You will critically analyze the attached case study: A Make-or-Buy Decision at Baxter Manufacturing Company , summarize the key ideas, discuss the IT challenges, and present your recommendations.

This report will be organized as follows:

1. Introduction

2. Challenges

3. Change Management

4. Recommendations

5. Conclusions

The report should not be more than 1000 words.

A Make-or-Buy Decision at Baxter Manufacturing Company It is late Friday afternoon, and Kyle Baxter, president of Baxter Manufacturing Company, Inc., and his sister, Sue Barkley, vice president for customer relations, are discussing whether or not to purchase the Effective Management Systems manufacturing software package proposed by manufacturing Vice President Lucas Moore. Im really fearful of buying such a large, complex software package given our past experience, Baxter exclaims. What do you think? I really dont know, Barkley replies. We do need manufacturing software, and there are some obvious advantages to purchasing this software. We have had bad experiences in past attempts to buy such software, but we have learned from some of our mistakes, so we might be successful this time. But I have been impressed by the success that MIS has had in building new systems for us, so I am in a quandry right now. Were going to have to decide before long, Baxter notes, but we need to talk with some of our people first. Baxter Manufacturing Company Background Baxter Manufacturing Company (BMC), located in a small Midwestern town, is a leading manufacturer of deep-drawn stampings, particularly for electric motor housings. (Exhibit 1 shows a few of BMCs products.) The company was founded in 1978 by its chairman, Walter R. Baxter, as a supplier of tools and dies, but it soon expanded into the stamping business. BMC is a closely held corporation, with the family of the founder holding most of the stock. BMCs engineers have implemented some of the most complex stamping concepts in the industry, as the company has established its niche as a quality supplier of deep-drawn stampings to the automotive (85 percent of sales) and appliance (15 percent of sales) industries. BMCs major customers include Ford, General Motors, Honda of America, General Electric, Whirlpool, Amana, and Maytag. BMC puts great emphasis on quality and has achieved Q-1 status from Ford, a QSP Award from GM, and quality awards from Honda, and is recognized as a world-class supplier within its niche. Producing a deep-drawn part is a complex process requiring repeated stampings, each with a different male/female die pair. This process is performed on a heavy press, using a very complex die that consists of perhaps 10 individual dies assembled together in a line. A coil of steel of the proper width and thickness is fed into one end of the press. After each stamping cycle a precision transport mechanism moves the material forward exactly the right distance so that a part that has completed one stage is positioned correctly at the next stage to be struck by the next die on the next cycle of the press. Thus each cycle of the press performs a different forming operation on each of 10 parts, and a finished part comes off the machine at the end of each cycle. (Exhibit 2 shows the different stages of a motor housing stamping.) BMCs strength lies in its ability to produce efficiently large volumes of high-quality complex stampings. It may take 6 to 8 hours to install the dies and set up the Copyright 1997 by E. W. Martin. This case was prepared by Professor E. W. Martin as the basis for class discussion, rather than to illustrate either effective or ineffective handling of an administrative situation. EXHIBIT 1 Some of BMCs Stamped Parts Case Study III-2 A Make-or-Buy Decision at Baxter Manufacturing Company 443 EXHIBIT 2 The Stages of a Motor Housing Stamping This rapid growth has caused problems at times. For example, in 1990 its sales were so close to BMCs production capacity that, even when running its production 24 hours a day 7 days a week, it became almost impossible to meet promised delivery schedules. According to Sue Barkley: In 1991 we had to turn down business from existing customers who wanted to give us new parts to make. For almost a year we did not accept any new business. That was the most difficult thing we ever did because we were fearful that customers who had to go to our competitors might never come back. We told our customers that we hated to refuse their business, but we had to because if we took more business we couldnt handle itwe would be late and couldnt provide the level of service that we are committed to providing. Most of our customers understood. They were not happy about it, but they respected us for being up front about it. We did lose some good orders because we werent accepting business when they came out, but I dont think that there are any customers who havent come back to us with more business. By 1992 BMC had made the large investment necessary to significantly increase capacity and was back on its historical growth track. In the late 1980s BMCs automotive customers started to go to a just-in-time (JIT) philosophy in which they carried huge stamping presses for a production run, so BMC cannot efficiently produce short runs and therefore does not serve the replacement market well. BMC uses state-of-the-art equipment to develop and manufacture the necessary tooling for the needs of its customers. With the use of wire electrical discharge machines (EDM), computer numerical control (CNC) vertical machining centers, and CNC horizontal lathes, it is able to produce quality tooling efficiently. For the life of a part, BMCs computerized equipment can reproduce identical die components for replacement of worn or damaged dies. BMCs 140,000-square-foot manufacturing facility is one of the best in the country, with 39 presses that range from 50-ton to 600-ton capacity. Every press is equipped with accessory items such as feeds, reels, and electronic detection systems. In addition to the presses, BMC has recently added the capacity to weld, drill, tap, and assemble stampings into more complex parts to suit the needs and desires of its customers. BMC employs about 420 people and is nonunion. Management believes that these employees are BMCs greatest asset. According to Chairman Walter Baxter: We have a great group of people! We are fortunate to be located in a farming area where the people have a strong work ethic and a do whatever it takes attitude. We started out as a family company and we have a lot of familieshusbands and wives, their children, aunts and unclesworking here. My son, Kyle, is now President, and my daughter Sue is Vice President for Customer Relations. We cherish our family atmosphere. Over its 19-year history, BMC has grown at about 20 percent a year. The last five years of sales have been as follows: 1992 $32,000,000 1995 $61,976,000 1993 $37,292,000 1996 $74,130,000 1994 $49,900,000 minimal inventories of raw materials and parts. Rather than sending an order for a months parts at a time as they had in the past, the customers began telling BMC one day what to ship on the next. BMC was provided with a blanket order for planning, but the customers reserved the right to change the amounts at the last minute. Including the time to procure the raw materials, run them through the presses to make the parts, clean and pack them, and ship them out, BMCs production process requires at least two weeks if things go well. Thus the automotive companies are forcing their suppliers to maintain their inventories for them, which places great pressure on BMC to reduce its cycle times. Because of its two-week production cycle and long setup times, BMC is often forced to maintain a finished goods inventory that is substantially above its target of a three-day supply. About five years ago its automotive customers began to pressure BMC to convert to electronic data interchange (EDI), where all paper document flows between customer and supplier are replaced by electronic flows directly between the customers computer and BMCs computer. Thus BMC receives all purchase orders and shipping schedules electronically and sends out electronic shipping notices and bills. EDI has the potential to be quicker and more efficient for both parties, but BMCs factory computer systems were incomplete and fragmented, so for several years BMC accepted the data electronically, printed it out, and then rekeyed the data into those relevant systems that existed. The IS department is now building interfaces to enter the EDI data directly into some of BMCs systems. One reason for this delay was that their automobile customers use one EDI standard while their appliance customers use another, and each customer has its own variation on the standard it uses. BMC has had to build a separate subsystem to handle each of its customers. Information Systems at BMC BMCs managers have been very receptive to the introduction of new technology. They were early adopters of CAD/CAM, and are at the forefront of stamping technology. However, they have had little experience with the use of computers in business applications and have limited understanding of what the technology can do for them. BMC got its first PCs in 1987, and a few managers started experimenting with Lotus spreadsheets. One of the first applications they set up was a spreadsheet for generating customer quotes by calculating what price to charge for a part based on estimates of raw material cost, tooling costs, the costs of stamping, and the expected quantity to be produced. Another early use of the PC was a scheduling spreadsheet developed by the company president, Kyle Baxter, when serving as vice president for manufacturing. 444 Part III Acquiring Information Systems This spreadsheet, which is still used today, contains data for each part, including the machine used, the number produced per hour, and the setup time. The quantity required and the delivery date are entered, and the spreadsheet determines when each part should be started into production and generates a schedule of what should be run when on each machine group. If the schedule is not feasible (e.g., some parts must be started last week), the scheduler can make manual adjustments in due date, quantity required, overtime, and other factors to produce a feasible schedule. Realizing that they needed someone to lead and educate them in the use of computers, in 1989 BMC management set up an MIS department and hired an MIS manager, Nancy Shaw. BMC installed a Data General MV minicomputer, and the first application was interoffice e-mail. This was a great way to start because it demonstrated how helpful the computer could be in sharing information. According to Sue Barkley: E-mail was very well received because we were growing so rapidly and the need to communicate within the plant was so important. It wasnt until we got on e-mail that we realized how much time we had been spending running around the plant trying to find somebody and leaving little notes on their desk. We really became dependent on our e-mail system. During the next two years Shaw led the purchase and successful installation of a package of financial applications, including payroll, accounts payable and receivable, and general ledger. Also, in 1989 BMC was beginning to encounter problems in production because of its growing capacity problems and its customers switch to JIT. When customers changed their requirements, the production schedule had to be changed, which forced changes in the schedules of other parts, and production people seemed to be spending all their time rescheduling things. Because demand was so near to capacity, it was difficult to get all the orders done on time, and there was a lot of expediting going on, which again led to the need to reschedule. Although there was no computer support for manufacturing other than the spreadsheet used for scheduling, BMCs management decided that if scheduling could be speeded up, the problems would be alleviated. Consequently, the decision was made to purchase a software package for scheduling. Sue Barkley, who was involved in the process, remembers: Our MIS manager, Nancy Shaw, did some research and selected four packages from which we tried to choose the best one. That was my first exposure Case Study III-2 A Make-or-Buy Decision at Baxter Manufacturing Company 445 change another five machines, and I have to go through the cycle again. Its just a continuous process of change, change, change! We tried for another month to make the system work for us, but we were in such bad shape with our capacity that we just couldnt take the time to try to cope with the system anymore. So we abandoned it and went back to our Lotus spreadsheet. The $150,000 that we had spent for that system was down the drain! The Present MIS Department In 1994 Shaw left and BMC hired Don Collins to replace her as MIS manager. Collins had 20 years of experience as a lead systems analyst with a large manufacturer and broad experience with manufacturing systems. In 1996, Collins has a programming staff of four. The 1996 capital budget for hardware, software, and other information technology items was about $200,000. The MIS expense budget for payroll, supplies, and education was about $350,000. The MIS department is using a development tool called Cyber Query Cyber Screen (CQCS) from Cyber Science, but Collins is giving some thought to what BMCs development environment of the future should be. The Data General