Otis Toy Trains
The proposal by the Chinese company JLPTC is attractive in terms of pricing. While price is an important factor and a key success factor in a lot of cases, there are other variables as well that need to be considered. As a consultant, it is important to state down the changes that are expected to take place objectively and then take a course of action based on that.
Some of these factors are how the supply chain will be impacted in terms of sourcing the products, logistics management, contract and service level scenarios, warehousing costs, inventory levels to keep, demand forecasting, level of information sharing as well as reliability, flexibility and responsiveness of the modified supply chain. (Swink, Melnyk, Cooper, & Hartley, 2011)
Discussing each in turn, the quality of the products that JLPTC makes will have to be a top concern, given that one of Otis train's core efficiencies lies in the detailing of its toy trains, and if this is outsourced to JLPTC, there effectively will be a loss of control. Secondly, as far as a logistics management scenario is concerned, the company was based in Minneapolis as the buyers were concentrated mainly in that area, saving on logistics costs. However, now when the production will be done in China, by the company, a host of international trading regulations will be involved, clearing and forwarding agents at both ends respectively will have to be taken on board. Warehousing and inventory management costs will rise, as finished trains will have to be stored first in China and then in the U.S.A. Moreover, demand forecasting will now involve two entities...
(Swink, Melnyk, Cooper, & Hartley, 2011)
As far as sharing of information is concerned, the company will have to look at sharing crucial processes with them so that they can make the trains as per specifications. This could also lead to the company employing the same techniques in order to make trains under their own brand name leading to more competition in the industry unless an agreement is made barring that company from continuing its own production of toy trains. Secondly there is also the concern that an IT system will have to be in place to encourage real time information sharing to better align the two companies so that they perform better. This will also be useful whilst forecasting demand and deciding upon inventory levels. (Chopra & Meindl, 2009)
Otis will also have to consider how reliable the Chinese company is in meeting deadlines and in sticking to the commitments it has made. Moreover the flexibility of the company will be affected as now, new designs will have to be developed in conjunction with the Chinese and this will make it less flexible and some people might be conservative towards taking risks. The company being aligned with another will not be as agile either. As far as the responsiveness of the supply chain is concerned, with the increased distance the company will either have to increase its inventory level or incur higher transportation costs (in terms of extra payment for speedy deliveries) in order to maintain its current level of responsiveness. (Chopra & Meindl, 2009)
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