Case Study

Intelifuse, Inc.

Time: 3:42 pm Date: Thursday, April 22, 2009

Place: Office of the VP for Manufacturing

Val, our orientation has always been one in which control is a critical part of maintaining our market leadership position, hence vertical integration. The guiding belief throughout the company is that by being able to say that we actually make the products we are selling implies a certain level of proficiency and expert knowledge that customers themselves lack and thus look for when choosing a supplier. In addition to using ourselves as the best providers of quality manufacturing because of our long-standing quality and reliability tradition. Such control translates into greater power, especially in terms of profits, yet it comes at a cost. I understand that our inventory levels are too high. High inventory levels are a price we pay for us to add value to our vertically integrated business model. It should be noted that Intelifuse operates a very efficient inventory system, but there is always room for improvement in this area. Although in general the company is open to outsourcing until a supplier comes along that can provide more value than our current operation, our vertically integrated orientation will remain intact. So, Valerie, get together with Bob James to develop a business case for a limited outsourcing strategy for some of our non-core products. I would like a report on my desk by May 1.

As stated, Tom Cecil, VP of Intelifuse's manufacturing division, asked Valerie (Val) Simmons, purchasing manager, to investigate the implementation of an outsourcing approach to solve a problem that had rapidly become the centre of attention of the company's operating executives. Ms. Simmons would be working with Bob James, the plant superintendent. The problem was this: All of the major competitors have cut costs by outsourcing more than 40% of their manufacturing capabilities. In the past year, XFuse, Intelifuse's closest competitor, has reduced their labour force by 50%.

THE INTELIFUSE INDUSTRY

In order to truly understand the operational decisions Intelifuse makes, it is necessary to be familiar with the industry. Intelifuse is facing increased competition and significant pressures to remain innovative and efficient. The industry is technology-driven. Intelifuse's primary industry is circuit protection. It is a highly competitive industry that attracts firms from around the world. The companies that survive in the industry must compete not only on quality and value-added functions but also on price. This translates into a need to be innovative and competitive at the same time. There is always a threat of becoming viewed as a commodity product; thus the goal of many companies is to provide unique and valuable products that attract and retain customers. Obsolescence is the norm for the industry.

COMPANY BACKGROUND

Intelifuse is the industry leader, offering the broadest line of circuit protection in the world. They offer 7 major circuit protection technologies (more than twice their nearest competitor) that span three industries: electronic, automotive, and electrical. (See above table) Intelifuse technology is a critical component in many of the products we use on a daily basis, from cell phones and digital cameras to nearly 90% of automobiles, industrial machinery, computers and virtually any other devices using electrical energy. The diverse product line is coupled with a presence throughout the world.

WEDNESDAY, APRIL 29 - NEW INFORMATION

During the data collection phase of Val's research, she discovered that Intelifuse currently has on-site in central China and, through a recent acquisition, another facility located in southern China. Initially, the Chinese acquisition was driven by the fact that many more customers are setting up in China. For instance, the automotive sector in China alone is expected to increase from 9.7 million automobiles sold in 2010 to 22 million in 2020, on track to become the largest automotive market in the world.

Val was wondering how this new information would impact the outsourcing business case.

The company also was projecting that almost all European functions may be moved to lower-cost sites in the near future. More specifically there appears to be an increased focus on moving the European division to Vietnam. Because of increased global business, Intelifuse expects that in the future, 70% of production will be done abroad.

Domestically a reduction in operation is forecasted. According to Val's interviews with some of the operating executives, most of the forecasted shifts in manufacturing are contingent on many factors, but that is a possibility.

There is a common belief that the Foundry sites in Champaign-Urbana, Illinois, will never be completely relocated due to the fact that is the base for planning and development and is heavily involved in the manufacturing function. Due to the control-orientated mentality of the company, moving all manufacturing away from headquarters seems unlikely, but not impossible.

As Valerie sets out to prepare a report for Tom Cecil, VP of Manufacturing, on an outsourcing/insourcing strategy, she is pondering the following questions.

1) What are the relevant facts and numbers of the case? 2) What are the key issues and root causes based on the analysis? 3) What are the assumptions and the hypothesis? 4) What are the justifications and the predicted outcomes?

References