MPC Relationship With Its Large Global Customers - Case Study Example

Individual Written Report Table of Contents Evaluate MPC relationship with its large global customers and discuss how this has impacted on the growth of MPC's business. 2 Outline the major changes that are taking place in the market and discuss their implications for MPC. 4 Given that the market is changing explain the likely impact of the changes and hence evaluate the different strategies MPC should consider in meeting this challenge. 7 With reference to your analysis for question 1, 2 and 3 above, draw together the recommendations you would expect the MPC to follow in moving business forward in the next few years. 8 References 10 Bibliography 13 Evaluate MPC relationship with its large global customers and discuss how this has impacted on the growth of MPC's business. MPC has an extremely good relationship with its global customers. This is evident from the fact that many of its global clients while shifting their businesses to other offshore locations also offered MPC to open up their production units near their new capacity. Many of these were high profile clients like IBM, Dell etc. In addition to this many companies were willing to give a most preferred tag to MPC. The presence of a few competitors (five in the global arena) also strengthens the relationship with the clients as the supplier has a good bargaining power. Moreover certain value added services that were provided to the clients which helped in improving and bolstering its relationship with the clients. The relationship between the suppliers and the clients is guided by the bargaining power of the supplier/the buyer. The supplier dictates the shots if it has a higher bargaining power and conversely the client has an upper hand when it has a higher bargaining power. In this case there are only a few players I the market. Moreover with high entry costs the entry of new players is quite difficult. This gives MPC a higher bargaining power. The bargaining power also defines the value division. The bargaining of the supplier with the client the amount the supplier gets for providing its clients with the important resources. Figure-1. Line Segment relationship between suppliers and clients. Source- Brandenburger M, Stuart HW, No Date. The figure above depicts the relationship between the client and the supplier using a line segment. The top level of the line represents the value that has been received by the buyer. This value is equal to the willingness of the buyer to pay for the goods or services minus the amount that has been paid by the organization. The middle segment represents the value that has been captured by the firm. The lowermost position of the segment defines the value that has been acquired by the supplier. (Brandenburger M, Stuart HW, n.d.). Figure-2. How suppliers view the clients. Source- Gallagher,C. No date. The figure above gives a model on how suppliers should rate its clients. MPC must use the model stated in the figure to analyze its relationship with the clients. It should divide its clients on the basis of relative value and its attractiveness. MPC can also use its rapport with its clients to set up bases in the low cost destinations. This would allow the company to make its presence in those markets while creating entry barriers for the new players. This would also give MPC a foothold in a new and emerging market. The firm can employ the model of Branndeburger and Stuart for creating new value in their product offering. This model is based on the concepts of value creation and added value which represents the size of the profit to be shared and how to share that profit respectively. (Chatain, O. n.d.). The growth of relationship between the suppliers and its clients has a long association with the business potential of the suppliers. In order to strengthen and improve its relationship with the clients MPC can implement ERP in its business. ERP vendors like Oracle, SAP have customized packages to help firms in achieving their business targets. (Campelo E, Stucky,W. 2007). Outline the major changes that are taking place in the market and discuss their implications for MPC. The dawn of the new century exhibited many changes in the business markets of MPC. The new century saw the shifting of production units of many large corporations like Ford, IBM, Black and Decker, IBM to other low cost destinations in the developing nations. These low cost destinations offered cost advantages as the firms could get access to labor at very low costs. In addition opening up of production units also gave the company a foothold into a new market. MPC being one of the largest and reliable suppliers faced the challenge as the clients encouraged MPC to open up its production units in the country. The client suggested that as MPC as amongst its preferred suppliers hence the company needed to open up its production unit. MPC conducted forecasting studies and found out that there were great opportunities but the forecasts did not guarantee any fact or figure. The clients of MPC also stated that they would establish formal partnerships with MPC after it has set up its production unit in the client’s locality. They would also give the company the tag of sole supplier to some of their components. The above baits to lure the company shows much growth for MPC in the near future but it also represented certain challenges. The forecasts predicted rosy scenarios for the firm but did not give a guarantee regarding the authenticity of the forecasted figures. Hence MPC faced a risky scenario with regards to opening up its business units in the client’s location. The company in this scenario can face an effect which is popularly referred to as the bullwhip effect. This effect occurs in supply chains which rely on forecasts for production. The bullwhip effect is referred to as the effect that occurs when the amount of the orders are amplified when there is an upstream movement towards the production side of the supply chain. (Beer Game, n.d.). Figure 3. The Bullwhip effect. Source- Federal Reserve Bank of Dallas, No Date. This effect can lead to many consequences which may propagate through the entire supply chain. The problems are as follows, 1. A huger safety stock level. 2. Degradation in the level of customer service 3. Under utilization of installed capacity. 4. Enhanced issues regarding forecasting of demand. 5. Reduced inter firm trust levels. MPC should effective steps to manage its inventory so that the surplus does not contribute towards the bullwhip effect. (Warburton R, 2004). In order to reduce the chances for this effect to occur MPC must examine its core competencies while relocating its role in the market. The company must analyze the factors that help in magnifying the bullwhip effect. These factors like variability in the lead time, inflated orders, price fluctuations, batch price, product promotions. The company must try to find out the data from actual and real time sources which would be based on the actual demand. The company should also enter into real time information sharing with the clients. It should also try to reduce the lead time of production as well as taking steps to reduce variability in production. (Lin et.al n.d.). The next major change was that the client demanded the products to have global standards. This policy would help the buyers to purchase their components from across the world. This would help them in reducing the number of suppliers. This emerged as a problem for MPC as production costs for its components varied across the world. This led to variations in the sales prices as well. In order to overcome this problem the company tried to defend its business by at times purchasing goods from other suppliers and adding up a profit before selling them. The last but the most important change was that the customer demanded value addition in the products and components sourced from the suppliers. This posed up a challenge for MPC as it had to bear additional expenses of complex purchasing and investment in other infrastructures. The variation in the delivery schedule also posed a problem for the firm. This problem can be overcome by using inter firm as well as intra firm integrated information sharing system using ERP and Business process re engineering. (Ball et.al. n.d.). These changes in the market have built huge pressures on MPC as it intends to be the leading supplier for its components. Given that the market is changing explain the likely impact of the changes and hence evaluate the different strategies MPC should consider in meeting this challenge. The changing market represents huge challengers for MPC. The shifting of production units by its clients has forced MPC to open up its production units in those locations. This may lead to reduction in the profit margins for the firm. The company used to rely on the forecasted demand estimates. This may lead to a condition known as the bullwhip effect. This would severely affect the profit margins of the firms. The inventory levels would swell up leading to further pressure on the firm’s margins. Piling up of surplus inventory would lead to reduction in the customer service levels. This would be hazardous for MPC as it may lead to a bitter relationship with its clients who may be forced to switch between suppliers. In addition this factor also leads to reductions amongst the inter-operating firms in that business category. MPC should undertake and implement ERP in its business process. It should get into real time information sharing with its clients. This would reduce the instances of surplus inventory for the firm. MPC should adopt techniques like IMSN (Integrated Manufacturing and Service Network). IMSN is an approach that is used by a group of firms which are working together to create a bundle of products. In this technique firms often resort to work together with real time information sharing so as to reduce the instances of over stock of products. (Vishwanadham, N et.al, 2005). The second issue faced by MPC is that the clients are now demanding global standards for the components. This policy is aimed at reducing the number of suppliers in the supply chain. This represents a challenge for MPC as it has to undertake additional expenditure on improving infrastructure in the company. This strategy would lead to variations in the selling prices across all the levels. In order to address this problem the company can adopt efficiency in its production techniques like application of six sigma techniques in manufacturing. There are techniques like DMAIC which help a firm in reducing the number of defects. This technique tends to reduce the defects in manufacturing. The adoption of this technique would lead to cost advantages for the firm. It would also create barriers for entry for new players in this segment. The company can use real time forecasting and six sigma tools to create a large production base which would help create economies of scale and scope. (Comer, D. n.d.). Figure 4. DMAIC process towards implementing Six Sigma. Source- Gian Jyoti School of TQM and Entrepreneurship, No Date. Another major issue faced by the firm is the demand of value addition by the clients and the variation in the delivery schedules. This can be solved about by implementing ERP and indulging in real time information sharing with the clients. (Yuniarto, H, Elhang, TM. 2008). With reference to your analysis for question 1, 2 and 3 above, draw together the recommendations you would expect the MPC to follow in moving business forward in the next few years. MPC can follow both offensive as well as defensive strategies towards addressing its problems as well as to create a brand name for itself in the business market. As a part of its offensive strategies, MPC can take over the contacts from the smaller suppliers by using its financial and technical muscle. It can also re design the product portfolio while divesting the non strategic business lines. The company can shore its present capital structure as a financial strategy. MPC can put up certain incentive schemes for retaining the members of the top brass of the firm. The company can also pick up defensive strategic moves like downsizing the unprofitable line of its businesses. It can also resort to renegotiation and can revamp its capital structure. It should employ techniques like six sigma, in order to attain efficiency in production. It can also get into real time information sharing with its partners to reduce the chances of a bullwhip effect. Finally it must also add value to its products and also have efficient customer relationship management practices so that it fulfills its dream of being a global leader in its business domain. References Ball et.al, No Date. Supply Chain Infrastructures: System Integration and Information sharing. [Online]. Available at http://www.sigmod.org/record/issues/0203/SPECIAL/10.ball.pdf. [Accessed on November, 4, 2009]. Beergame Portal. No Date. Bullwhip effect. [Online]. Available at http://www.beergame.org/the-game/bullwhip-effect. [Accessed on November, 4, 2009]. Brandenburger, AM, Stuart HW. 1996. Value Based Business Strategy. [Online]. Available at http://pages.stern.nyu.edu/~abranden/ValueBasedStrategy2.pdf. [Accessed on November, 4, 2009]. Campelo, EG, Stucky, W. 2007. The Supplier Relationship Management Market Trends. [Online]. Available at http://www.waset.org/journals/waset/v28/v28-20.pdf. [Accessed on November, 4, 2009]. Cavusgil, Knight Riesenberger. No Date. Global Market Opportunity Assessment .International Business strategy, Management and the New realities. [Online]. Available at http://www2.dsu.nodak.edu/users/rbutz/International%20Business%20Strategy/ppt/F08_Ch_12_Global_Market_Opportunity.ppt. [Accessed on November, 4, 2009]. Chatain, O. No Date. Extracting value from client relationships: Expertise and cross-selling in the UK Legal market. [Online]. Available at http://www-management.wharton.upenn.edu/chatain/docs/Chatain_2007_Proceedings.pdf. [Accessed on November, 4, 2009]. Comer, D. No Date. Economies of scale. [Online]. Available at http://www.apics-tucson.org/Resources/Articles/EconomiesofScale.pdf. [Accessed on November, 4, 2009]. Deloitte Consulting LLP. 2009. North American Supplier Analysis. [Online]. 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Available at http://www.isb.edu/GLAMS/File/Bullwhipeffectinservicechains.pdf. [Accessed on November, 4, 2009]. Warburton.D. 2003. An Analytical Investigation of the Bullwhip Effect. [Online]. Available at http://www.ntcresearch.org/pdf-rpts/AnRp03/S03-MD13s-A3.pdf. [Accessed on November, 4, 2009]. Warburton R, Hodgson J, Kim Y. 2004.An Analytical Investigation of the Bullwhip Effect.[Online]. Available at http://www.tesumassd.org/research/NTCprojects/S03-MD13s-A4.pdf. . [Accessed on November, 4, 2009]. Yuniarto, HA, Elhang, TM. 2008.Enhancing Six sigma with systems dynamic. [Online]. Available at http://www.iaeng.org/publication/WCE2008/WCE2008_pp1220-1225.pdf. [Accessed on November, 4, 2009]. Bibliography Brue,G. 2005. Six Sigma for managers: 24 lessons to understand and apply Six Sigma principles in any organization, McGraw-Hill Professional. Caroll, BJ. 2007. Lean performance ERP project management: implementing the virtual lean enterprise. CRC Press. Chopra. No Date. 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