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.