Problem: Tiler Industries

Harry Chamberlain, vice president of Tiler Industries, closed the phone call by saying, "Well thanks, Jim. We appreciate the call even though it was bad news. We're sorry we didn't get the contract for the SRW installation from Phoenix, but we understand. And, we'll do better next time." Most of the executive committee members heard the news as they filed in for the division's weekly status meeting. In the few minutes before the meeting started, Harry started to organize his thoughts, concerns, and ideas as to where to go from here with the loss of a major sale to a long-standing customer. As the meeting convened, he said, "Well, as most of you have just heard we didn't get the contract for this year's SRW installation at Phoenix Engineering. That would have been a $12 million project plus ongoing service and parts business. That call was from Jim Gray, their head of purchasing. He said our price was okay. But their new cross-functional commodity team was unanimous on many benefits, some tangible and some intangible, and supply chain approaches that were provided in the proposal from Eastern Star Electronics. We took a bad hit on this one. The real harm is the long-term impact by Eastern Star with a customer who has been very loyal to us over the years." Tiler Industries is a manufacturer of industrial tools and machinery with headquarters in Wisconsin. It also has operations in Europe and South America and makes nine specialty lines of equipment. The SRW equipment line is used by customers for precision shaping, forming, and assembly of fluid dynamics components that are subsequently sold to original equipment manufacturers of such items as diesel engines, electrical generation equipment, jet engines, turbines, and marine motors. It involves precise measuring, cutting, and forming processes. Tiler has traditionally been number two in the industry, behind Acton Tools, the dominant price leader. Acton and Tiler have led the industry for many years.

The Executive Committee Meeting

"We lost the job to Eastern Star, and it wasn't on price. Eastern Star came at us from out of nowhere and we were caught without warning," Harry said. Bill Mathews, sales and marketing head, spoke up: "Eastern Star is starting to become a major player now. We just came back from the Milan Machine Tool Show last week, and they were there in a big way. That's the third time I've seen their displays at major trade shows this year. Each time they have new and innovative features in their equipment. It makes ours look weak in comparison. Our products show only minor modifications and small efficiency changes, but theirs have technical leaps. They have a new laser module component that looks quite good. None of the U.S. firms are close to that technology. And you can't beat Eastern Star's output quality." Sally Morgan, finance director, said, "Our quality is good. In fact, it's great. All of our benchmark warranty and survey studies against Acton Tools show we are comparable or better. And they are still the industry leader." Harry asked Phil Chung, director of research, "OK, just what makes this latest equipment from Eastern Star better than our SRW?" Phil replied, "Well, this is the first trade show the company ever sent me to. And it was a real eye-opener for me. As Bill Mathews said, Eastern Star has a real state-of-the-art line. At first look, it does just what our machine does. And it doesn't really perform any better in comparison to the SRW or Acton's units. But the real advantage is that Eastern also sells a module that a company like Phoenix can attach to components that go onto the OEM's generator, turbine, or motor. A technician can then come along with a diagnostic reader and determine if those units are performing properly.

If there is a problem, fine-tuning adjustments can be made. This just isn't possible with our SRW line." He continued, "They also spend a lot of time talking about the supply chain. They look a lot at the end users of turbines and diesel engines. And, they talk to their customers about issues like lead times and delivery. Eastern can promise a customer like Phoenix that they'll be able to install a big system similar to our SRW in two months. We couldn't possibly do that since it would take us almost that long just to get the components we need to start making the SRW. The best we could do would probably be in the neighborhood of four months." Bill Mathews said, "Phil's right. We don't really know much about Phoenix's customers. What's happening with cars, boat engines, and power generation equipment? One time a couple of years ago I went with Phoenix's people to visit Ford and Cummins Engine. I thought that was a big deal." Harry brought the conversation back into focus. "Seems like we're playing by the old rules of the ballgame, and this is an entirely different one. Eastern pretty well blindsided us while we were happy trying to make sure we were at least as good as Acton. This is a good lesson for us. We need an across-the-board approach to figure out what to do. Maybe we ought to get some people here from Phoenix to talk over these issues. It might not hurt to get someone from Detroit Diesel or a power generation company. What do you think about getting some people from a couple of our key suppliers to meet with us? What we end up doing may change this company, more than just our products and marketing. There are some issues that may fundamentally change how we do business." As the meeting ended, Harry's thoughts returned to Jim Gray's comment about the tangible and intangible benefits. He wondered what all of this would mean for the organization, structure, planning, and operations of the company. He had an uneasy feeling that some fundamental changes were in order.

Questions

1. What do you think are the intangible benefits Eastern Star provides to customers? What is the role of operations management in providing these benefits?

2. What changes in organization and/or planning would help Tiler respond to the challenges raised by Eastern Star?