ASSIGNMENT COVER SHEET

FLORIDA A & M UNIVERSITY

SCHOOL OF BUSINESS & INDUSTRY

Excellence with Caring

MAR- 5465
Strat. Purchasing & Supply Mgmt.
Assignment Title: Firebird Electrics
Students Name: Jonathan Davis
Date: Nov. 3, 2014

Fall 2014

Jonathan Davis
Mar 5465 (Strat. Purchasing & Supply Mgmt.)
Nov. 3 2014

Case Analysis: Firebird Electrics

Introduction (best prospectus)
In 1994, Firebird Electrics, U.S. (Firebird), was the first foreign supplier to relocate to the United
States of America to supply the Road Master Car Company. Located in Columbia, South
Carolina, Firebird supplies headlights, taillights, lid lamps, center high mounts, and front-turn
assemblies to Road-Master. Road-Master sales account for 98.5 percent of firebirds revenues.
Original equipment manufacturing (OEM) lighting is supplied to Orangeburg plant, the
Columbia auto plant, and the Columbia motorcycle plant. Service products are made for foreign
and domestic demands, then shipped to Canada, Mexico, Germany, Brazil, and Japan.
Firebird has five distinct operations centers. The east plant manufacturing light assembles and
units. Manufacturing I produces headlights and front-turn assemblies. Manufacturing II
assembles taillights, lid lamps, center high mounts, and aftermarket products. The West plant
provides components to assembly and external sales. Manufacturing III is and sanitization and
coating process for lenses, reflectors, and extensions. Manufacturing IV is die injection molding
facility producing reflectors, lenses, and housings. Manufacturing IV, the focus of the upcoming
make-to-buy decision, molds parts for finished assembly and sales. Lenses, reflectors, and
housings are molded from resins and fiberglass-reinforced plastics.
Purchasing for firebird Electric is decentralized. The purchasing department at Firebird U.S.
consists of nine full-time associates. The purchasing manager assists in decision making and
controls administrative duties. Six buyers supplies the HB department and one is solely
responsible for MRO purchases. The other four buyers are responsible for specific vendors. Each
buyer oversees all products purchased from 8 to 10 different suppliers.
Housings are fabricated through die injection molding. A resin is melted, injected, and stamped
into the die mold. The housings function is to attach to the body of the vehicle, protect internal
components (cords, bulbs, etc.) and hold components in place so that the light functions as
designed. Each make/model has unique housing specifications with regard to size, durability,
holes, and necessary attachments to perform these duties.
The customer, internal departments, and potential suppliers contribute to designing quality into
molded parts. Due to Road-Masters strict quality requirements and just in time inventory
systems, nonconformance results in high cost, hinders customer relations, and endangers
prospective contracts. Department included in the product definition and development stages
include product design, purchasing, quality assurance, sales, die molding, engineering,

manufacturing, plant management, quality control, production control, and materials

management. After product development is completed, Firebird defines the specifications for the
fixture (die mold) measurements. The fixture is designed for accuracy, ease of use, and cost
efficiency. A rough sketch of the fixture and the required materials is drawn. Purchasing and
engineering personnel must approve the concept. New product development is an involved
process. As a result, more and more of firebird production is outsourced, and decisions to makeor-buy based must be made based on the given financial data.
Outline of chapter principles bearing upon case
The Firebird Case relates to Chapter 12 in several ways such as quality assurance expectations,
quality target commitment, and also the strategic components that serve as the most critical part
in a project requiring more extensive quality assurance requirements. Parallel to the Firebird
Case, as the supplier, the quality assurance systems must be consistent with the in-house quality
requirements of the customer Road Master. Therefore the stated expectations of product quality
must meet the minimum level of performance. Also described in the Firebird Case is the strategic
components being required to go through a rigorous parts quality assurance process
Subsequently the process of product development, review and validation the new or modified
part agreement between Firebird and Road Master is complete after an acceptable final test
sample has been generated and verified. This process also allows quality to be improved.
Analysis with problems to be addressed
While analyzing the Firebird Case the problem of Road-Master just-in-time inventory systems,
nonconformance results in high costs, hinders customer relations, and endangers prospective
contracts due to the strict quality Road-Masters desire. Also another problem in need of
addressing is the increase of more Firebird production being outsourced making the decision to
make or buy more difficult. When incorporating the make-versus-buy decision, one must regard
the difference in quality levels of in-house and procured parts, variables within the cycle time,
labor costs, overhead costs, transportation costs, and profit margins. When providing products in
a just-in-time manner these variables should be more controlled to ensure all requirements are
met. Lastly, with Firebird purchasing and retaining ownership of the entire die mold fixture
regardless of the outcome of the make-versus-buy decision the total cost can be more expensive.
Remedial strategy with supporting calculations as necessary
Given the financial information and assumptions, Firebird needs to conduct a cost analysis on the
basis of production and purchasing for the required parts. In this analysis, Firebird needs to
compare the costs of producing the parts with respect to the number of machines, output of the
machines, labor, etc. versus purchasing and observing which methods is more economical or
efficient in this make-buy-decision they are facing. Firebird should not only use the financial
analysis to make their decision, but consider other factors as well. Please note: that whatever
decision is made affects their business going forward. For example, if Firebird decides to
outsource the parts, it could eliminate jobs, or it could make new ones.
Assumptions:

OEM demand is estimated at 250,000 units over the next year (1000/units day, 250 working days/year)

The resin usage is 454 grams (1 pound). Actual product weight is 432 grams with a spru weight of 22
grams.

Variable include cycle time, labor costs, overhead costs, material costs, transportation costs, and profit
margins.

Different in quality levels of in-house and procured parts is negligible.

The F.O.B. purchase price is $750,000; receiving and inspection cost is $35,000.

Annual order processing cost is $5,000.

Make/Buy cost analysis:

Table 1

Table 2

Produce 1 Machine
Resin
$ 250,000.00
Molding Unit
$ 285,000.00
Time Value of $
$ 19,950.00
Labor
$ 74,988.00
Overhead
$ 86,236.20
Plant Opportunity Costs $ 80,000.00
total
$ 796,174.20

Produce 2 Machine
Resin
$ 250,000.00
Molding Unit
$ 285,000.00
Time Value of $
$ 19,950.00
Labor
$ 149,976.00
Overhead
$ 172,472.40
Plant Opportunity Costs $ 160,000.00
Total
$ 1,037,398.40

BUY

BUY

Purchase Cost
Receiving Cost
Other Processing Costs
Total

$ 750,000.00
$ 35,000.00
$
5,000.00
$ 790,000.00

Purchase Cost
Receiving Cost
Other Processing Costs
Total

$ 750,000.00
$ 35,000.00
$
5,000.00
$ 790,000.00

The time value of money component represents the cost of the molding unit multiplied by 7%
[285K * .07]. The plant opportunity costs are calculate using the required space for the machine
divided by the plant size and then multiplying that by the output cost [1000/100000* 8M].
Given the estimates from the cost analysis above, Firebird appears to be efficient enough to use
one machine oppose to two machines. As a result, the Honda parts should be produced by
Firebird and not outsourced. This decision greatly affects the economy in the production area, in
that, Firebird will continue to provide or maintain employment for its employees. In addition, the
decision to make the parts in-house will improve Firebirds suppler-customer relationship with
Honda.

1. Do make or Buy decisions have the same impact as outsourcing decisions?

Yes, in make-or-buy decisions or outsourcing decisions, the two most important factors to
consider are cost and availability of production capacity. A firm may decide to purchase the
product rather than producing it, if it is cheaper to buy than make or if it does not have
sufficient production capacity to produce it in-house. Factors that may influence a firm's
decision to buy a part or produce it internally includes lack of expertise, volume
requirements, desire for multiple sourcing, existing idle production capacity, quality control,
technology, and the fact that the product may not be part of its strategy.

2. What are the benefits and costs to society when well-established firms like Firebird
outsource when they clearly have the capability to produce the good or service?
Given that Firebird has a tough decision to make in choosing to make or buy their products, it
involves many factors. Firebird shouldnt just look at the financial impact for costs or
savings, although its the first thing any firm looks at. The decision must be thoroughly
analyzed. If the financial impact doesnt affect the firm in a highly significant way, then the
analysis should be avoided. If there is potential to rapidly increase profitability than the
analysis should continue. In any case, a firms goal is to maintain competitiveness and
increase profitability. With the phenomenal surge in outsourcing over the past decades, the
make-or-buy decision is one that businesses have to deal with very frequently. Note that,
business should never outsource there core competencies. This could lead to customers
dealing directly with competition, or customers becoming the competition. For example, how
do you think Honda would feel if they outsourced their components?

3. How should the suppliers be selected if the buy option is chosen? Give a step-by -step
approach to the selection and evaluation process.
1. Product specification Firebird needs to describe the required product and spec needs
2. RQF (RFP) Using the product spec, a request for a quote or proposal would be sent out
to identify possible suppliers through a bid process.
3. Supplier selection - Process of selecting and evaluating suppliers on the basis of track
records (reliability), production handling (capacity), and production machines and
technology (capability).
4. Terms and conditions (contracts) - Firebird begins negotiation of final price and terms.
Once this step is completed purchase order beings and production starts.

Recommendations
We recommend that Firebird makes the product internally. The cost associated with making the
product is approximately 10,000 more than buying it with one machine. This is a clear example
of a cost analysis that isnt significant enough to change their process. The benefits of making
the products internally includes firebird knowing their own volume requirements, their potential
for multiple sourcing, their existing idle production capacity, quality control, and technological

capabilities. With the in-house productions, Firebird doesnt have to take risks in knowing that
their products may not be available when demand is high, or worry about contract negotiations
for higher prices with suppliers, which in turns can improve or deteriorate supplier relationships.
In addition, this affects the local economy in a great way, in that Firebird doesnt have to lay off
employees, thus bringing down the local economy. Eventually, they may have to go with two
machines, and will save more in comparison to purchasing parts in the long run.