Loyalist College Tiger Speed

Ineed a answer of question

Tiger speed computer inc.
There was no question about John’s genius. Seven years ago, he decided to enter the competitive
nightmare that the personal computer business had become. Although on the surface that appeared to
be a rather non-genius-like move, the genius came in the unique designs and features that he developed
for his computer. He also figured a way to promise delivery in only two days for the local and regional
market. Other computer makers also had rapid production and delivery, but they were national
competitors, and the delivery time from distant locations generally made John able to outcompete them
on delivery.

John soon had a loyal following, especially among the many small businesses in the area. Not only could
John deliver quickly, but he also had very rapid service to deal with any technical problems. That service
feature became critical for the local businesses whose very livelihood depended on the computers, and
soon that rapid service capability became more important than the initial product delivery. Since most
of these businesses were fairly small, they could not afford to have their own in-house computer
experts, so they depended heavily on John.

The Current Situation

All was not totally rosy at Tiger Computers, however. Recently they had hired Robert Ellis for the newly
developed position of Inventory Manager for Aftermarket Service. In the first week Robert got a good
idea of the challenges facing his after he interviewed several of the people at Tiger company.

Phil Davis, CUSTOMER MANAGER: “I’m not sure what you need to do, but whatever it is needs to be
done fast! At this point our main competitive edge other than product delivery is service response, and
I’m always hearing that we can’t get a unit in the field serviced because some critical part is missing.
Both the customers and the field service people are complaining about it. They make a service call, find
out they need a certain part, but in many cases we’re out of the part. The customers tend to be fairly
loyal, but their patience is wearing thin—our policy is to provide at least a 98% customer service level,
and we’re not even close. That’s not the only problem, though. Since our service is declining, the
customers are looking more closely at our prices. I’d like to cut them a break, but our financial people
tell us our margins are already too thin, and get this—one major reason is that our inventory and
associated inventory costs are too high! It looks to me as if we have a very large amount of the wrong
stuff here. I don’t know that for sure, but I sure hope you can find a solution, and fast!”

Ellisa Chong, CHIEF ENGINEER: “Boy, am I glad you’re here! The inventory problems are killing us in
engineering. Tiger has always been known for unique designs, and we’ve been trying hard to keep ahead
of the competitive curve on that issue. The problem is that most of the time when we push hard to get a
new design out, the inventory and financial people tell us we have to wait. It seems like they always
have too much of the old design inventory around, and the financial “hit” to make it immediately
obsolete would be too severe. We’re told that as soon as we announce a new design many of our
customers would want it, so that tends to make most existing old design material—even for service—
obsolete. We try to tell the service inventory people when we have a new design coming so they can use
up the old material, but somehow it never seems to work out.”

James Duges, PURCHASING MANAGER: “Well, Robert, I wish you luck—you’ll need it. I’m getting
pressure from so many directions, sometimes I don’t know how to respond. First, the financial people
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are always telling me to cut or control costs. The engineers then are always coming out with new
designs, most of which represent purchased parts. A lot of our time is spent working with suppliers on
the new designs, while trying to get them to have very rapid delivery with low prices. Although most can
live with that, where we really jerk them around is with the changes in orders. One minute our field
service people tell us they’ve run out of something and they need delivery immediately. In many cases
they don’t even have an order for that part on the books. The next thing you know they want us to
cancel an order for something that only a day before they said was critical. Our buyers and suppliers are
good, but they’re not miracle workers and they can’t do everything at once. Some of our suppliers are
even threatening to refuse our business if we don’t get our act together. We’ve tried to offer solutions
for the field service people, but nothing seems to work. Maybe they just don’t care.”

Miram Goldens, CHIEF FINANCIAL OFFICER: “If you can help us with this inventory problem, you’ll be
well worth your salary, and then some! Here we are being competitively crunched for price, delivery,
and efficient service, and our service inventory costs seem to have gone completely out of control. The
total inventory has climbed more than 200% in the last two years while our service revenues have only
grown 15%. On top of that, we have had an increase in obsolete material write-off of 80% in that same
two-year period. In addition, significant inventory-related costs have come from expediting. Premium
freight shipments, such as flying in parts, caused by critical part shortages cost us over $67,000 last year
alone. Do you realize that represents almost 20% of our gross profit margin from the service business?
With our interest rates, warehousing, and obsolete inventory costs, we recognize a 23% inventory
holding cost. Given our huge inventory level, that takes another big bite out of profits. All this suggests
to me we need to get control of the situation or we may find ourselves out of business!”

Frankie knowles, FIELD SERVICE SUPERVISOR: “Until they hired you, the other production supervisor and
I had been in charge of inventory. I hate to discourage you, but it looks like an impossible job. The
purchasing people bought a bunch of standard-size bins, and they told us that as soon as we had a
week’s average part usage for each part to order more— specifically, “enough to fill up the bin.” Since
most of their lead times were a week or less, it sure made sense. All the records were kept on computer;
therefore, the computer could be programmed to tell us when we had only the week’s supply. It made
great sense to me, but something kept going wrong. First, field service technicians seemed to frequently
grab parts without filling out a transaction. That made our records go to pot. As a matter of fact, we had
a complete physical inventory a couple of months ago, and it showed our records to be less than 30%
accurate! I suspect our records are almost that bad again, and we don’t have another physical inventory
scheduled for another nine months.

“Second, with our records so bad the field service technicians can never tell if we really have the parts or
not. Several of them have started to take large quantities of critical parts and are keeping their own
inventory. When it comes time to replace their own “private stock,” they take a bunch more. That has
made the demand on the central inventory appear very erratic. One day we have plenty, and the next
day we’re out! You can imagine how happy purchasing is when the first time they see a purchase order
it is requesting an immediate urgent shipment. We’ve made a policy that the technicians are only
supposed Order Quantities 303 to have a few specifically authorized parts with them, but I’m sure many
of the technicians are violating that policy big time.”

QUENTIN BATES, FIELD SERVICE TECHNICIAN: “Something is drastically wrong with our inventory, and
it’s driving me and the other techs crazy. We’re not supposed to keep much inventory with us, only a
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few commonly used parts. If we have a field problem requiring a part, we’re supposed to be getting it
from the central inventory. Problem is, much of the time it’s not there. We have to take time to pressure
purchasing for it, and then have to try to calm our customers while we wait for delivery. In the
meantime, the customers’ systems are often unusable, and they’re losing business. It doesn’t take too
long before they’re really mad at us. I guess the people at purchasing don’t care, since we have to take
all the heat. Lately I’ve been taking and keeping a bunch of parts I’m not really supposed to have in my
inventory, and I know the other field technicians do also. That’s saved us a few times, but the situation
seems to be getting worse.”

Now that Robert had some real information as to the nature of the problems, He needed to start
developing solutions—and it appeared that it was important to come up with good solutions fast! The
first thing he tried to do was take a couple of part numbers at random and see if he could improve on
the ordering approach. The first number she selected was the A233 circuit board. The average weekly
usage was 32. The lead time was given as one week. The board cost $18, and the cost to place an order
was given as $16. The quantity ordered to fill the bin was usually 64. The second number was the P656
power supply. It cost $35, but since the supplier only required a fax to order the cost was only $2 per
order. Even with the fax the delivery lead time was two weeks. The average weekly demand for the
power supply was 120. The company typically ordered 350 units at a time. Recently the supplier for the
circuit board hinted that it might be able to give Tiger a price break of $2 per board if Tiger would order
200 or more at a time.

Should Tiger pursue the price break? Why or why not?

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