Tiger speed computer inc.

There was no question about Johns genius. Seven years ago, he decided to enter the competitive

nightmare that the personal computer business had become. Although on the surface that appeared to

be a rather non-genius-like move, the genius came in the unique designs and features that he developed

for his computer. He also figured a way to promise delivery in only two days for the local and regional

market. Other computer makers also had rapid production and delivery, but they were national

competitors, and the delivery time from distant locations generally made John able to outcompete them

on delivery.

John soon had a loyal following, especially among the many small businesses in the area. Not only could

John deliver quickly, but he also had very rapid service to deal with any technical problems. That service

feature became critical for the local businesses whose very livelihood depended on the computers, and

soon that rapid service capability became more important than the initial product delivery. Since most

of these businesses were fairly small, they could not afford to have their own in-house computer

experts, so they depended heavily on John.

The Current Situation

All was not totally rosy at Tiger Computers, however. Recently they had hired Robert Ellis for the newly

developed position of Inventory Manager for Aftermarket Service. In the first week Robert got a good

idea of the challenges facing his after he interviewed several of the people at Tiger company.

Phil Davis, CUSTOMER MANAGER: Im not sure what you need to do, but whatever it is needs to be

done fast! At this point our main competitive edge other than product delivery is service response, and

Im always hearing that we cant get a unit in the field serviced because some critical part is missing.

Both the customers and the field service people are complaining about it. They make a service call, find

out they need a certain part, but in many cases were out of the part. The customers tend to be fairly

loyal, but their patience is wearing thinour policy is to provide at least a 98% customer service level,

and were not even close. Thats not the only problem, though. Since our service is declining, the

customers are looking more closely at our prices. Id like to cut them a break, but our financial people

tell us our margins are already too thin, and get thisone major reason is that our inventory and

associated inventory costs are too high! It looks to me as if we have a very large amount of the wrong

stuff here. I dont know that for sure, but I sure hope you can find a solution, and fast!

Ellisa Chong, CHIEF ENGINEER: Boy, am I glad youre here! The inventory problems are killing us in

engineering. Tiger has always been known for unique designs, and weve been trying hard to keep ahead

of the competitive curve on that issue. The problem is that most of the time when we push hard to get a

new design out, the inventory and financial people tell us we have to wait. It seems like they always

have too much of the old design inventory around, and the financial hit to make it immediately

obsolete would be too severe. Were told that as soon as we announce a new design many of our

customers would want it, so that tends to make most existing old design materialeven for service

obsolete. We try to tell the service inventory people when we have a new design coming so they can use

up the old material, but somehow it never seems to work out.

James Duges, PURCHASING MANAGER: Well, Robert, I wish you luckyoull need it. Im getting

pressure from so many directions, sometimes I dont know how to respond. First, the financial people

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are always telling me to cut or control costs. The engineers then are always coming out with new

designs, most of which represent purchased parts. A lot of our time is spent working with suppliers on

the new designs, while trying to get them to have very rapid delivery with low prices. Although most can

live with that, where we really jerk them around is with the changes in orders. One minute our field

service people tell us theyve run out of something and they need delivery immediately. In many cases

they dont even have an order for that part on the books. The next thing you know they want us to

cancel an order for something that only a day before they said was critical. Our buyers and suppliers are

good, but theyre not miracle workers and they cant do everything at once. Some of our suppliers are

even threatening to refuse our business if we dont get our act together. Weve tried to offer solutions

for the field service people, but nothing seems to work. Maybe they just dont care.

Miram Goldens, CHIEF FINANCIAL OFFICER: If you can help us with this inventory problem, youll be

well worth your salary, and then some! Here we are being competitively crunched for price, delivery,

and efficient service, and our service inventory costs seem to have gone completely out of control. The

total inventory has climbed more than 200% in the last two years while our service revenues have only

grown 15%. On top of that, we have had an increase in obsolete material write-off of 80% in that same

two-year period. In addition, significant inventory-related costs have come from expediting. Premium

freight shipments, such as flying in parts, caused by critical part shortages cost us over $67,000 last year

alone. Do you realize that represents almost 20% of our gross profit margin from the service business?

With our interest rates, warehousing, and obsolete inventory costs, we recognize a 23% inventory

holding cost. Given our huge inventory level, that takes another big bite out of profits. All this suggests

to me we need to get control of the situation or we may find ourselves out of business!

Frankie knowles, FIELD SERVICE SUPERVISOR: Until they hired you, the other production supervisor and

I had been in charge of inventory. I hate to discourage you, but it looks like an impossible job. The

purchasing people bought a bunch of standard-size bins, and they told us that as soon as we had a

weeks average part usage for each part to order more specifically, enough to fill up the bin. Since

most of their lead times were a week or less, it sure made sense. All the records were kept on computer;

therefore, the computer could be programmed to tell us when we had only the weeks supply. It made

great sense to me, but something kept going wrong. First, field service technicians seemed to frequently

grab parts without filling out a transaction. That made our records go to pot. As a matter of fact, we had

a complete physical inventory a couple of months ago, and it showed our records to be less than 30%

accurate! I suspect our records are almost that bad again, and we dont have another physical inventory

scheduled for another nine months.

Second, with our records so bad the field service technicians can never tell if we really have the parts or

not. Several of them have started to take large quantities of critical parts and are keeping their own

inventory. When it comes time to replace their own private stock, they take a bunch more. That has

made the demand on the central inventory appear very erratic. One day we have plenty, and the next

day were out! You can imagine how happy purchasing is when the first time they see a purchase order

it is requesting an immediate urgent shipment. Weve made a policy that the technicians are only

supposed Order Quantities 303 to have a few specifically authorized parts with them, but Im sure many

of the technicians are violating that policy big time.

QUENTIN BATES, FIELD SERVICE TECHNICIAN: Something is drastically wrong with our inventory, and

its driving me and the other techs crazy. Were not supposed to keep much inventory with us, only a

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few commonly used parts. If we have a field problem requiring a part, were supposed to be getting it

from the central inventory. Problem is, much of the time its not there. We have to take time to pressure

purchasing for it, and then have to try to calm our customers while we wait for delivery. In the

meantime, the customers systems are often unusable, and theyre losing business. It doesnt take too

long before theyre really mad at us. I guess the people at purchasing dont care, since we have to take

all the heat. Lately Ive been taking and keeping a bunch of parts Im not really supposed to have in my

inventory, and I know the other field technicians do also. Thats saved us a few times, but the situation

seems to be getting worse.

Now that Robert had some real information as to the nature of the problems, He needed to start

developing solutionsand it appeared that it was important to come up with good solutions fast! The

first thing he tried to do was take a couple of part numbers at random and see if he could improve on

the ordering approach. The first number she selected was the A233 circuit board. The average weekly

usage was 32. The lead time was given as one week. The board cost $18, and the cost to place an order

was given as $16. The quantity ordered to fill the bin was usually 64. The second number was the P656

power supply. It cost $35, but since the supplier only required a fax to order the cost was only $2 per

order. Even with the fax the delivery lead time was two weeks. The average weekly demand for the

power supply was 120. The company typically ordered 350 units at a time. Recently the supplier for the

circuit board hinted that it might be able to give Tiger a price break of $2 per board if Tiger would order

200 or more at a time.

Case Analysis

1. Using the data on the two-part numbers given, provide a comprehensive evaluation of the ordering

policies. Compare the present annual average cost with the cost of using a system such as EOQ, and

discuss any other order policies as appropriate.

2. Should Tiger pursue the price break? Why or why not?

3. What do you think the sources of the other problems are? Be specific and analyze as completely as

possible.

4. Develop a comprehensive plan to help Robert get the inventory back under control.