SCHM 6214: Case Presentation

Hudson
Fabricators
VINAY SINGH
SRIKAR REDDY CHITLA
Background
Founded in 1976, family owned Job shop production system.
Product portfolio: frames, supports, hoppers, conveyors etc.
Major Clients: Anheuser-Busch, Marzetti Foods, Rockwell
Internations
Employees: 12-40 full time employees depending on the job.
Hudson maintains its ASME certification (American Society of
Mechanical Engineers) by furnishing certain information to the
society and going through ASME audit.
Current Purchasing Process
Job shop production: Very less inventory, No Forecast, Materials
ordered on a job by job basis.
90% of steel procured via broker
Purchasing is based on annual usage rather than individual basis.
Lead time: 1-3 days because of healthy supplier relations.
Estimating and Bidding Process
INE releases RFQ to Hudson fabricators.
Hudson engineer develops set of drawings then the material and
labor requirements are analyzed.
Hudson releases an RFQ to ACME steel.
After Hudson places its purchase order, job fabrication sheet is
developed.
Key Issues
Hudson being a small job shop type business unit they cannot
afford to maintain inventory due to space issues, as they purchase
in small quantities they use a broker.
Josh thinks developing a standardized purchase department will
increase Hudsons profitability.
To create a system to accommodate inventory of finished goods
without increasing the overall budget.
Absence of key suppliers
Recommendations
Josh must form a network of key suppliers who can provide
materials on a continuous basis and deliver on time and in perfect
condition.
Hudson must take firm orders from the customers well in advance,
preferably 4 months. This would help them place bulk orders from
suppliers and also promote better forecasting.
They must maintain some Inventory which would help them
maintain a cycle service level.
Benefits
90% of the steel is obtained via broker who makes his own share of
profit. Purchasing directly from the supplier would give them a
better rate and thereby ensure higher profitability.
Inventory is an aid to continuous production, provides hedge
against future price rises and delivery disruptions.
4 month firm orders help them prevent under and over usage of
labor. Thus preventing unnecessary hiring and layoff.
RISKS
Brokers purchase in bulk, have better relations with suppliers which
gives them higher negotiating power and a better price than direct
customers who purchase in smaller quantities.
Inventory is deadwood until it is used. Then there are carrying
costs, Insurance costs, book keeping costs, warehousing costs
associated.
It is not possible to get 4 month firm orders from all the customers.