Based on the risk factors associated with the Bugabyte and the Bugabyte Lite, which product do you think Grunwald and Vogel will recommend as the best candidate for assembly outsourcing? To decide which product, either Bugabyte or Bugabyte Lite, is the best candidate, Metrovox has to identify its core competencies and to outsource non-core activities. I personally think Grunwald and Vogel will recommend Bugabyte Lite for assembly outsourcing while Bugabyte to be kept assembling in-house and not to pass out to others to perform. Bugabyte Lite has been on market for over six years with the same quality but a new look.
It has a well established assembly process and product testing. This helps Metrovox to outsource its Bugabyte Lite because Metrovox can easily establish production standards and testing guidelines in its requirement documents for outsourcers to follow. It also helps Metrovox to establish performance indices to access quality control. So, those outsourcers have a higher chance of meeting Metrovox’s high quality product expectations.
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By contrast, the Bugabyte is still relatively new on the market and just recently Metrovox has included several new stages in their assembly stage.
Communication to those Bugabyte outsourcers to comply with the new production stages standards may not be easy initially and so Metrovox may sacrifice the high Bugabyte product quality as usual. Indeed, there is also a significant amount of proprietary information that is used in Bugabyte circuit board testing. This means that releasing this proprietary information to the Bugabyte outsourcers for testing must pose a significant threat on Metrovox because outsourcing Bugabyte assembly line means releasing Bugabyte design and specification details to some third-parties and may ultimately lead to Bugabyte imitation’ opportunities.
On the one hand, Metrovox would want to highlight the Bugabyte handheld video devices. On the other hand, outsourcing Bugabyte assembly line is not compatible with Metrovox’s strategy as Metrovox relies on product differentiation and high quality control to assure its market position and competitive advantage. However, outsourcing Bugabyte Lite assembly line will not pose similar problems and it seems a wiser strategy to pursue as mentioned above. 2. Based on Grunwald and Vogel’s decision, what will be the benefits and disadvantages of outsourcing the assembly function?
In the case of Metrovox, benefits of outsourcing the Bugabyte Lite assembly function include improving customer service and focusing only on core competencies of Bugabyte’s assembling and testing. The key problem, as it was mentioned, is “due to the recent development of the video capable Bugabyte, Metrovox is experiencing increasing production delays. ” Outsourcing Bugabyte Lite would help Metrovox to allocate sufficient key resources on developing Bugabyte, in line with Metrovox’s strategy on product differentiation.
At the same time, outsourcing Bugabyte Lite will reduce the burden of Metrovox’s resources on the assembly process as it is not viewed as an aspect that contributes to the product’s competitive advantage. This helps Metrovox to deliver Metrovox products, both Bugabyte and Bugabyte Lite, on time and to reduce the late delivery rate. Nevertheless, outsourcing the Bugabyte Lite may mean loss of company control on the production and the testing procedures. This may lead to unsatisfied Bugabyte Lite product quality and delay product delivery as well.
However, as mentioned above, Metrovox can establish production standards, testing guidelines, and performance indices to communicate Metrovox’s high expectations to its suppliers and to monitor the Bugabyte Lite product quality. Also, before outsourcing the Bugabyte Lite, Metrovox must check out each supplier’s assembly and testing capabilities, quality level and associated risks. At the same time, Metrovox must gather enough information to ensure that those suppliers can deliver the Bugabyte Lite devices on time, as it is one of the main reason that Metrovox would want to reduce its own late delivery rate.
In the event that Metrovox can outsource the assembly of the circuit boards to an existing supplier, discuss the key contract issues Metrovox will need to consider with their supplier. Some of the key contract issues are of the following: (1) the quality and volume of the goods being purchased, clearly calculated price of the goods and the currency being used, and the discounts availability as volumes increase; (2) the payment terms, including the payment method and documentation, the payment due, the time frame payment that must be made, and the discounts availability for accelerated payments.
The delivery terms, including the delivery method and destination, the delivery dates or expected arrival dates, the expectation for the condition of the good, the transfer of ownership and risk of loss and damage as determined by Incoterms, the type of logistics costs related to imports and transportation are covered in the price, and the responsibilities of paying for the packing, cargo insurance and customs duties; (4) the fulfillment of the standard import and export documentation and regulations when shipping the goods internationally; and (5) the remedies, force majeure, hardship, termination clause and penalty clause if circumstances go beyond one part’s control and make it unreasonably difficult to fulfill. 4. What inventory management strategy should Grunwald and Vogel recommend Metrovox adopt to ensure efficiencies throughout their entire supply chain? Inventory management is crucial to the Metrovox’s success to meet its customer demand.
However, currently Metrovox cannot reasonably predict future demand and the annual demand for the Bugabyte in the first year of release is 300 percent over forecasted demands. Also currently Metrovox is experiencing 30 percent late delivery rate. The key solution I personally think is to help Metrovox to enhance its inventory management efficiency and to maintain optimum inventory levels so to manage and handle customer demand fluctuations. To enhance Metrovox’s inventory management efficiency, applying the latest inventory tracking technology like barcodes and RFID tagging will help Metrovox to note down inventory items on a regular basis and movement of items out of inventory in its warehouses.
To help to maintain Metrovox’s optimum inventory levels, establishing Vendor Managed Inventory (VMI) system with Metrovox’s key suppliers in which the inventory is monitored, managed, and planned by the suppliers on behalf of Metrovox will help those suppliers better response to the Metrovox’s immediate inventory needs because those suppliers will be able to schedule deliveries more efficiently. At the same time, the quick response strategy can be used by Metrovox to maintain (or to reduce) optimum inventory levels. Based on the strategy, Metrovox will collaborate with its key retailers to access to the point of sales data generated at checkouts. Then Metrovox is able to manage inventory more properly and reduce the lead times because Metrovox can develop more accurate customer demand forecasts.