It is time for you to finalize your findings for your boss. He is expecting your analysis of your division's operations and to produce a plan to improve operations with an eye for reducing costs.
Your boss wants you to summarize your recommendations in no more than 2-3 pages. Include your thoughts on the list below.
- Should production remain in Mexico or be brought back to the United States?
- If so, where would you recommend?
- Is the quality of production a consideration because of cheaper labor in Mexico?
- Couldthe quality of production be managed and monitored better if it was in the United States?
- Do transportation costs play a big enough factor to consider moving back to the United States?
- Should the product distribution network be changed? For example:
- Production in Mexico, central warehouse (NAW) in St. Louis, regional distribution centers in Pennsylvania, Georgia, Texas, Colorado, and California.
- Close NAW, ship from Mexico directly to regional distribution centers listed in letter "a" above.
- Close NAW, create a new central warehouse in Texas near the Mexico plant, ship to regional distribution centers in letter "a" above (with a distribution center in St. Louis/Chicago region).
- Close NAW, create a new central warehouse in Texas near the Mexico plant, ship directly to customers.
- Hire a professional distribution company to handle distribution.
- Can the sales forecast process be improved? If so, how?
COMPANY SCENARIO.You are the Operations Manager for a $50,000,000 (sales) subsidiary of a $750,000,000corporation. You report to the Divisional Vice President. Your division produces industrialproducts that are used in the construction, maintenance, transportation, and equipmentmanufacturing industries. The other two divisions in your corporation serve the automotive andelectronics industries. A few products are cross-marketed.Your division is currently number three in your market place. The number one firm has about60% of the market, the number two firm has about 25% of the market, and you have about 15%of the market.Your products are often used in human safety applications, so product quality is paramount.Neither you nor your competitors have a competitive quality advantage, nor a distinct productioncost advantage. Being number three in the market place has meant that your division must excelin customer service and delivery reliability.Over 90% of your sales come through manufacturing representatives to regional distributors whohold inventory of your most popular products in limited quantities. To keep your distributors loyal,your company works very hard on customer service.Your division currently has about 4,000 products in your catalog. About 1,200 items are "in-stock"(MTS, Make-to-Stock) items. The remaining 2,800 items are "non-stock" items that can beconsidered to be Make-To-Order (MTO). The MTO items are not stocked but are manufacturedif, and only if, an order for them is received.Your division promises to ship all "in-stock" items within 24 hours of receiving the order. If theorder is received by noon, the order is shipped that day. Because most of your orders are smalland are delivered to diverse addresses, UPS is the preferred shipping mode.In contrast, your two sister divisions operate on a much longer lead-time and ship incomparatively larger quantities. They tend to operate much more in the MTO mode and do notoffer the fast 24-hour shipping responses that your division does.The corporate headquarters are in St. Louis, Missouri, where the company was founded in the1910s. You are located in Cape Girardeau, Missouri, where manufacturing operations weremoved in the 1950s to exploit the lower labor costs. The corporate North American Warehouse(NAW) is located in a western suburb of St. Louis to be near the St. Louis airport. Virtually allshipments to customers are made from the NAW. Several years ago, to stay competitive,production operations started to shift from the Cape Girardeau location to a plant in Mexico. Theshift to Mexico has been successful overall, but the plant