Case Study on Crusader PC LTD
Logistics management is very significant for the success of every firm. Logistics management entails all the activities associated with the flow and storage of commodities and service from the raw materials providers, through the supply chain to the final consumer. It enables the management of every organization to integrate its activities through improved coordination to realize its objective and gain a competitive edge over the rivals in the industry. CrusaderPC Ltd is a firm that was formed as a result of a merge between Jesso Computer, Inc and ABCtech LTD. It produces and markets various electronic goods which include computers, web hosting and e-commerce services to B2B businesses. Initially, the firm made substantial profits but its success did not last as a result of significant transformations in the electronics industry (Coyle et al, 2008).
CrusaderPC’ management needs to identify the problems affecting its logistics management in order to resolve them and improve its dwindling performance. Some of the objectives that the senior director of supply chain management has proposed to the CEO in order to improve the logistics management of the organization include: enhancing the efficiency and effectiveness of the production planning schedules and streamlining the supplier base and
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Key problems to CrusaderPC’s logistics management activities
Many of the problems that CrusaderPC faced resulted from the transformation in the industry and the presence of many competitors. Competition in the industry resulted to improved customer service in reduction in prices which led to a decrease in revenue by companies including CrusaderPC. The company was also negatively affected by poor customer support services that it offered including the failure to deliver finished commodities when and at the place they are required. Poor customer services led to failure by the company to improve the various utilities of their products which gave the competitions a better competitive advantage. As a result, the firm lost a substantial share of its market and its reputation was destroyed (Coyle et al, 2008).
Outbound Logistics Management
Another problem that CrusaderPC experienced is high operational expenses in regard to delivery of finished goods. Due to its length production cycles, the delivery of the finished commodities provided the only chance to recover the lost time. The company opted to utilize the overnight shipments in order to remain relevant in the highly competitive market which consisted of other companies such as Dell and Apple. These companies had a far much better production cycle compared to CrusaderPC’s. under normal circumstances the transportation expenses are taken care of by the customer but CrusaderPC opted to cater for the costs in order to retain its customers most of who were unsatisfied with the firm’s services. This was a heavy price that the company paid for its poor inbound logistics management (Coyle et al, 2008).
The company also had a problem with its manufacturing operations. Some of them of course resulted from poor management of its logistics operations. Length production cycles and failure to maintain an appropriate inventory control system also contributed to problems in the manufacturing operations of the firm. The main problem in this area was an inappropriate design of the assembly room layout. Constituents parts were normally introduced into the manufacturing area at random spaces without a planned a planned time flame. This greatly affected the product flow. Work in progress was transported in the manufacturing area in unplanned patterns in an effort to complete the poorly planned production process. Due to this unnecessary materials handling and movement was required which greatly minimized the efficiency of the production process and wasted a lot of time. The number of finished goods manufactured was significantly reduced by this inefficient process. Less than 1,000PCs for instances were produced on a daily bases in a facility that was intended to handle a capacity of more than 2,000 on daily basis. This restriction in the number of finished goods produced led to a high increase in product lead time as well as client order cycle time. The firm’s lead times varied from 1 to 30 days to those of major competitors which averaged at 7 days. These supply chain problems and manufacturing drawbacks destroyed the reputation of CrusaderPC and led to a substantial loss of the company’s market share. Most customers felt that the firm had very quality products which were very difficult to purchase (Coyle et al, 2008).
CrusaderPC’s approach to the procurement
CrusaderPC failed to adopt a new approach to its procurement operations. The company failed to respond to the now more competitive and supply chain dependent PC industry. It retained its initial intense emphasis on the commodity and build-to-forecast operations. Although the firm produced high quality products, its failure to respond to changing supply chain processes was a major mistake. CrusaderPC failed to collaborate with the suppliers appropriately. It failed to strategically outsource its logistics processes and failed to communicate with its customers in the appropriate manner as well. This led to an increase in its product lead times to averages of between 10 and 30 and an increase in customer dissatisfaction (Coyle et al, 2008).
The main advantage to this procurement approach is that the company produced quality products and was able to retain some of its customers.
Contrary to its competitor’s, CrusaderPC did not establish a strategic collaboration with its suppliers. The firm applied the short transactions with as many as 150 different suppliers of product constituents, accessories as well as software. The top management maintained that the various supplier were essential for the completion of the production process because the products manufactured required several component parts and accessories as dictated by the company’s product line. This problem resulted from the firm’s failure to standardize parts appropriately and control the different types of products offered to its clients. Managing this large number of suppliers was expensive for the firm. Human resources were exhausted as large amounts of man hours were required to sustain the communication and building collaborations with every supplier. Financial resources were consumed as CrusaderPC bought their components at higher prices compared to the competitors. It purchased small bits of components from each supplier and could thus not get eligibility to quantity discounts. Most of its internal resources were taxed because the firm got insignificant value-added taxes from its suppliers. Many suppliers regarded CrusaderPC as a minor customer and thus failed to provide extra services such as those given to its major competitors: Dell and HP (Coyle et al, 2008).
Inappropriate communication in regard to accessibility of inventory and planning of the manufacturing process and scheduling created an inefficient procurement process and several drawbacks in the inventory control. The purchasing department relied on guesses to make purchases and often ended up buying components that were no longer in demand. It also made the other mistake of purchasing more than the company required in an effort to push for quantity discounts. Due to that unnecessary inventory accumulated in the firm and stacked up the production system. This created a further problem of manufacturing products that often went obsolete before they could be sold. The firm was thus negatively affected by poor procurement decisions. Its storage facilities were stocked up with inventory and product that added no value to the production system. The logistic department was forced to unload some containers in an effort to create temporary warehouses to accommodate the excess inventory and products. This new strategy only operated for a short while after which the carriers began to levy detention fees for the stored goods. The strategy was uncontrollable as the firm continued to receive new inventory and products. As a result trailers were offloaded without counterchecking vital details such as quality, quantity and destroyed or missing items. The purchasing department failed to maintain roper inventory records. This approach to procurement was almost a total failure of CrusaderPC as receipts of commodities into the inventory process were delayed (Coyle et al, 2008).
The inventory system worsened to a situation where required materials could not be traced in the computer system and also in the CrusaderPC storage places. New purchases were executed to complete manufacturing request without tracing the previously bought components from the company. This is because the purchasing department failed to keep records and track of every component that the firm purchased. This was a further challenge to the financial department causing the company to experience cash flow problems. The manufacturing processes were delayed by lack of components although in the real sense the parts were misplaced and could not be traced. Incomplete PCs were removed from the manufacturing process and temporary stored elsewhere in await missing components. This further complicated the storage system of the firm (Coyle et al, 2008).
Issues in CrusaderPC’s information systems and communication
There were several failures in the company’s information and communication systems. CrusaderPC’s main problem with its information systems was exhibited by the purchasing department. The purchasing department failed to maintain records of all the purchases that it made. As mentioned above, this resulted to a situation where a component that had been bought could neither be traced in the computer systems of the company nor in the storage facilities of the company. This led to purchases of other components to complete a customer request where the parts could not be traced. This was a failure by the procurement department to utilize information systems in the management of the purchasing activities. This issue can be overcome by utilizing the information communications systems to make and keep records which can assist in purchasing decisions as well as tracing of already purchased components from the company’s computer system or storage facilities (Coyle et al, 2008).
Another issue in the information system and communication was the failure of the company to utilize the systems in managing its supplier department. Instead of the firm standardization its product assortment in order to control the production costs, it offered a wide range of different products to the customers. This forced the management of CrusaderPC to maintain several suppliers each providing small bits of the required components. This problem locked the company from possible quantity discounts and after sale services. The information and communication systems can be used to standardize the product assortment in order to control the production process. This will assist in the reduction of the production costs (Coyle et al, 2008).
In an effort to counter the cycle advantage enjoyed by other PC producers, CrusaderPC created a program called Computers Today. The program targeted the holidays when demand was at its peak. The program entailed storing the inventory in company owned storage facilities in Memphis Tennessee. The firm established a situation orders could be shipped to the customers from its stock in the storage facilities overnight. This program however failed when the company failed to get as many orders as it had initially targeted.
Recommendations for improving the out-bound logistics
In order to improve the out-bound logistics, CrusaderPC needs to employ marketing approaches similar to those of the main competitors; Apple and Dell. The firm should adopt the direct sales model which has succeeded in several other organizations. The firm should set up online trading channels where customers can order products online. This strategy is flexible, profitable and can control the quantity of finished inventory by the firm. The company will need to adopt various supply chain management principles in order to benefit from the direct model (Coyle et al, 2008).
CrusaderPC just like other firms in the PC industry manufacture commodities on a make-to-order (MTO) basis. This strategy has worked very well for companies in terms of the volume of the sales that they make. The main objective of the MTO approach is to provide the customers with cheaper customized PCs. This will also solve the company’s demand forecasting problem in the changing marketing environment. MTO approach is an appropriate option because it will help the firm minimize and standardize the number of components found in the products made (Coyle et al, 2008).
The company can improve the out-bound logistics by establishing firm long term strategic collaborations with the main suppliers. This is a common trend in the computer industry and CrusaderPC should not be an exception. In forming alliances, the intention is to establish relationships instead of implementing individual transactions. These relationships enable companies to create mutual goals, share information efficiently, share ideas on risks and rewards and monitor the strategic plans. Supplier normally have a wide range of useful information that can assist individual optimize their operations. The established relationships will also assist the firm in focusing in key competencies and facilitate the improvement of its general operations (Coyle et al, 2008).
In addition to the supplier alliances, CrusaderPC should consider outsourcing the logistics function. This will boost the MTO systems because a third party experience is very important in the production of computers. Third party partners can provide services such as transportation which speed up the flow of materials through the supply chain. This will call for a major investment in information and technology for this approach to be successful. Logistics outsourcing is a strategy that is widely used in the in the technology industry. An example of a firm that has succeeded in logistics outsourcing is Hewlett-Packard which has outsourced U.S. warehouse functions (Coyle et al, 2008).
Push versus Pull Supply Chains
Another strategy that the firm can adopt is the pull-based supply chain. In this type of approach the supply chain, all the operations are dependent on demand rather forecasting. This will require CrusaderPC to reduce its product lead time and research on customer demand trends. This strategy will assist the firm in producing commodities according to customer specification. Since this process can be very expensive the firm will need to standardize its products and offer limited MTO options for the customers. This will in turn create several benefits for the company and its alliances in the supply chain. The firm will also benefit in the sense that it will be able to create a low-cost ability to handle the changing market demands (Coyle et al, 2008).
After identifying the main problems that CrusaderPC is facing in its operations, it is now easier to adopt the right strategies to control them. The MTO approach will assist the company get rid of its finished goods inventory which is unnecessarily stored in the storage facilities. This approach is also very efficient is handling the demand forecasting challenge since the market for PCs is always changing. It will also assist the firm manufacture PCs according to customer specification and thus reduce the number of components in a single PC. This will have a direct effect in the financial department and will also prevent the purchase of unnecessary components for the manufacturing process. This strategy will also revive CrusaderPC’s Computer Now strategy which was very efficient in the reduction of the firm’s lead times. This will help the company regain its lost share of the market.
Coyle, J., Langley, C., Gibson, B., Novack, R., & Bardi, E. (2008) Supply Chain Management: a logistics perspective. (8th ed.). Mason, OH: South-Western Cengage Learning, pp. 677- 685