HOMEWORK SOLUTION

Homework 1
Case 1: Spartan Heat Exchangers Inc.
Chapter 1: Supply Strategy
Case summary:
- Spartan was a leading designer and manufacture of heat transfer equipment
- Its customers operated in diverse industries such as steel, aluminum smelting, hydro electricity
generation, pulp and paper, refining and petrochemical
- Its main products included transformer coolers, air-cooled heat exchangers, and transformer oil
coolers
- Sales revenues: $25 mil. And operated in a 125,000 square-foot plant, more than 10,000
employees worldwide
- Its strategy during the past 10 years: Willing to do trial and error on the shop floor and customize
the products based on the customer’s requirement. Designing and research capabilities gave us
the edge in developing and manufacturing any king of heat transfer product required by
customers
- Materials department: Planning, procurement, and management of inventories besides sourcing
all raw materials and components required by manufacturing

Vendors for its raw materials More 350 => this big number due to customization
requirement
Current lead time A few days to six weeks
Worth of inventory More than $3,5 million (raw materials more 40%)
Inventory turnover (doanh thu/giá trị 4 times per year => good number
inventory)

- Problem: Manufacturing complained about the materials shortage and stockouts, discrepancy
between the current inventory on stock with inventory on the computer system. Significant
amount of stock was written off due to obsolescence. Fraud in removing stock without proper
documents
- New business strategy: Changes in customer requirements (expectations regarding pricing and
delivery lead times and some key customers decided to opt for standard products meaning no
need customization => lower cost and faster delivery) => This nature changes lead to new
strategy: standardization of all product lines, in term of both design and manufacturing, reducing
variety to 3-4 basic lines for each product category => Objective: reduce delivery lead time from
14 weeks to 6 weeks and lower production costs dramatically
1. What can the materials department do to facilitate Spartan’s new business strategy?
Answer below gives some suggestions that the materials department can do. The answer may vary but
necessarily reasonable with the materials department function
- Change the supply strategy to fit the corporation strategy from acquiring special, custom-
specified requirements to standard items
- Work with the production management to integrate the materials and components that should be
purchased with some other requirements related to the quality, quantity and delivery time.
- Recheck the supplier list to reduce that list and reduce to a specified number of suppliers that can
fit the supply strategies: giving a competitive price while offering good service and commitments,
high quality products
2. What are the new challenges for the material department?
- Customer lead times for finished product were to be reduced to 6 weeks from the current 14
weeks
- The new objective for inventory turn: 20 times
- Materials stockout need to be eliminated
- Reduce purchasing cost (thanks to the product standardization): cut by 10% over the next 12
months
 The manager needs a specific of the plan of materials department to support the new business
strategy
 Case 2: Sabor Inc.
Case summary:
- Sabor Inc. produced air-conditioning and heating units (air humidification and air filtration units).
They introduced new product of air filtration: Marconil (a high-tech product)
- Until 3 years ago, air filtration had accounted for 7% of total corporate sales and sold primarily as
add-ons to a new air cooling/heating system. With the introduction of Marconil, the total sale of
air filtration increases a lot
- Marconil suppliers: Bilt Chemical (paints and adhesives)
Total company sales $800 million/ last year
Sales on air filtration Around 7% of total corporate sales
Manufacturing cost of Marconil Around 28% of its selling price

Year Forecast sales (in $1 million) Actual sales(in $1 million)

1 1 11
2 15 29
3 40 72
Next 3 years Down 20% per year

Suppliers for Contract Materials

Marconil
Bilt Chemical (1st $50/unit - Paints and adhesives
year) - 5-year contract with take-or-pay - A large, diversified, innovative
commitments of 25,000 pounds chemical producer having
for the current year and 20% patent on macornil
annual increases in volume for
each the following year
Warton Inc., (2nd $50/unit - Reduce the marconil raw
year) - 2-year contract for 10,000 materials
pounds each year with similar - Manufacture a variety of
price provision to those of Bilt marconil products in textile
Chemical and automotive fields
G.K. Specialties $50/unit - A much smaller company compared
(3rd year) - 12.5% of Sabor’s annual requirements with both two above
can be dropped at any time by either - Produce macornil under license
party, but with price $56 for the current
year, and still adjusted based on some
other factors

All three suppliers sold marconil at identical prices, which had increased over the past three years. Actual
volumes purchased by Sabor from each of the three suppliers were shown in the table below. The current
price from all three suppliers was $50.00
1. What supplier that Sabor will sign long-term contract with? Why?
Answer
- To consider a long-term contract with suppliers, the buying department should concern on these
factors on suppliers such as quality, price and service level. For it is a long-term contract, so the
buying department should carefully choose the suppliers that fit their supply strategy aligned with
corporate strategy
- From the proposal given by three suppliers, some analysis can be gained
o Bilt Chemical: 5-year contract, good reputation and reliability (based on the scale and
experience of the company and the paten they own), but they want to sign take-or-pay
commitment of 25,000 pounds and increase 20% each year => It is so risky although the
sales increase significantly year by year (averagely 153% increasing purchasing amount
each year). However, with the 5 year long, if any unexpected events occur, the inventory
redundance can increase inventory and warehousing and obsolete product cost
o Warton: 2-year contract, for only 10,000 each year,
o G.K Specialties: Smaller compared with the other two, but producing marconil under
license, offering 12,5% of annual requirements to be reduced by either side, higher price
than two other suppliers
 Choose Warton which has the reliable reputation and experience, looser commitment and
required product number to be purchased (the rest amount can be purchased from the two other
ones) compared with Bilton and G.K.
 Case 3: Ford Motor Company
Case summary:
Global sales $177 billion
Challenges Intense global competition, rising fuel prices, steep product discount and
rebates
Operating loss $1.1 billion
Supplier number ~2,500 production and 9,000 nonproduction suppliers supporting more than 60
countries and 107 Ford manufacturing sites
Total purchase in More than $90 billion for roughly 250 production commodities and 500
2005 nonproduction commodities
Production parts 130,000 (accounted for ~ $70 billion of total annual purchase)

- Ford was putting the finishing touches on his plan for the company’s new supply chain strategy –
Aligned Business framework (ABF) company that would change the relationship between the
company and its suppliers
- Tony Brown – vice president of global sourcing at Ford. His motivation: Quality, technology,
delivery and cost guarantee while executing the programs in a discipline fashion with fasten time
to market
-
The output: Review the final details of his proposal with company chairman and CEO before making a
formal public announcement the following month. Successful in convincing Ford’s supplier community
to commit to the principle of ABF

1. Aligned Business framework: How would the associated costs and benefits be measured and
shared among Ford and its suppliers?
Cost shared:
- Ford offered up-front reimbursement of supplier engineering, design, and testing, long-term
sourcing. Sharing of improve commonality and reuse, product, cycle plan and forecast volumes
(beyond 3 years)
- Both side: Data transparency but remains confidential, competitive cost with less emphasis on
year-over-year price reductions, on-going senior leadership communication
- Suppliers: Share current financial data to demonstrate health, manage and assure proper working
condition in their facilities, sourcing of minority-and women-owned suppliers, backstop other
commodity suppliers
Benefits shared:
- Ford: By working with suppliers, Ford can capitalize on innovative ideas to improve on delivery,
cost, and quality. A smaller supplier base would lower administrative costs. Receiving larger
shipment from fewer suppliers would result in lower transportation cost. Earlier cooperation in
the design process could result in identifying costly issues sooner rather than later.
- Suppliers: They are approached in the way that allows them to see the benefits while addressing
their concerns. Increased sales volume and the abolishment of the current year-to-year contracts
will be the selling feature of the AF program. Ford willingness to offer their own forecast and
product information helps to establish trust with the supplier in giving their own financial and
technological information. This data transparency and shared risk helps to broker confidence in
each other
 Strengthened and improved supplier relationships will allow Ford and their suppliers to compete
not just with other automakers, but with other supply chains as well