Review Case 7, Butler Systems, introductory paragraph, provide a summary of the situation.
The current contract of the company was with SD5. The recent development in the Chinese market concerning the demand of HD5 battery has changed the orientation of the suppliers from Butler Systems to that of the auto-manufacturers in China. Moreover, one fine morning the vice president of the came to realize the contract that the current contract has gone void and the suppliers are willing to double the contract price considering the increased demand of the battery.
The vice president also came to know that the company has currently only 20 days of inventory for batteries instead of suggested 90 days.
As the VP of operations, I would say that the lack of attention to the external market and the change in the orientation of the suppliers are the major reason (Lings, 1990). If my company had regularly assessed the market condition for the variables that can impact the battery price then this situation would not have come up. Moreover, the internal operational management does not seem up to the mark as the lack of inventory and new contract might stall the company’s sale (Bowersox et al, 2002).
At present, I will take two levels of actions for the company. The first action will be immediate and the second will be long term. In the immediate action, my response will be to fill the inventory for the next 90 days so that the company’s production keeps going. As I failed to manage things properly, therefore the company has to bear the grunt and shell out money to purchase costly batteries on the temporary basis to keep the production going.
The purchase of the batteries to fill the inventory for the next 90 days will allow me some buffer time to find out suitable battery supplier.
The buying organization has significant role in selecting and qualifying the potential suppliers (Wagner and Bode, 2014). As per the case, it can be stated that the Butler Systems had always upper hand in the deals. Even the clauses in the contracts show that the major portion of loss will be being handled by the suppliers if any unfavorable event takes place. This shows that till now, the power was in the hand of buyer.
However, due to the change in the circumstances the power shift can be observed - from the buyer to the suppliers. The suppliers became powerful due to the increase in the demand of their batteries. At this point, the company has to follow what suppliers are saying. However, the growth in the Chinese auto-parts is still an speculation and the company has the opportunity to finalize strong deal with few suitable suppliers for the coming years. At this point, it is suggested that company finalize the supply deal with three suppliers consecutively with around 33% of supply share to each of them. The supply period should be five to 10 years so that the growth in the Chinese auto-manufacturing will have no impact on the battery supply rates.
The learning from this case is significant. It helped in understanding that the company should have never left monitoring the external market and the challenges that could impact the supply of the materials for its final product. Moreover, the internal processes should always be strong, which was not with only 20 days of inventory.
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Lings, I. N. (1999). Balancing internal and external market orientations. Journal of Marketing Management, 15(4), 239-263.
Wagner, S. M., & Bode, C. (2014). Supplier relationship-specific investments and the role of safeguards for supplier innovation sharing. Journal of Operations Management, 32(3), 65-78.