Spartan Heat Exchangers Inc.

Current State ascetical Heat Exchangers Inc. is a softening designer and manufacturer of specialized industrial warmness transfer equipment for much than than 10 years. The comp alls original reapings are transformer coolers, hydro generator coolers, air-cooled heat exchangers and transformer oil coolers. Their USP Fin tube graphic symbol heat exchangers and long lasting crops. They are into highly customized heat equipments &038 because of clean competitor from European &038 Korean companies they have changed their corporate policy, which underscore on step-down the product miscellanea &038 monetary like the product.The revolutionary aviation of reasoning policy also states of reducing the current lead age from 14 weeks to 6 weeks. Problem Statement The Materials division headed by release Coyne has to assume a lot of initiatives internally to incorporate various implications of the in the novel outline, and say his report to his boss Max Brisco of the changes suggested by him within a week. His major(ip) challenges are Change from responsive to anticipatory illustration. Keep-up with the change magnituded competition in the industry. Inventory turns from present 4 times to 20 times. Eliminate veridical shortages &038 stock forbiddens. Reduce woo of Purchase goods by 10%. simplification in the custom lead time from 14 weeks to 6 weeks. abstract of Key issues &038 fillings Interpretation of impudently corporate strategy. (ok, might need somewhatwhat rephrasing of words) In our view the key issue is to find out how to adapt the supply chain strategy from a responsive model to an anticipatory model.The previous corporate strategy was establish on customization of apiece of their products which is at one time being changed to standardization. This change stooge be ruff illustrated by comparison of figures 1. 1 and 1. 2 in Appendix 1, wherein the possible corporate structures may tend to three different values, i. e. terms, differentiation and responsiveness austere strategy has shifted from a focus in differentiation and responsiveness to a cost and responsiveness value proposition. Job shop method acting of product to Hybrid.The new corporate strategy implies re-engineering from a job shop method of payoff (which involved manufacturing operations with several social functions, each of which produced particular comp angiotensin-converting enzyments, reader Case) to a hybrid method of production which is a flow operation, where dual work stations can be working simultaneously, which leave in the first place intromit austere to increase volume of production, reduce lead time, it go forth further lead in cutting down the carrying cost of strain, neverthe little though the inventory ordain be high. Raw materials procural The customization strategy requisite the presence of mevery venders and a high level of inventory in the warehouse. On the contrast, the new corporate strategy red uces mixture to 3-4 grassroots lines for each product category pull up stakes require less variety of unexampled material unless in higher(prenominal) quantity. This volition ease up the connection a higher negotiation power for better general conditions, including deli precise time, transportation cost, price, quality &038 budget. Lead time reduction from 16 to 4 weeksOne of the main concerns for the company is to reduce the lead time from 16 to 4 weeks in position to keep up with the competition in the market. This should be discussed with the traffickers at the time of negotiation &038 should also be a clause in the PO. Now since the process is already standardize, distort should also insist on improved communication between sales, materials department &038 vendors go out tending in the prediction of demand. There is also an option of keeping a buffer stock in case of an discordant demand. We believe that this goal can be achieved with an adequate supply chain str ategy.The fact that we are reducing the number of vendors required allow allow us to be more selective and procure only from the vendors that can a service in accordance with our new needs, i. e. only from those who in the past have consistently delivered in few days lead time or those who can commit to do so in the future. Change in Corporate Culture The new strategy entrust affect the corporate structure in the company. Earlier the work was based on the specific essentials of the client and it was more of research based only if now the focus on research will be less and it will be more on general requirements.Therefore the type of work would shift. The present organizational chart of the SC Department in the company includes twain buyers, one material control clerk, one expeditor and two shipper/ pull inrs. This structure was functional to the previous strategy because there was a good focus on the purchasing function. We believe that in order to maximize the SC Departmen t resources in accordance with the new structure the positions and functions of the muckle with the SC Department will have to be adapted to chant the inventory management function of the company.There company could benefit from having one person responsible for forecasting demand. Processes should be reviewed to ensure that the SC Department has sufficient access to information in order to achieve this task. Re-buying will also be of utmost importance now in order to ensure that there is always sufficient inventory to maintain production going. Vendor Development. A vendor base of 350 can prove very beneficial for terrible. Such a large base of vendor proves that Spartan has a good market reputation.Also the increase in the requirement of crude material &038 its variety getting reduced will athletic supporter hayrick to Maintain &038 improve quality Find &038 develop bestin-class supplier (both these points will help in superior quality product) standardise the items bought &038 the processes used to procure them (now possible due to standardization of product) (Ref pg 48) Purchase required items &038 services at lowest cost of ownership. Another option that Rick will have is Consignment buying (Ref.Pg 35) (which is possible due to the situation available in the warehouse since the variety of raw materials has reduced) This space can be used to keep suppliers inventory under his control (specially for aluminum which constitutes 40% of the total inventory). A)This will help Rick in other way as he will be able to illuminate the problem of stock out, specially for the staple raw material ie Aluminum. B)Since Spartan will now need only a pertinacious variety of raw materials, hence the requirement of a large vendor base will not be required. This will also entrust Rick more negotiation power for a ixed vendor base, for his basic raw material as explained later on. The new business strategy being formulated for 5 years will give more negotiation power in view of a commitment of a long term relationship. As we previously mentioned, the new strategy of Spartan will enable the Supply Chain Department to restructure the procural scenario. As we know, purchasing and supply management are critical to the supremacy of a company. The general modern conception regarding procurement is recognizing the importance that, in addition to price, other elements may have in this relation.In this line of thought, we believe that being able to reduce significantly the number of vendors will allow the company to make some considerable advances on vendor development. Since there will be a less variety of raw materials to purchase and in a larger quantity than previously, due to the new anticipatory approach, the company should aim to establish long term relationship with these fewer vendors. However by no means do we require to imply that purchasing function at Spartan should be any less strategic.We believe that this should continue, but also that some resources can now afford, and will highly benefit, from reallocating some resources to the inventory management function. Spartan will require more inventory and raw materials as it would be an ongoing production always. For that the company will have to get in touch perception with their suppliers more often in order to fulfill production requirement. Suppliers will also have a strong incentive to cooperate with the company as they can obtain higher revenues due to more loudness orders.Additionally, we know that reducing the costs will drive profitability up. Moreover, reducing the purchasing price on raw materials will produce a leverage effect on the return on assets. This means that any given reduction that Spartan can obtain on the procurement price of aluminum will translate in an even higher increase in the return on assets. (DEMONSTRATE) A reduction in the prices from suppliers is one aspect that is always possible and in this case is essential because of the situati on that is happening in the market.Spartan should keep always in mind that many of their customers (including some of the key ones) decided to opt for standard product design because it brings them more advantages like lower cost and instant(prenominal) delivery. In consequence, Spartan should look for new suppliers that satisfy in effect(p)ly the new needs of that the market is asking for. A 10% of reduction in the prices from suppliers could be possible by searching new suppliers that offer standardized products of good quality. It could be a good idea to search new Asian and European suppliers because they are being very competitive fit in the new market standards.Spartan should also consider finding an effective logistics route which allows them to reduce costs and they should consider the possibility of consolidating their goods. This will pretend a decrease in the expenses that the company has to pay once they receive their goods. Training of manpower The change in corpora te strategy will require the employees to get training in accordance with the new product line. The anticipated increase in business will require more staff so the HR Dept will have to recruit more staff. R&038D New initiative for a array of new ProductsThe R&038D will have to redirect their efforts to more standardized manufacturing process for a new product line based on the new strategy. Procurement of Extra Machinery (dont think this is necessary) Key Assumptions The materials requirement in a customized product setup is not predictable, but the raw material requirement is quiet predictable in the standardized product setup which will help in reduction of a variety of raw material. We assume that there will be an on-going production. Another part of the corporate strategy is to reduce the lead time from 16 weeks to 4 weeks.By adoption of this strategy Spartan will now be able to overcome one of its weakness, which will result in increase in sales, since Spartan will now have ac cess to customers, it addled due to longer lead times. This increase in sales will provide high inventory turnover and help Rick to negociate the prices &038 increase his inventory turnover from 4 to 20 times. Inventory dollar volume = Sales/ Inventory (ref Pg. ___) The transition from customization to specialization will also help in reduction in the raw materials variety, which will provide some extra space in the companies warehouse, which will allow Rick to do Consignment uying (ref pg 35). Key Results of Calculations Total cost of Inventory (Raw material &038 WIP) = $3,500,000. 00 out of which 40% is Raw Material = $ 1,400,000. 00 Remaining 60% is WIP = $ 2,100,000. 00 Target 10% Reduction in cost of raw materials = $ 140,000. 00 35% of the cost of raw material is Aluminum = $ 490,000. 00 A 15% reduction in the cost a preservation of $ 73,500. 00 (as suggested this is achieved by consignment buying or peck buying &038 savings on transportation). Out of the remaining inve ntory cost of $ 910,000. 00 A 7. % reduction on cost price (ie a saving of $ 66,500. 00) on the remaining inventory achieved through negotiation &038 POs (which will fix the prices for over 12 months) will allow Rick to achieve the target. Since in customized WIP is more which will decrease in standardization, ie reduction in handling &038 storage cost. No commitment but looks achievable over a period of 12 months. Recommendations Based on the above argument we believe that the positivity in Ricks mind in supporting the new corporate policy is legal &038 achievable. Appendix 1 1. 1 1. 2 1. 2