Scenario

Suppose that you were recently hired as the operations manager for ABC Manufacturing, a small manufacturing company founded two years ago. The company has been reasonably successful since it was founded, but has recently been experiencing several production issues. You were hired to recommend and implement improvements to get the company back on track.

ABC's president has indicated that they have already done some preliminary planning associated with manufacturing a new valve product. They have a final product design, and have done the preliminary planning to find suppliers for the individual components used in the valve.

However, the president is not sure about how best to set up the supply chain for this new product. For example, he thinks ABC might not have done an optimal job of designing the supply chain, including how and where inventory is managed for some of their current products. He is also generally aware of supply chain concepts such as just-in-time (JIT) manufacturing and outsourcing, but knows there can be complications and tradeoffs associated with those options.

The president has asked for your recommendations related to the supply chain for this new product, in relation to a specific outsourcing decision. You have decided it would be helpful to interview at least one operations manager at a different company to better understand the key concepts.

Preparation

In preparation for completing this assessment, interview at least one real-world professional working in an operational area. The goal of the interview is to gain an understanding of the way in which the company transforms inputs into useable outputs for its customers. This can be a small or large company, family-owned or public, service-oriented or product-oriented, a bakery, restaurant, or a car manufacturer. A good option might be your current employer. The purpose of this interview is to understand the importance of operations management through the eyes of the company. Many companies do not use all possible best practices, but they do incorporate some of them, or may be beginning to do so.

Be sure to cover at least the following questions in your interview:

1. Why is supply chain management important to a company?
2. What operations management (including supply chain management) tools are used by the company to support best practices?
3. What alliances or partnerships does the company have with other companies?
4. How does the company receive components and/or materials for its product or service?
5. How are component parts integrated into the production process?
6. What are the key tradeoffs associated with JIT manufacturing?
7. What are the key tradeoffs in making outsourcing decisions?

Components

Complete both of the assessment components outlined below.

Interview Component:

• Explain why supply chain management is important to a company.
• Describe operations management (including supply chain management) tools used to support best practices.
• Discuss alliances or partnerships a company might have with other companies to support its operations management strategy.
• Describe how a company receives components and/or materials for its product or service.
• Explain how the component parts are integrated into the production process.
• Describe the key tradeoffs associated with JIT manufacturing.
• Describe the key tradeoffs in making outsourcing decisions.

Scenario Component:For the final component of this analysis, consider the following specific potential outsourcing situation:

ABC has determined it can manufacture the new valve product internally for $27,000 in fixed costs (FC) and $8 variable costs (VC) per unit. The company president has estimated ABC will sell 4,800 (unit volume = UV) of these valves each year. Jay Production, a small but highly reputable company specializing in outsourced mechanical manufacturing, has contacted ABC's president, and offered to manufacture this new valve for ABC for an annual fee of $29,000 plus $6 per unit.

• Provide the algebraic equation for determining the total annual manufacturing cost (TC) of the valve (using TC, FC, VC, and UV as variables).
• Calculate and provide the total annual manufacturing cost if the valve is manufactured by ABC.
• Calculate and provide the total annual manufacturing cost if the valve is manufactured by Jay.
• Indicate which is better from a total annual manufacturing cost standpoint.

Additional Requirements

• Written communication: Written communication should be free of errors that detract from the overall message.