As Seattle based company Billings Equipment Inc. pushes on to produce a new product line, the organization is instructing supply management employees to reduce costs and cycle times of suppliers, to adhere to the Target Cost objectives. The hasty production timeline restraints led to early missed cost reduction opportunities, unethical reneging on supplier price contracts in order to reduce costs, and jeopardizing Billings Equipment’s historically impeccable reputation for ethical treatment of suppliers. This product line’s aggressive timeline to market; leading to early missed opportunities to reduce costs, followed by forceful demand to suppliers for a ten percent price reduction, and followed by an additional five percent price reduction …show more content…
(Target costing is “a structured approach for determining the cost at which a proposed product with specified functionality and quality must be produced to generate a desired level of profitability at its anticipated selling price.”) In order to properly achieve target costing a company must complete the following steps; determine a market price point for the proposed product, calculate the target cost by subtracting the desired profit from the target price, reiterate the product design to achieve target cost, and finally revise the market price following the redesigned product and current market conditions. This mistake in the implementation of target costing led to missed opportunities to reduce costs through the redesign of product components and tooling. The missed cost reduction opportunities resulted from the hasty decision making in the design phase, Billings accepted early component designs without additional cost reducing …show more content…
The proposed solution in this scenario when the general manager is unwilling to drop the product line, due to extensive sunk costs, or reiterate the design phase would be to renegotiate contracts and allow the company’s ethical reputation to suffer the consequences. Before beginning the renegotiation process with suppliers reevaluate the profit margin used to determine the target costs, reducing company profit prior to renegotiations (it may be possible to make up the needed five to ten percent cost savings and eliminate the need for additional renegotiations.) When renegotiating sit down with suppliers, capitalize on the relationships made with these suppliers with a face-to-face discussion, explain the situation in hopes of working toward a solution that will allow this product to flourish in the current market place providing both parties with a mutually beneficial growth in production and profit. Understand the consequences of reneging on the previously agreed upon contracts; renegotiating price multiple times will undermine your relationship with suppliers and may promote suppliers to cut quality to cut costs to meet price demands, and may also cause suppliers to loss faith in the way you do business, potentially inflating pricing contracts in the future in anticipation of price reduction
Metalcraft’s scorecard was developed to address control issues in the supply-chain. The scorecard was a tool that provided Melalcraft a single reference point on supplier performance over a period of time along three dimensions: quality, timing and delivery. There were several business functions that utilized the scorecard; buyers, plant engineers, supplier development engineers, suppliers and various other users within the Metalcraft organization. The scorecard was also used to evaluate supplier performance at both the individual plant level as well as the aggregate supplier level. The scorecard classified supplier performance metrics with color recommendations indicating the degree in which Metalcraft would base future sourcing based on their “color” quality rating.
Some of the bottleneck foremen come up with methods of streamlining their processes to increase throughput at their stations. And for a time, things seem to be improving and inventories are slowly shrinking and more backlog orders are being filled. Then Stacey reveals a proble...
Burt, D., Petcavage, S., & Pinkerton, R. (2010). Purchasing descriptions and specifications. In Supply management (p. 129). New York, NY: McGraw-Hill/Irwin.
The management technique that these companies use to drive their product are target costing. According to Blocher, Stout, Juras, and Cokins (2016), target costing is defined as “determines the desired cost for a product
In the 1960s through the 1970s, companies realized strong engineering, design, and manufacturing functions were strong market strategy keys to create and capture customer loyalty. As the demand for new products rose in the 1980s, these market requirements were to increase their flexibility and responsiveness to adapt existing products and processes or to develop new ones in order to meet customer needs. As manufacturing improved in the 1990s, managers began noticing material and service inputs involving suppliers and their major impact on an organization’s ability to meet customer needs. As a result of these changes, organizations now find that it difficult to manage their own organizations. First, they must be involved in the management of their network of all upstream firms that provide directly or indirectly, as well as the network of downstream firms, which are responsible for delivery and market service of the product to the end customer. In order to succeed, managers have to realize that they cannot do it alone and they must work together on a daily basis with the whole organizations in their supply chains. Because supply chain management involves all functions within an organization, managers need to know what a supply chain is, why it is important, and the impact of supply chain management on the success and profitability of their organization. Today, Wal-Mart topped the list of the America’s biggest companies on the Fortune 500 list, “with sales of almost $345 billion — more than a quarter of a trillion dollars” (Forbs). Wal-Mart’s supply chain management is becoming recognized as a core competitive strategy.
Another lesson of the game materialized gradually at first, but steadily became more and more evident with each round of play. This lesson was the demonstration of the overwhelming ineffectiveness and utter futility of approaching logistics from the position of total ignorance. With no forecast or sales history to serve as a guide or predictive tool, the participating supply elements simply had nothing to base their projected order quantities upon other than pure conjecture. Operating in a vacuum relative to the other players of the supply chain was nothing less than counterproductive. Closely related was the development of a subdued, but underlying, sense of hostility within the supply chain as orders were placed that didn’t correspond with anticipated amounts. When this type of communication breakdown exists in the real world, an irritation between supply elements invariably manifests itself. Additionally, the resulting waste of time, material, storing of inventory and other resources expenses further fuel the fires of frustration and discord between supply elements.
Happy Chips, Inc. is faced with a serious problem, with only having one mass merchandise customer called “Buy 4 Less” being unhappy with the company’s operating performance. Buy 4 Less had several problems cited including frequent stock outs, poor customer service responsiveness, and high prices for the products being supplied. Buy 4 Less came up with solutions they think seem fit to fix the problems they found with Happy Chips, Inc. and if Happy Chips, Inc. wishes to remain a supplier to their company they will have to incorporate these changes. The problem however with this scenario, is that employees of Happy Chip, Inc. are not happy with the demands Buy 4 Less has bestowed upon them which include providing direct store delivery four times a week instead of three, installing an automated order inquiry system to increase customer service responsiveness, and decreasing product prices by 5%. Even though the easiest thing for Happy Chips, Inc. to do is to agree to the changes Buy 4 Less wants them to do, Wendell Worthmann, the manager of logistics cost analysis doesn’t agree to the changes right away. The main problem with this case is that Buy 4 Less is Happy Chips, Inc. one and only mass merchandise customer that accounts for 400,000 annual unit sales and 12% of annual revenue. With the mass merchandise segment having such a high profit potential, Happy Chips, Inc.
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
Is your price affordable to the mass of buyers? If yes, continue. If not, rethink.
“It was over a period of several years, Harley-Davidson reduced its number of suppliers from 4000 to fewer than 350” (Schneider, 2009), despite this reduction, it still has a significant spread of its operations. For a company incorporating such a supply chain in its sales of motorcycles and related product yearly, reducing or maintaining costs is very important. In such a situation the need to find more efficient ways to conduct the various aspects of the business in its supply chain is ongoing.
In the system, design analysis and other additional analysis are used to reduce product cost by analyzing the trade-offs between product functionality and total product cost. Review and revision are carried out throughout the process. Moreover, the continuous improvement and operational control are also used to further reduce costs. However, the functionality reduction during the process will adversely affect the differentiation strategy as what we mentioned
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.
Today’s organizations are faced with increasing levels of global competition, customer’s demanding value for their money and high stakeholders expectations on investment returns. Gattorna (2003), notes that firms are now pursuing supply chain management as a strategy to competitive advantage. Firms in a supply chain relate, transact, and partner on different levels; from product design and development to product delivery. Through supply chain management a firm pursues value creation through timely product delivery, cost management, inventory control and customer service (Beamon, 1999).They do so individually or through synergies formed with other organizations to increase customer service
... product. There are different type of technology product provide and it is the trend in Hong Kong in the technology product spending. Moreover, the product life cycle in technology product is very fast. Therefore, it is not easy to lower the cost since the market has large number of potential customer. The bargaining power of the consumer that cannot affect the price when our company introduce the product into the market at the beginning.
Since their founding in 1837, John Deere has led the agriculture industry around the world. For over 135 years the John Deere leaping deer logo is one of the most recognized logos in existence today, it represents a symbol of quality products (Our History, 2017). As of May 2017, John Deere has over 56,800 employees in factories, facilities, and offices located in 30 countries and they are listed as number 260 on the world’s largest public companies (Deere and Company, 2017). The John Deere name is linked to designing and engineering products and services that are committed to the land. With product lines that range from balers, tractors, and lawn mowers, they also have product lines for forestry services, government support, and construction.