Bose Corporation specializes in manufacturing high-quality audio systems, audio equipment, audio components and autosound equipment. The company is privately held and has a very good reputation. Its mission is “to provide outstanding sound experience to everyone in the whole world” (Isaacson, 1994, p.2). Maintaining the high quality in the competitive environment is a very ambitious goal for Bose.
Bose’s success to a large degree depends on the materials from which the innovative products are produced. Therefore the procurement process is very important for Bose due to several reasons. Firstly, the company needs to buy the materials that have a very good quality. Secondly, the materials need to be supplied in time so that the plants that belong to Bose could operate without any halts. Thirdly, reliable long-term relationships with the vendors may help the company to plan production and sales more precisely.
Large companies usually apply strategic sourcing that allows improving the purchasing activities on a regular basis. In particular, strategic sourcing leads to the reduction of the costs of production, maintenance of product quality, optimization of the total purchasing process (Class presentation, n.d.). Bose Corporation is not an exception. For this company, it is really important to cooperate with the highly capable vendors. However, in the case study Bose Corporation: The JIT II Program (A) it was written that Beeson, who was vice president for Manufacturing at Bose, saw some potential problems despite very positive cooperation with the vendors. The problems included differences in vendors’ and Bose’s priorities, relying too much on vendors and loosing expertise in some areas, lack of understanding of the company’s needs by vendors (Isaacson, 1994, p.4).
Bose has Corporate Procurement department that is responsible for finding the new vendors and sourcing some items. Vendors are often involved in the process of development of the new products. Quality, delivery and price are the factors that influence Bose’s decisions. If the first orders are of satisfactory quality, then the company – the purchasing departments at the plant level – cooperate with such vendors. Usually four types of personnel participate in the procurement process: design engineers, materials planners, buyers, and vendor salespeople. Design engineers provide specifications. Materials planners control inventories based on the information received from the production planners. Buyers place orders. Finally, vendor salespeople visit Bose Corporation, negotiate the deals and ensure that all requirements are met (Isaacson, 1994, p.4-5). Moreover, within the Corporate Procurement there are several groups of specialists that monitor the supplier base for the new components. They operate in four areas: plastics, electronics, and mechanics (Isaacson, 1994, p.5).
The described above approach to strategic sourcing positively influences Bose’s supplier relations. The company strives to find the reliable partners and communicates a lot with the vendors in order to explain them the unique specifications of the products. As the result, the vendors know what kind of components they are expected to supply. In turn, Bose makes sure that the procurement process is stable and corresponds to the operational and strategic goals. Bose may be regarded as a good buyer, because it sets up long term relationships with the vendors. Sales of the consumer electronics grow in the USA every year and Bose’s plants require more components in order to maintain the high level of production. So the approach to strategic sourcing applied by Bose seems to be effective and up-to-date.
As it was written above, buyers are the type of personnel that is responsible for purchasing the new products. There are two kinds of buyers. Corporate buyers find the items that the design engineers need and purchase the capital equipment. They also negotiate the contracts that are later used by the plant level buyers when they place orders (Issacson, 1994, p.5). Such division helps to decentralize the purchases. Decentralization is a very big advantage for Bose, because the company’s production facilities are not easy to coordinate, because they are located in the USA, Ireland, Canada and Mexico (Issacson, 1994, p.3).
Each plant uses a three-stage cycle for purchases: business planning, aggregate production planning, and production scheduling. At the business planning stage, a multi-year plan is developed at the corporate level. At the next stage, each plant develops their own production plan that shows which items and components will be needed during a two-year period. At the final stage, more specific plans for a one-year period are developed. There are several levels of control. Therefore purchasing and planning fully support the work of the production lines (Issacson, 1994, p.6).
In addition, purchasing supervisors control the work of the buyers who spend most of their time on deciding what items to buy, placing orders and adjusting the delivery schedule. The buyers usually communicate with the vendors with stable financial performance and that are located not far from the Bose’s plants. In this context, the plants play a very important role in strategic sourcing. The savings opportunities increase, because the buyers understand the corporate plan and the goals that were set at the level of the plant. Nevertheless, the buyers do not have the qualifications in engineering and rely mainly on the experience when they take decisions. Analytical hierarchy process and criteria based evaluations help to reduce the risks of buying the low quality items (Class presentation, n.d.). Therefore, despite the fact that the plants have the right to carry out procurement on their own, the buyers report to the supervisors and other employees who have higher ranks. As the result, purchasing is still carefully monitored.
JIT II program was the idea of Lance Dixon, director of Purchasing and Logistics for Bose. He wanted to reduce the procurement costs, because more and more buyers were needed due to the increased production. Dixon suggested inviting representatives of the vendors to work in the Bose’s premises so that there was better communication between the buyers and the vendors. It was a controversial idea, because the company could become exposed to some risks such as ineffective and expensive contracts and leakage of sensitive data and information (Class presentation, n.d.). Bose Corporation works in the highly competitive environment and invests a lot of resources into innovations. Granting access to the computer systems would be the riskiest decision. At the same time this kind of cooperation with the vendors could increase the contact with suppliers and improve coordination in the procurement process. In turn, for C&F, one of the main suppliers of plastics, JIT II program was a great opportunity. C&F benefited from cooperation with Bose in the previous years and the new program could increase the revenue and efficiency of production facilities. The main challenge was to ensure that C&F could supply enough materials to the Bose’s plants that are located in Northern America and Europe. There was a doubt if the company had enough capacities. Taking into account that Bose valued reliable relationships with their main suppliers, for C&F the JIT II program was worse giving a try.
In order to evaluate the decision of introduction of the JIT II program, Bose’s managers would need to evaluate how this program would contribute to the improvement of the business operations and what new risks the company would face. According to Paul Ditmann (2014), the largest risks that concern supply chain are: quality problems, increased inventory, intellectual property, cyber security, transit loss, etc. So Bose would need to focus on the assessment of these risks in the first instance. Before allowing the C&F’s reps to participate in the JIT II program Bose would also need to assess all security risks and think of the preventive steps that could be taken in order to reduce these risks. Risk assessment usually includes three main stages: identification, analysis, and evaluation (SCRLC, 2011, p.2). Within these three stages, Bose could apply a business-impact analysis in order to assess the external and internal environment and avoid the possible problems if the JIT II program was to be introduced.
References
Isaacson, B. (8 March 1994). Bose Corporation: The JIT II Program (A). Harvard Business
Ditmann, Paul. (Summer 2014). Managing Risk in the Global Supply Chain. The Supply
Chain Management Faculty at the University of Tennessee. Web. Retrieved from http://globalsupplychaininstitute.utk.edu/publications/documents/Risk.pdf
SCRLC. (August 2011). Supply Chain Risk Management: A Compilation of Best Practices.
Web. Retrieved from http://www.scrlc.com/articles/Supply_Chain_Risk_Management
_A_Compilation_of_Best_Practices_final[1].pdf
Sourcing Decisions In A Supply Chain. [Class Presentation].
