Question

Problem No. 6 Case. Dion Audio Systems: Dixon Audio Systems had developed a reputation as a leading producer of speakers, audio systems, and car stereos. Dixon accomplished this through creating strict organizational quality standards and demanding these same standards of its suppliers. Meeting quality standards was critical, particularly of plastic component parts. These parts were sourced from a number of vendors and required considerable experience and skill to make. However, as Dixon’s quality standards increased, the number of defective components returned to vendors increased too. This was increasingly holding up production and costing the company in excess inventory and unmet orders.

Dixon’s director of purchasing proposed a new approach to dealing with the vendor quality problem. She proposed that they develop a new arrangement with their top vendor of plastic components, D&S Plastics. Under the relationship, D&S Plastics would become Dixon’s JIT supplier. The arrangement would require D&S to station a full-time representative at Dixon’s headquarters. The representative would be paid by D&S but would work as a plastics buyer for Dixon, placing orders to D&S. The representative would also monitor material requirements on plastic components that D&S supplied to Dixon and become involved in manufacturing planning at Dixon. The plan would provide the D&S representative full access to Dixon’s facilities, personnel, and computer systems. D&S Plastics would be a sole supplier to Dixon and was guaranteed business, provided it maintained the quality and delivery requirements. Dixon was assured a reliable supply of plastic component parts.

The proposed arrangement would completely change the way in which the two companies worked together and had a number of risks. Dixon’s managers worried that the company would lose control of its procurement process. Although Dixon was one of D&S’s biggest accounts, D&S worried that it would lose control of its operations. Many factors had to be considered before embarking on this type of arrangement.

Case Questions

1. Identify the pros and cons of a JIT relationship from a supplier’s point of view.

2. Identify the pros and cons of a JIT relationship from a buyer’s point of view.

3. What factors should Dixon and D&S consider before making a decision on this relationship?

Answer 1