About the Company
In 1994, Firebird Electric was the first foreign supplier to relocate to the United States to supply the Road-Master Car Company. Located in Columbia, South Carolina, Firebird supplies headlights, taillights, lid lamps, centre high mounts, and front-turn assemblies to Road-Master. Road-Master sales account for 98.5% of Firebird’s revenues. Original equipment manufacturing (OEM) lighting is supplied to the Orangeburg plant, the Columbia auto plant, and the Columbia motorcycle plant. In addition, service (aftermarket) products are made for foreign and domestic demands. Weekly shipments go to Road-Master Canada Manufacturing and Road-Master De Mexico. Service models also are shipped to Germany, Brazil, and Japan. Firebird Electric exports components from the moulding division to sister and parent companies. Moulded parts are also supplied to Road-Master.
Operation at Firebird
Firebird has five distinct operations centres. The ‘East plant’ manufacturers light assemblies and units. Manufacturing I produces headlights and front-turn assemblies. Manufacturing II assembles taillights, lid lamps, centre high mounts, and aftermarket products. The ‘West plant’ provides components to assembly and external sales. Manufacturing III is a sanitisation and coating process for lenses, reflectors, and extensions. Manufacturing IV is a die injection moulding facility producing reflectors, lenses, and housings. A halogen bulb department provides the majority of the bulbs used in production.
East Plant Assembly
Approximately 40 lines supply different makes, models, and types of lighting for Road-Master vehicles. Dedicated lines run multiple shifts to meet OEM production for current year A-car and B-car models. OEM production for the Avenger and Odyssey Minivan runs on one-shift dedicated lines. OEM requirements may exceed 1,200 units daily. Fourteen lines run to meet aftermarket demand. These lines are interchangeable among different models. Aftermarket assemblies and units are made 10-20 years after OEM production. Service requirements range from 30 to 10,000 units per month.
West Plant Operations
Manufacturing III is an isolated sanitisation area for coating process. Products are cleaned, prepared, and either aluminised or hard-coated. Aluminisation provides a reflective coating to components such as reflectors and extensions. This process allows a plastic-moulded part to reflect the light at the designed angles. Lenses are hard-coated to protect against chips and cracks. Manufacturing IV (the focus of our make-or-buy decision) moulds parts for finished assembly and sales. Lenses, reflectors, and housings are moulded from resins and fiberglass-reinforced plastic. Die injection moulding machines range from 60 to 900 tons of pressure. These machines are adaptable to produce multiple parts by interchanging the die moulds. Firebird Electric has recently acquired the two largest moulding machines in the world. The productivity of these machines will aid in further expansion of facilities, if required. Firebird is reducing inventory in the West plant Material Order Centre (WESTMOC) to possibly expand operations by three machines. Firebird Electric manufactures halogen bulbs for in- house production and external sales. The halogen bulbs (HB) department is capable of producing 60,000 bulbs per week. HB runs a continuous three-shift operation until weekly production quotas are met.
Purchasing at Firebird
Purchasing for Firebird Electric is decentralised. The purchasing department at Firebird consists of nine full-time associates. The purchasing manager assists in decision making and controls administrative duties. Six buyers are responsible for obtaining materials to meet production requirements. One buyer supplies the HB department and one is solely responsible for MRO purchases. The other four buyers are responsible for specific vendors. Each buyer oversees all products purchased from 8 to 10 different suppliers. The two other purchasing associates are specifically assigned to supplier evaluation and incoming quality conformance. This report focuses on the procedures and decisions involved in supplying the housing used in OEM lighting production for the 2005 model of two-door B-car.
Housings are fabricated through die injection moulding. A resin is melted, injected and stamped into the die mould. The housing’s function is to attach to the body of the vehicle, protect internal components (cords, bulbs, etc.), and hold components in place so that the light functions as designed. Each make/model has unique housing specifications with regard to size, durability, holes, and necessary attachments to perform these duties. As stated earlier, Firebird has the ability to produce housing in the moulding division; however, of the approximately 240 parts presently moulded in Manufacturing IV, only 11 are housings. Firebird also outsources production of housing to four South Carolina moulding firms: FPE, The South Carolina Plastics Company (TOPCO), Central South California Plastics (COPCO), and Charleston Custom Plastics (WCP).
Requirements for New Product Development
The customer, internal departments, and potential suppliers contribute to designing quality into moulded parts. Due to Road-Master’s strict quality requirements and just-in-time inventory systems, non-conformance results in high costs, hinders customer relations, and endangers prospective contracts. Departments included in the product definition and development stages include product design, purchasing, quality assurance, sales, die moulding, engineering, manufacturing, plant management, quality control, production control, and materials management.
The first stage in new housing development is gathering model information from the customer via the sales department. Based on this information, the first drawings of the housing are completed and evaluated. Firebird considers the application of new technology, alternative manufacturing processes, and new inputs to production for all new model components. Project leaders and project members, representing the aforementioned departments, are selected for the development team. Quality assurance reviews the initial drawings. The review encompasses simplifying fabrication by eliminating components and processes, and searching for alternative methods of tooling and production. The design review is then sent to manufacturing departments, die mould, purchasing, quality assurance, and quality control. A follow-up meeting is conducted involving representative from all departments
Development conferences with manufacturing personal are held to inform team members of schedule updates, quality targets, costs, and responsibilities. The periodic meetings are held as needed to ensure that members are aware of revisions to plans. A constant flow of information is emphasised to continuously improve processes. After product development is completed, Firebird defines the specifications for the fixture (die mould) measurements. The fixture is designed for accuracy, ease of use, and cost efficiency. A rough sketch of the fixture and the required materials is drawn. Purchasing and engineering personnel from Firebird and Road-Master must approve the concept. Upon approval, the fixture manufacturer submits a design drawing to quality assurance. Firebird purchases and retains ownership of the die mould fixture regardless of the outcome of the make-or-buy decision. The initial trial run of the product, always performed in-house, is done to verify that the fixture is capable of meeting drawing specifications and minimising the rejection rate. Statistical process control charts are kept for resin input and output quality. If the process is deemed out of control, a modification schedule for a new trial run is scheduled. An evaluation meeting is held to inform all departments about potential problems. Cause-and-effect judgments are made and reconciled via modification request sheets. Target finish dates also are established at this meeting.
As can be seen, new-product development is an involved process. Recently, more and more of Firebird productions are outsourced. Using the assumptions given below, analyse the make-or-buy decision. Please write a detailed report recommending and justifying either the make or buy decision.
Internal production costs were obtained from manufacturing and cost accounting. Information on the cost to buy was gathered from journals, historical pricing, supplier information, and engineering estimates.
Difference in quality levels of in-house and procured parts in negligible. OEM demand is estimated at 1,000 units /day, 250 working days/ year.
The production output is 1,000 units per day for 250 working days per year. The resin usage per unit is about 500 grams. The resign costs about $2/kg. For the required precision, the moulding unit costs a one-off $285,000 per year. A 7% interest rate should be considered to calculate the time value of money for the invested capital in the moulding unit. Two labours are required to work on one moulder at any time. Labour wages are set at $18 per hour for the average 2,083 working hours per year. Allocated overhead costs are equal to 15% of the labour wages. Plant opportunity cost is estimated to be $80,000 per year (if the plant is used for other purposes instead of production of the concerned items).
The purchase price is estimated at $3 per unit. The number of order release per year is 100 with the order lot size of 2500 units. Cost of order processing is $50 per order. The annual inspection cost is $35,000.
What are the costs to society when well-established firms like Firebird outsource when they clearly have the capability to produce the good or service?
How should the suppliers be selected if the buy option is chosen by Firebird? Please give a Step-by-step approach to the selection and evaluation process.
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