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Written Case Summary 1

MD RUBAYAT UL ISLAM

1. Bose’s Supplier Relations based on Bose’s history, strategy and sourcing policy

Bose is a producer of audio premium speakers used in automobiles, high-fidelity systems, and
consumer and commercial broadcasting systems. Bose has seen up and down, good and bad
relations with suppliers.

Bose developed a detailed supplier performance system that measures on-time delivery,
quality performance, technical improvements, and supplier suggestions. After six months of
deliveries without rejects, Bose encourages suppliers to apply for a certificate of achievement
form, signifying that they are qualified suppliers. At one point this strategy resulted in loss of
time and money for Bose. Apparently not enough research was conducted up front. Entry
efforts and loss in Japanese market in 1970 is one example. Bose management assumed that
what is good at home is good at globe.

Bose has different sourcing strategies over the years; one of them had been single sourcing
strategy. This strategy allowed full shipment orders with lower price per units. But there was a
problem with this strategy, if parts don’t arrive in time and have some defects found at
assembly line, delay of operations occur, and that’s exactly what happened at Bose. It hurt their
relations with international buyers and suppliers.

In the 1970s, Bose sought to enter agreements with the automobile industry, including G M,
Honda, Audi, and Nissan. These suppliers had a broad base of clients and the relationship
seemed very promising. But Bose made the mistake when trying to enter Japanese market, by
assuming that the desire for their product was universal, but Bose failed to enter the market.
Eventually in 1982, Bose was well received by the Japanese market, but they made the initial
mistake of entering the market without appropriate market research, which could have
prevented loses.
Bose also entered into small market through Sears, Sounds playground, Lechmere, and others
and when their product was available to everyone it was perceived as a low quality brand. Bose
has seen up and down trend in its relations with suppliers. Leadership’s decisions at Bose also
had its effect on relations with suppliers, as they focused on effective coordination, scheduling,
purchasing and inventory. But the low time was when Bose entered into plastic parts
agreement with G&F. The reasons being G&F was not clear if they would supply all these parts
to all plants.

So, at the beginning stages Bose did not have clear strategy regarding sourcing policy. At this
initial point Bose was not a smart buyer. Research was minimum, and a strong long-term brand
of Bose was not created.

Over the years Bose’s supplier relations strategy has improved, a good example is its Westboro
plant. Bose generally have achieved good results. It achieved lead time of 10 days, it used to be
4 to 6 weeks. Supplier relation declined in another area and that was plastic parts area. Again,
the mistake was not having a clear strategy regarding sourcing policy.

So, it can be summed up that Bose had up and down, good and bad relations with suppliers.
They had enough bad decisions, and main reason was not enough research and they did not
use Bose-supplier relations to create a strong International brand. Overall, Bose could have
been a more effective buyer.

2. Under JIT II, a vendor rep would replace the vendor salesperson, the Bose buyer and the
Bose materials planner. Clearly a lot of cost would be saved in this process. The cost estimated
for the vendor to keep such a rep would be $80,000/year. The money saved above could be
shared with the vendors. Even if Bose decides to do otherwise, Vendors like G&F and United
Printing would be benefited by lesser contract renegotiations and or Bose switching to new
vendors. Also, this would give them a long-term business. Bose wants material when it is
needed, not to sit in a warehouse.
Purchasing at Westboro

Until 1988, no purchasing had been done by the plants; instead, all items had been purchased
by Corporate Procurement but delivered to the plants.

By 1990, purchasing at Bose Corporation was more decentralized. The plants in Westboro,
Canada, and Ireland did their own day-to-day purchasing, typically against contracts negotiated
centrally. It was expected that the planned facility in Michigan would also manage its incoming
material flow.

Each production line at Westboro had its own operations manager and support organization.
Jim Tabor, plant materials manager, reported formally to Walt Hussey, plant manager, and
informally to Lance Dixon.

Westboro spent about $140 million per year on items purchased from an active base of about
200 vendors. Purchasing supervisors supervised a group of buyers who procured all materials
for one production line. Buyers were responsible for managing quality, cost, and delivery.
Unlike Corporate Procurement, most buyers at Westboro were not engineers, and instead had
come up through the ranks as administrators or expediters. Buyers at Westboro typically
started on easier commodities such as hardware or operating supplies, and then moved on to
more difficult categories such as plastics and electronics.

Corporate procurement
In 1990, Corporate Procurement at Bose purchased materials totaling $300 million. Corporate
Procurement was headed by Lance Dixon, director of Purchasing and Logistics. Dixon reported
to Tom Beeson, vice president for Manufacturing.
When Bose began to develop the Acoustic Wave Music System, Corporate Procurement
contacted vendors of AM/FM tuners to obtain design advice and product specifications.
Management invests in technology, trains their people, and truly have patience for longer term
projects. Employees stay at Bose for decades, which allows for deep knowledge of products /
technology and strong relationships.
3. The issue with Bose was that, it needed parts and material when it is needed, not to sit in a
warehouse like it used to be in auto industry before JIT.

Challenge for suppliers is fulfilling changing production schedules without creating costly
inventory, or even worse shutting down the line with late shipments. The direct line of
communication in a JIT II partnership lets them anticipate Bose's needs before those needs
become problems, and those problems become a crisis.

Any manufacturer before starting JIT program, need to forecast customer demand, set planning
and specifications, then send that information out to buyers for competitive bidding. Under the
JIT II program, however, the process is simplified. After Bose forecasts customer demand, the in
plant checks every plant's inventory, combining and reducing unit costs for any other needs,
then orders the product to ship direct-to-stock to the Bose location.

By studying various augments in favor of JIT, I would conclude that Bose and G&F should
participate in the JIT II program.

Benefits for Bose and G&F:

Through JIT II, Bose gains full time purchasing, production planning, and order fulfillment
personnel at no charge, gets lower ordering processing, inventory handling, and delivery cost,
In-plants are continuously involved in cost reduction, quality improvement and value analysis.
This would give them a competitive edge within the continual changing technology in the
industry. It would help built open collaborative setting between Bose and some selected
suppliers.

Bose always intended to increase its vertical integration to the extent which was feasible. Even
when sourcing parts from highly capable vendors, Bose saw three potential problems. The
vendor and Bose each had their own priorities and agendas. These agendas were often
contradictory to the Bose’s interest. A long-term relationship with vendor although may help
vendors gather specialized capital and develop particular expertise in manufacturing those
parts. Although this may have a negative impact on Bose as it might delay the ability of
establishing internal capabilities. Developing too much vertical integration might be only
sustainable if required staff be hired. Already they are facing a crunch situation in case of Buyer
staff. Beeson believed that the vendors would never understand the company’s needs or
organization as well as Bose employees, and that, if all the components of cost could be tracked
accurately, it would almost always cost more to source a part externally than to make it in-
house, as long as the volume was sufficient. Hence having a supplier’s man working as Bose
employee might solve that problem.

A supplier’s qualified rep would have extensive knowledge of the various domains. He may
understand the current needs and future needs more properly and would be more capable of
making more informed decisions quickly. This would save time for both parties. Under JIT II, a
vendor rep would replace the vendor salesperson, the Bose buyer and the Bose materials
planner. Clearly a lot of cost would be saved in this process. The company would analyze the
bids and respond to the vendors’ sales rep. The sales rep would place the order with the plant,
which would manufacture and ship. Under the JIT II program, the process is also simplified.
After Bose forecasts customer demand, the in plant checks every plants inventory, combining
and reducing unit costs for any other needs, then orders the product to ship direct-to-stock to
the Bose location.

Most of the buyer’s time at Westboro plant was spent in deciding and placing the orders with
the vendors. Another 15% buyer’s time was spent on revisions to existing parts; usually this
entailed updating documents or ensuring that revised parts met quality levels. The remaining
10% buyer’s time was devoted to renegotiating contracts with existing vendors. With JIT II in
rep a lot of this time would be saved.

Bose is always looking more innovation and new technology to please music lovers. As such it
needs to have a good new product development framework in place to reduce the time to
market its products. Such collaboration can reduce the time to design, develop new products.
Bose and suppliers’ rep can discuss about the specifications of the products in its initial stage so
that time and cost be saved of last-minute changes or cancellation of orders or modification to
the designs etc.

The money saved above could be shared with the vendors. Even if Bose decides to do
otherwise, Vendors like G&F would be benefited by lesser contract renegotiations and or Bose
switching to new vendors. Also, this would give them a long-term business. Also, G&F would
have clear idea about Bose’s demands and get hint about any upcoming order through rep.
Through the rep G&F would be also be informed about any product of Bose selling better so
G&F might need to be prepared beforehand.

With all the benefits there is some risk underlying also. Like the rep might show partiality
towards its parental organization. There might be some trust issues between both parties.
Bose’s manager might not agree sharing their information with the rep.

If the risk and trust issues can be handled well, it would be a win-win situation for both the
companies.

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