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Discuss the pros and cons of two possible solutions to the manufacturing issue below....

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yacel0762 | (Level 1) Valedictorian

Posted April 1, 2012 at 12:52 PM via web

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Discuss the pros and cons of two possible solutions to the manufacturing issue below.

 

As the Operations Manager in "Omitted," a big name in manufacturing outfits for children in the age group 5–12.  Omitted has three main suppliers, R$#@l Textiles, N#@%e Fabrics, and F*(^&t Yarns, who supply high-quality textiles at reasonable prices. Until recently your company was one of the major customers for each of these suppliers.

In recent months however the customer base of F(*&^t Yarns has increased drastically and as a result their quality has deteriorated. After a series of negotiations, F*&^%t Yarns has assured your company of higher quality but is also demanding an increase in price.

The management is not happy with the demand for an increase in price because the contract with F*&^%t Yarns was only renewed recently. There is also a chance that if the contract is renewed, the other suppliers may also want a contract revision. If F*&^%t Yarns is eliminated as a supplier, the other suppliers may not be able to handle the drastic increase in demand adequately. Moreover, new suppliers are likely to demand higher prices.

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thanatassa | College Teacher | (Level 2) Educator Emeritus

Posted April 1, 2012 at 1:16 PM (Answer #1)

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Option 1: Over the long term, pursue a takeover or a strategic partnership with a large textile company in order to secure your supply chain. If you are of the size where you are increasingly dependent on a small group of suppliers, to the degree that your business cannot readily handle a supplier issue by purchasing elsewhere, this suggests that you may need far greater control over your supply chain. The advantage of this strategy is that it gives you a more secure position in the future; the disadvantage is that it is not a short term solution.

Option 2: Negotiate with the other two suppliers to gradually ramp up production so that you can phase out F(*&^t Yarns from your supply chain. The pros of this is that you will not be held hostage to F(*&^t (demanding a higher price for a contract already in place suggests a supplier who is a bit shady); the cons are that you now will have only two suppliers.

Overall, I think yielding to the demands for the price increase would be problematic as F(*&^t Yarns appears to be in breach of contract by asking for more money; besides, it would set a bad precedent.

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