Question

Sourcing and Contracting 323 Case 8 BoSE 301SE: SOURCING AND CONTRACTING 4Bose Corporation i ular 301 speakers. Lance Dixon, director of Purchasing and Logistics for is negotiating a special order with his preferred supplier, G&F Industries implementing a successful JIT I program, G&F has increased i ing capabilities, thus becoming a full service supplier of full speaker systea small, special orders. Given that custom to building the Bose brand, Bose decided that ali 301SE's must be pro fore December to ensure their sufficient availability at the beginning o Christmas season. s planning to release a special Christmas edition of its pop- After its manufactur- for er disappointments are not conducive f the short Ursula von Trapp, Bose's marketing executive for special programs, h as per- ecom- formed market research and analyzed sales of similar past offerings . She r mends a target price of $200 per speaker pair, for which she predicts the demand forecast as illustrated in Figure 8.15 Demand Forecast 30% 257% 37% 14% O. 10% 4.8% 0.04% 0.5 10 20 30 40 50 60 70 80 90 100 Units Demanded (000) Figure 8.15 The demand forecast for 301SE is specified using 10 scenarios. John Argitis, president of G&F, has agreed to a $120 wholesale price per 301SE pair. G&F incurs a cost of $60 to manufacture and deliver a pair to Bose. Bose can sell any left over stock at the end of the Christmas season to discounters Lance, a clever negotiator, proposes G&F to buy back from Bose any 301SE'S that are left over at the end of the Christmas season for $70 per pair (G&F can also salvage such pair to the Belgian discounter for $40). On the other hand Tom Beesen, VP of Manufacturing at Bose, is an ardent proponent of vertical in Belgium at an expected salvage price of $40 per pair. integration and suggests bringing the 301SE in-house. 1. What production level should G&F plan for? Should it accept Lance's proposal? 2. Would vertical integration improve profitability?

Answer 1

1. The company must adopt MRP as the production level strategy for its business. Material Requirements Planning or MRP, works with the objective of ordering raw materials for a production process, based on the sales forecast estimated.

• It is more concerned about the projected usage of resources
• System works upon infinite capacity of resources under MRP
• MRP works with the objective of capturing all data, related to resources
• It is based on the fundamental of a push system

2. Vertical integration happens in a company, if the company acquires another company operating in the same industry or within similar production line.

The primary advantages of vertical integration are:

• Helps the company in creating positive differentiation in the industry
• The company gets facilitated to invest in specialized assets
• The company acquires greater control on its business
• Facilitates the company to establish its competitive advantage in the industry

Indeed, the incorporation of vertical integration in the business model of the company, would enhance its overall effectiveness and increase its profitability.