy of developing sources
of supply near its plants. This policy supports a close relationship between
Honda and its suppliers, makes supplier development easier, and supports
JIT. Honda’s plant keeps less than three hours worth of inventory on hand
for most items.

A strong local supply base has been important to Honda’s success. Honda
commits a significant amount of resources towards developing local
suppliers, an approach that ensures that Honda has access to suppliers
capable of meeting the company’s stringent performance standards. Honda’s
goal is that its purchase volume be at least 30 % and sometimes 100 % of
suppliers total output. The company tries to create a sense of mutual
dependence between itself and its suppliers. It has, on occasion, pursued
small equity ownership with suppliers as a way of demonstrating its
commitment and be recognized as an important customer.

Honda has high respect for its suppliers. As a result, long-term mutual
loyalty exists between and its suppliers. A supplier who meets Honda’s
performance standards becomes a lifetime partner.

Honda will remain loyal to a supplier even if the supplier experiences

temporary performance problems. Supplier development and improvement,
which covers a wide range of areas, has one primary objective: to create and
maintain a dedicated supply base that supports Honda’s USA requirements.
Honda commits varied resources to support and develop its supply base into
world-class performance.

Question:

1. Comment on the supplier development strategy of Honda?

Case study- 6

Honda of America, with production location at Ohio, believes in long-term

win-win relationship with its suppliers. Honda provides technical support to
suppliers in a number of technical areas-like plastic technology, welding,
stamping and aluminium die-casting.

Honda forms special teams to help suppliers on as needed basis. For

example, on one occasion a supplier experienced problems resulting from
rapid growth, Honda formed a four-person team that moved to the supplier’s
factory for three months to help correct the problem.

A “Quality Up” programme targets suppliers with lower quality. Honda

makes sure that the supplier produces 100 % quality product.

Honda’s representatives regularly visit suppliers ‘s facilities. Among other

things, Honda examines each supplier’s financial and business plans.

Honda has a “Loaned Executive Programme”- where it sends its executives

to work at the supplier’s location. This supports greater understanding and
communication between Honda and its suppliers.

While Honda’s supplier development approach seems extreme to some

observers, few can argue with the company’s success in the US car market.
The cars at the Ohio assembly plants have consistently been the best selling
cars in the US, with higher customer loyalty. In fact, Honda now exports a
portion of its US production back to Japan. The success of Honda’s supplier
development and improvement efforts is one reason the company has such
loyal customers.

Question:

1.Comment on the Honda’s supplier development efforts?