The Muenster Pump Company (MPC) produces an agricultural company; this enterprise works in this market for more than forty years, and at the moment, it is the largest employer in the town. To some extent, this status ensures good relationships between MPP and governmental officials (Burt, Petcavage, & Pinkerton, 2010).
MPC acts as a self-sufficient entity, which is not dependent on external suppliers. In particular, MPC has a foundry that casts pump housing; currently, 16 employees work in the foundry.
This company can reduce their overall production costs by purchasing pump housings from outside suppliers such as Union Foundry at a lower price.
The key objective which the Muenster Pump Company has to company to achieve is to reduce their manufacturing expenses; moreover, they have a good opportunity to do if especially if they decide to work with external suppliers. However, in this case, the MPC will no longer remain self-sufficient. Their manufacturing process may be slowed down. Most importantly, they will have to dismiss 16 employees since there would be no place for them in the company. This is the key problem that they need to resolve.
The Best Alternative
The most optimal solution for the Muenster Pump Company will be to purchase only a certain portion (approximately 50 percent) of L-1012 housing from external suppliers while retaining its foundry and employees, who work in it.
To explain the advantages of this approach, we should first mention that L-1012 case housing constitutes approximately 60 percent of MPC’s demand for these components. Other companies can supply it at a lower price. However, they can deliver these products within 60 days, and there is a great likelihood that the Muenster Pump Company will not be able to respond to the needs of their clients if they will have to wait for such a long time. The key benefit of the solution, proposed in this paper, is that it will allow them to partially reduce their manufacturing costs while remaining more or less independent of outside suppliers. In addition to that, this strategy will enable them to keep jobs for the foundry workers and subsequently maintain cordial relationships with the city officials.
Still, it has to be admitted that even this solution has its limitations. First, this company will need to reorganize its supply chain. In particular, they will have to ensure that their overall production of pump housing corresponds to the demand. As a rule, this task is more difficult when an enterprise has to cooperate with outside suppliers (Wisner, Tan, Leong, 2008, p 140). Furthermore, the management will have to pay more attention to quality control and production standards. The main task is to make sure that the pump housing, offered to the Muenster’s clients are of the same quality. These are the key issues that they need to resolve.
The Muenster Pump Company can choose from two other options. On the one hand, they can decide to completely outsource the production of the pump housing. This strategy will enable them to minimize their manufacturing costs. But, it may inevitably entail a great number of risks:
- excessive dependence on outside companies;
- inability to control the quality of production;
- problems with scheduling.
One should not disregard the social implications of this decision, especially the necessity to dismiss the foundry employees. In the long term, this decision can complicate their relations with governmental officials. The second alternative is to refuse the services of Union Foundry or similar companies and manufacture pump housings without their help. By choosing this alternative, the management of the MPC will ensure the complete self-sufficiency of their enterprise and keep jobs for the workers. Nonetheless, it will prevent them from reducing costs and boosting the financial performance of the company. Hence, we can argue that these alternative solutions are not fully consistent with the strategic and operational objectives, set by the Muenster Pump Company.
Implementation of the solution
To implement the most optimal solution, the management of this enterprise should take several steps.
First, they need to evaluate the offerings of several suppliers in terms of price, quality standards, and efficiency. This assessment is essential for the effective work of the Muenster Pump Company.
The second step is to map out a schedule for the production of the pump housing. The main goal is to coordinate the efforts of outside suppliers and their foundry workers.
Finally, it is necessary to inform the managerial decision to the workers. They need to explain the rationale for this decision. Apart from that, the management of MPC has to emphasize the point that the jobs of the foundry workers are not at risk. These people must not think that they can be made redundant at any point. In this case, they will try to search for a different job. It is quite probable that their productivity will decline, and the management must avoid these pitfalls.
Burt D. Petcavage S. & Pinkerton R. (2010). Supply Management (8th ed.). London: McGraw-Hill Irwin.
Hindle. T. (2008). Guide to Management Ideas and Gurus. NY: Bloomberg Press.
Lewis. B. & Payant R. (2007). Facility manager’s maintenance handbook. NY: McGraw-Hill Professional.
Wisner J. Tan K. & Leong K. (2008). Principles of Supply Chain Management. New Jersey: Cengage Learning.