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Case study –1

Thinking globally and buying locally at Sony

At Sony, the basic global procurement strategy has been to procure local
parts (PLP) wherever possible and to produce in those countries where the
products are sold.

In Europe, approximately 90 % of the company’s value is localized; in Asia
30 to 50 % is localized.

When production is shifted to new area, local suppliers are developed,
wherever possible. As a back up, Sony often negotiates with Japanese
suppliers to set up local production in the new country of operation. Sony
does not contribute capital to suppliers to set up offshore production
facilities but will help them with training of personnel at new locations.

Thus the general policy is to produce as many parts locally at each location
as possible. The only exception involves optical parts and semiconductors,
which are shipped from Japan to its worldwide production locations.

Question:

Discuss about benefits of the strategies adopted by Sony?

Engineering and R&D --. Are there any other options available? . Cost of goods sold (COGS): Cost of purchased goods and services -.Rs.25 crores of savings. Venus Auto has two choices: 1. 0. 1. Profit -0 The Chairman of the company wants to start making profit. Both the above options are unrealistic.15 crores (6 % of COGS).Rs. Revenue from sales . 0.375 Crores (55 % of sales). resorting to lay-offs.15 crores (6 % of COGS).825 crores (33 % of COGS). Simply raise prices by 10 % across the products.Case Study . 2. Selling and general administration – Rs. Manufacturing in house --. 0.5 Crores.Rs.2 Cost management Let us look at the income statement of the imaginary automotive supplier Venus Auto.Rs.enough to produce 0. steep cut in salary. 2. He would like to see a solid 10 % margin that is Rs. Second possibility. 0.25 crores over five years time.

with different prices and specifications. Japan and Korea were each sourced locally to a different supplier. for the company to get a handle on its spend.what the company was buying in raw materials and production components and where it was buying. Deere’s decentralized plans could point to very successful operations. if not impossible. Question: 1.Case Study-3 In the late 1990’s John Deere. more tan enough to fund a run of new products or a couple of new plants. No single system summarized exactly what the company was buying in raw materials and production components. the company was able to weather periodic sector down turns and continue to show nice profits. With sales of $ 13 billion and worldwide employment of more than 45. it was hard. And yet. because the supply management operation was not structured to yield optimum profit. was doing quite well for itself. For example bearings that were used in production in Sweden.000 active suppliers worldwide. Global operations numbered seventy- two. And. however. and from whom. Deere could have done better. Highly decentralized with more than 14. Individually. the redundancies appeared in global product distribution as well. with a $ 13 billion spend. Steel another heavy hitter and a denominator in many of Deere’s globally produced products. it was impossible for Deere to leverage its global size and optimize supply chain power. and how often. each of which maintained a separate supply chain. was controlled and bought by a highly decentralized group of supply chains.000 people. even a savings of 1 % per year would have resulted in $ 130 million to corporate coffers. but centrally. the global agriculture and heavy equipment manufacturer. Suggest various strategies for streamlining the procurement so that the company can save at least 5 % saving each year? .

Dave Curry’s team observed and gathered data. Cycle time 77 sec 15 sec 4.ft. Pennsylvania.Case study. Actual Goal 1. Production per day 2636 pieces. Floor space 7153 sq. is a $ 470 million producer of medical products such as breathing equipment. things started to look better. So. a product group growing at ever increasing rate.TAT. the company developed a plan designed to show results in a matter of months. despite a booming annual 17 % growth rate and a long series of successful new products. A few weeks of training and experienced guidance from Dave Curry. which has its Head Quarters in Pittsburgh. 3 days. Travel distance 527 feet under 400 7. For five weeks.and started to gather baseline data. Rejects 18 % or 300 pieces per day 150 or less 5. especially supplier development would show strong results fast. With a nearly $200 million spend spread over some 1500 suppliers. a Honda purchasing veteran. four Respironics and four supplier process improvement team members got to work and noted the following: S No. including Dell. 8. Team members picked a team name. 6. Wait time on assembly line 9 secs 5 secs.ft. . By creating a new strategic sourcing function. Line balance 81. A $10 million privately held key plastic facemask supplier was chosen for Respironic’s first supplier development project. 6500 sq. The company knew its margins were eroding. Benchmarking excellent supply chain performers.for “ Take action today”. Honda and IBM.3 % 90 % 3. 3400 2. But this key supplier was experiencing 18 % rejections. Inventory of raw material 20 days. and adding two dedicated professionals to work with costs and supplier development.4 Respironics. Respironics needed more production in the hospital facemask area. the executives knew tremendous opportunities lay untouched in the supply chain. convinced Respironics executives that a supply chain management iniative consisting of best practices.

How will you transform the company? . the company was ripe for transformation. Rejection levels were high at about 18 % complicated by a difficult layout and ergonomics challenges. With good margins but too much waste. The team established quantitative goals and set targets. Question: 1.A suggestion system received 50 responses from which 20 were found to be useful.

Honda has high respect for its suppliers. This policy supports a close relationship between Honda and its suppliers.5 Honda of America. an approach that ensures that Honda has access to suppliers capable of meeting the company’s stringent performance standards. A supplier who meets Honda’s performance standards becomes a lifetime partner. has one primary objective: to create and maintain a dedicated supply base that supports Honda’s USA requirements. Comment on the supplier development strategy of Honda? . Honda commits a significant amount of resources towards developing local suppliers. The company tries to create a sense of mutual dependence between itself and its suppliers. and supports JIT. It has also has a policy of developing sources of supply near its plants. with production locations in Ohio.the highest percentage for an automaker in the world. Question: 1. makes supplier development easier. Supplier development and improvement. on occasion. Honda commits varied resources to support and develop its supply base into world-class performance. Honda’s goal is that its purchase volume be at least 30 % and sometimes 100 % of suppliers total output. As a result.Case Study . Honda will remain loyal to a supplier even if the supplier experiences temporary performance problems. A strong local supply base has been important to Honda’s success. Honda purchases 80 % of the total cost of its car parts from outside suppliers. strongly commits to long-term relationships and supplier development. which covers a wide range of areas. pursued small equity ownership with suppliers as a way of demonstrating its commitment and be recognized as an important customer. Honda’s plant keeps less than three hours worth of inventory on hand for most items. long-term mutual loyalty exists between and its suppliers. It has.

with higher customer loyalty. welding. In fact.6 Honda of America.Comment on the Honda’s supplier development efforts? . Honda forms special teams to help suppliers on as needed basis. Honda now exports a portion of its US production back to Japan.Case study. The cars at the Ohio assembly plants have consistently been the best selling cars in the US. with production location at Ohio. on one occasion a supplier experienced problems resulting from rapid growth. Honda’s representatives regularly visit suppliers ‘s facilities. believes in long-term win-win relationship with its suppliers. Among other things. Honda provides technical support to suppliers in a number of technical areas-like plastic technology. Question: 1. Honda has a “Loaned Executive Programme”.where it sends its executives to work at the supplier’s location. stamping and aluminium die-casting. While Honda’s supplier development approach seems extreme to some observers. For example. This supports greater understanding and communication between Honda and its suppliers. The success of Honda’s supplier development and improvement efforts is one reason the company has such loyal customers. Honda examines each supplier’s financial and business plans. Honda makes sure that the supplier produces 100 % quality product. A “Quality Up” programme targets suppliers with lower quality. few can argue with the company’s success in the US car market. Honda formed a four-person team that moved to the supplier’s factory for three months to help correct the problem.