Case study on EAGLE MACHINE COMPANY
Case facts
* Eagle Machine Company, maker of specialty in restaurant equipments.
* The total sales of the co. are Rs 72 million but sales are declining and costs are increasing may lead to shut
down of the company very soon.
* President of the co. in meeting demands 5% profits and 20% increase in sales while having cuts in labor,
material and overhead.
* Mr. Manoharan, is a vice president of finance and accounts Dept have to carry on and need to improve the
situation and provide profits to eagle
* The company can’t get sales for 6 months, but the company can improve in house keeping so that it would
results in Eagle’s profit.
* The company decided in cutting cost on manufacturing inventories by10% it would save at least Rs
300,000/- per year
* The total purchases for the company was Rs 43.2 million per year, which includes wide variety of materials,
sheet metal, non-ferrous castings, fasteners and sub-assemblies.
* The purchasing department consist of One Senior Manager, 3 buyers & 4 clerks which incur a purchasing a
payroll of Rs 370,000/- per year and are responsible buying and expediting.
* The manufacturing manager handles production, inventory control and marketing manager controls finished
goods stock.
Supply chain management concerns are inventory and service.
Case Issues:
Q1. What actions should Manoharan take to reduce inventories by 10 percent?
1. Determine cycle stock. Understand average inventory and reduce safety stock. Reduce overall lead time
and lead time variability.
2. Rationalize SKUs. Eliminate low yielding Stock Keeping Units to reduce holding cost. Understand
onetime events, seasonality and prior forecasts. Establish a baseline forecast.
3. Use cross-docking. Consolidate purchase orders from multiple distribution centers into a single order and
cross-dock. This will reduce cycle stock inventory.
4. Use technology. Use technology such as Vendor-managed Inventory (VMI) to increase visibility.
Information replaces inventory.
5. Transfer stock. Transfer stock from one location to another to avoid unnecessary purchases.
6. Collaborate with partners. Share information with suppliers to increase visibility and reduce overall supply
chain cost.
Q2. What dangers, if any, are there in reducing inventories?
Dangers are:
* Can’t meet the expected demand
* Bargaining power of suppliers
* Payroll problem(labor & staff)
3Q. In what ways could the cost of goods purchased be reduced?
The cost of goods purchased can be reduced by purchasing only those materials that do not exist in the inventory
level, so it can reduce the cost of inventory and thereby reduces storage costs and risk costs the cost of goods
purchased can be reduced by following vendor managed inventory systems. VMI provides visibility to actual
customer demand by which the company can purchase the goods as per the order requirements and this reduces
storage and risks costs for the company.
4Q. what position should manoharan take on the president’s plan to reduce the purchasing payroll by 10
percent?
The Manoharan take a fired position on staff of production and manufacturing dept. Here the purchasing dept
consist of one senior manager, thr.ee buyers and four clerks but the manpower is not utilized to a maximum
extent. So it would be advisable to terminate the man power wherever unutilized. So it would benefit the
company in turn it would reduce the cost level, by using the stored inventory effectively costs can be reduced