Integrating Techsofts New Vision Graphics Card into the Supply Chain

Company Background

Techsoft, a leading technology company specializing in graphics processing, has just developed a new version of their Vision graphics card. The card is 10% smaller than its predecessor and is breaking new ground in cost as it is projected to sell at half the price of their current card. The need for faster, more affordable graphics cards that can be networked to scale according to processing needs, has driven both the lower selling prices and the demand for processing higher than ever before. The issue Techsoft faces now is that its supply chain costs are now proportionally a much larger percentage of the overall graphics card selling price.

Changing Landscape

The technology industry evolves rapidly and each day, an unsold graphics card or other piece of advanced hardware loses value as new chips and versions are researched, released and retired. Techsoft is an OEM and sells to other manufacturers and distributors. For the Vision graphics card in particular, all sales are included in other consumer and industrial products and not to be sold directly to consumers themselves. The challenge is with rapidly changing products in the market and intense competition, Techsoft has to compete on not only the functionality front, but cost as well. Due to this, its current supply chain cost is unacceptable when the cost of the card itself has been reduced by 50%. Techsoft expects innovation in all aspects of its business beyond just R&D. Therefore, Management has requested you investigate ways to reduce the per card supply chain costs as much as possible.

Incumbent Suppliers

Techsoft currently has four major suppliers for its raw materials. Techsoft has been looking to bring down its supplier expenses through consolidation to just 2 suppliers. Flexit has been Techsofts oldest partner and has been recently awarded the Electronic Industry award for its pioneering work in maintaining its quality standards. Techsoft has been the largest customer for Worldcomm which has always provided Techsoft with the best prices. Worldcomm has even designed its processes to provide flexibility in its services to cater to the changing demands from Techsoft. Maxo Inc has been recently audited by ISO and has been provided with a few observations that could put their eligibility for renewal of its ISO 9001 certification at risk. Nanotech is relatively a new supplier but has innovative processes and customer service which initially attracted Techsoft to contract with it.

Current Supply Chain Operations

Techsoft produces all its products at its manufacturing units in Singapore and Germany. They must continue with their current manufacturing units as the capital expense and risk to intellectual property are too high to consider outsourcing to reduce costs. Techsoft does not foresee any changes to production capacity or set up costs at this time. The lead time for order processing and Quality Assurance activity is 2 days and the lead time for manufacturing can be assumed to be one week.

Techsoft manages all of its own transportation and warehousing from pre-production to final storage. The company uses a third-party shipper to deliver the Vision cards directly to customers. As the Vision card is just one of many products that Techsoft creates, the company doesnt intend to adjust its transportation practices from factory to warehouse as its been optimized for the existing mix of products. Techsoft currently supplies the North American market from its manufacturing plant in Singapore. The plant in Germany caters to the European market.

During the 7 weeks from initial order, Techsofts customers have the luxury to often change their volumes and specifications multiple times. Each vision card remains in the Singapore warehouse for 7 weeks whereas, the actual order details are typically locked in by 2-3 weeks before production.

In North America, Techsoft does not have warehouses to store finished inventory, instead they have a docking location for immediate shipping of finished goods. From its California docking location, Techsoft directly ships the cards straight to customers, as soon as the chips arrive. This docking location is conveniently located for easy access by ship and air.

Overall Techsofts most significant concern is to retain its high quality and balance the overall availability and inventory as the technology industry, particularly the graphics card industry, changes rapidly.

Looking to the Future

Techsoft is planning to pilot this supply chain reduction program for its Singapore unit. In preparation, Techsoft has started engaging all of its 200 customers affected by the pilot program through interviews and questionnaires. It aims to gain insights into desired customer engagement levels that can impact supply chain and associated costs.

With respect to this pilot program, Techsoft has asked you to determine which aspects of the supply chain provide opportunities to reduce costs and by how much. A few data exhibits are attached to help assess the supply chain costs and the savings potential. Please report those cost reduction opportunities (at least 3 items) in your report and explain each item (using the values given in data exhibits) in one paragraph.

Production Facility	Singapore, SG
Production per shift	50
Shifts/ Week	20
Set up cost per unit ($)	0.03

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