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Strategic Supply Management Transformation

Drexel Team: Yaseen Ahmid, Lauren Felici, Jeremy Tesler & Sadhana Manekar

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Cost Reduction Opportunity

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Context & Approach

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  • XYZ Corp. aims to reduce its own cost by providing us with updated commercial grade sensors

  • We already procure $60m worth of Gamma sensors from XYZ Corporation annually

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  • Market estimates remain flat for the next two years

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  • These sensors are half the original cost of the Gamma sensors

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  • Would alleviate stress on both parties financially

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Performance and Cost Improvement

  • 50% reduction in cost/unit → $25,000 x 3 = $75,000 per iBOT
  • 400 units x $75,000 cost savings = $30M → $60M over 2 yrs

+10

-10

100%

  • Premium CL:

+/- 5 Farads = 90% confidence

*10% outside of limits has worked “fine”

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  • Commercial CL:

+/- 8 Farads = 98% confidence

  • 2% risk of Commercial variance outside of CLs

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Calculations & Methodology

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Stakeholder Engagement Strategy

Steps to Engagement:

Notable benefits of the switch to Commercial:

  • Significant cost reduction
  • Minimal potential change in quality with greater consistency
  • Improved supplier relationship
  • Potential for technology improvement
  • Potential for production increase

1. Large-scale stakeholder communication

2. Data compilation and presentation: SPC’s, iBot BOM, savings projections

3. Discuss change with XYZ, explaining their situation

4. Q&A and Survey

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Risk Mitigation Plan

$250K

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RISK ANALYSIS AND VISUALIZATIONS BEFORE AND AFTER MITIGATION

Before

After

  • Risk Comparison Before Mitigation = (4*4)+(4*3)+ (5*1)+(1*5)= 38
  • Risk Comparison After Mitigation = (2*3)+(3*3)+(3*1)+(1*5)= 23

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OPTIMAL STRATEGIES FOR THE RISK ITEMS

Risk Item D : Terrorist groups continue to explore new materials for explosives to get onto airplanes.

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  • Minimal training
  • Faster progress
  • Brand image
  • Data privacy
  • More efficient communications
  • Reduce the risk impact
  • Benefit from advancements

Risk Mitigation Strategy

Risk Impact

Risk Likelihood

Cost of Mitigation

(a) Allocate 10-20% engineering resources from production back to R&D to maintain technology advancements.

2

3

$175K

(b) Explore Research grants with major universities to maintain technology advancements

3

3

$150K

(c) Joint venture development opportunities with competitors to offset research costs

3

4

$140K

Reasons

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OPTIMAL STRATEGIES FOR THE RISK ITEMS

Risk Item D : Implementation Plan:

Step 1

    • Announce the program in the organization and design a Q&A request form regarding their interest and ideas towards technology and advancements.
    • Screening and filtering

Step 2

    • Identify the gaps between their area of expertise and the actual standards required for R&D
    • Provide additional necessary training

Step 3

    • Prefer leasing the equipment required for R&D to minimize expenditure
    • Ensure there is continuous progress through testing and mentorship

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OPTIMAL STRATEGIES FOR THE RISK ITEMS

Cost effective payment plans

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Develop collaborations

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Equipment Replacements

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Benefits

(a) ISM-iBOT would like to enhance the culture. This option is against the ethics and culture practices

(c) Increased quality issues, inaccurate detections, product life is less

Shortcomings

Risk item A: Election year-Government Funding Cutbacks

Risk Mitigation Strategy

Risk Impact

Risk Likelihood

Cost of Mitigation

(a) Allocate funding to lobbyists to push government to maintain budget line item.

3

3

$30K

(b) Consider system leasing to leverage expensing to budget vs depending on capital equipment budget for purchasing.

3

3

$35K

(c) Consider lower cost Bill of Materials alternatives, allowing lower sales price with same profit margin.

4

2

$50K

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OPTIMAL STRATEGIES FOR THE RISK ITEMS

Risk item A: Implementation Plan

5. Approval viewed by the Bank

7. Payments (Extended Payments)

2. Equipment & Services

6. Early Payments with Discount Applied

3. Bill upload

Qualified Lessor

Bank

ISM-iBOT

1.Commercial Contract

Bank web Application

4. Approve Bill

Supply Chain Finance

Qualification Metrics for Lessor

  • Costs
  • Payment Plans
  • Extended Payment Terms
  • Discounts/Additional interest charges
  • Equipment Depreciation
  • Service Repairs
  • Returns and Replacements

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OPTIMAL STRATEGIES FOR THE RISK ITEMS

  • Quality risks
  • No control over the operations
  • Additional hidden costs
  • Communication Issues

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  • Problem of counterfeit goods
  • Reveal trade secrets and product specs
  • Loss of brand image

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Avoid risk of high interest rates

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Easier to convince small group of investors than IPO

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Lower risk compared to other two strategies

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Risk Item C: Large earthquake could shutdown production in the single Manufacturing site near San Andreas fault line, LA.

Risk Mitigation Strategy

Risk Impact

Risk Likelihood

Cost of Mitigation

(a) Contingency plan for outsourced manufacturing capability, with funding allocated to pre-qualification activities.

4

1

$50K

(b) Raise additional capital through stock offering to build 2nd manufacturing site in lower risk geography.

3

1

$35K

(c) License technology to competitor as a 2nd source plan for TSA.

4

1

$25K

Shortcomings

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OPTIMAL STRATEGIES FOR THE RISK ITEMS

Risk Item C: Implementation plan

Step 1

    • Select the investors that add value to the organization

Step 2

    • Explain company’s current situation and future focus

Step 3

    • Offer investment scope, benefits and % stake

Step 4

    • Conclude and sign-up with investors

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OPTIMAL STRATEGIES FOR THE RISK ITEMS

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  • Lowering the detection sensitivity can decrease the chances of detecting hazardous materials

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  • Future trajectory towards faster detections as investments are already in R&D

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  • Safety is given the highest priority

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Risk Item B: Technology 4X higher detection rates, but takes 2X longer to analyze than current technology. TSA lines will be longer at airports.

Risk Mitigation Strategy

Risk Impact

Risk Likelihood

Cost of Mitigation

(a) Allocate 2X marketing budget from previous fiscal year to create awareness program to public on Travel Safety( offset line delay concerns)

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3

$25K

(b) Reduce detection sensitivity to provide only 2X higher detection rate and keep detection time same as previous system, eliminating line delays.

1

1

$50K

(c) Do nothing different on implementation plan, and accept increase in customer complaints.

1

5

0

Reasons

Implementation plan: Do nothing

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Strategic Sourcing Issue

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Issues Occurring

Supplier A (Better Option):

    • Favoritism/unethical behavior

Supplier B :

    • Quality
    • Customer Complaints
    • OTD is inconsistent
    • Stockouts and too little inventory

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Risks to the Organization

Customer

Loss of customers

Employees

Loss of employees

Financials

Monetary penalties

Possibility of closing operations, going bankrupt etc.

Company

Poor image

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Action Plan

Actions

    • Set KPIs for suppliers– monitor and make decisions
    • Choose a supplier that is better for business– do not base decisions solely on relationships
    • For the future, follow a strategic sourcing process

Factors for Evaluating Suppliers

    • Supplier history and reputation
    • Quality
    • Financial strength
    • Size of the Supplier
    • Capacity
    • Reliability of Service
    • Flexibility of Service
    • Turnaround Times
    • Problem resolution process

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Thank you!