1. How important is quality and performance of the gearbox to CCM’s customers? W
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Question
1. How important is quality and performance of the gearbox to CCM’s customers? What is the cost of a gearbox quality issue?
2. Is it time for CCM to make a statement to BGK and change suppliers?
Case 7-2 Caledon Concrete Mixers o as in supply, where combining purchases between the t As Sarah Jenkins, materials manager at Caledon Concrete w Mixers, coded her coference call with Jon Del Rosario operations for some products had yiekded significant savings corporate purchasing, she woodered what recommen Jon Del Rosario, purchasing manager in the corporate per dations she should make regarding the selection of a gearbox chasing group in Chicago, was responsible for coondinaing ocating switching to a new supplier, but Sarah remained Sarah Jenkins was responsible for materials manage concersed about the risks of ending a long-term supply ar ment at CCM. An MBA graduate from the Ivey Business rangement with a key supplier. It was now December the School, Sarah had worked at CCM for more than 20 years Brd and she wanted to make a final recoemmendation before Reporting to the general manager, her responsibilities in the plant shut down for the annual Christmas holiday break cluded logistics and transportation, purchasing, inventory supplier. The corporate purchasing group in Chicago was purchasing between the Caledon and St. Louis plands control, and production planning. Her counterparts inf nance and accounting. quality, operations, sales, HR, and CALEDON CONCRETE MIXERS Located north of Torceto, Canada, in Caledon, Ontario, Caledon Concrete Mixers (CCM) was a manufacturer engineering rounded out the senior management team. THE GEARBOX While the concrete mixer truck was in truck-mounted concrete mixers. Founded in 1910, the company employed 140 people in its 150,000 square foot annual sales of approximately $25 million. Nearly 40 per- States. the lading 100 unionized hourly workers, and had necessary to continuously rotate the load to prepare avoid consolidation. The gearbox was locat- concrete and ed at the bottom of the large mixing drum and was used to transmit torque from the hydraulic motor drive shaft. cent of company sales were exported, mainly to the United CCM had a strong reputation for quality and service in which rotated the drum. The gearbox also permitted the the industry, It operated as a private business until 2003, operator to adjust the speed and direction of the rotation. when it was purchased by Ilinois Machinery Corporation The gearbox was one of approximately 150 compo (IMC). IMC was a global manufacturer and marketer of nents that CCM used for the assembly of their concrete access equipment, specialty vehicles, and truck bodies mixers. The gearbox used by CCM came in two varia- for the defense, concrete placement, refuse hauling, and tions, depending on the model of the concrete mixer. Each fire and emergency markets. Annual revenues in the most gearbox cost approximately $3,600 and volumes at CCM current fiscal year were $9 billion and IMC had approxi- ranged from 950 to 1,100 units per year mately 18,000 employees Concrete mixer transport trucks were designed to mix concrete and haul it to the construction site. Customers typically specified the track model, which was ordered CCM and the St froem the original equipment manufacturer. CCM fitted the as the singl vehicle with the concrete mixing equipment, w Louis operation both used BGK GmbH e source for gearboxes. BGK was a large diver manufacturing company with annual rev. CCM a wide hich includ- sified German enues of 12 billion euros. The division that supp ed a large drum and discharge system. Systems were cus tomized based oe vehicle size (e.g. 2-6 axles), discharge produced gearboxes for industrial applications i system (froet or rear), and capacity (maximum capacity to carry 14 cubic yards of pay load). range of industries, such as material handling equime energy, and mining. The company had a reputation for h IMC had an operation in St. Louis that manufactured a quality and reliability, although its products were similar product line CCM under a different brand name, more expensive than those of their competitors. typically annual revenses approximascly double the Canadian The relationship with CCM and BGK dated back i plant. Although IMC operated under a decentralized model, than 30 years. BGK offered a standard one-year warrant CCM and the St. Louis operation cooperated in areas of engi its gearboxes, but Sarah was not aware that CCM neering, parchasing, and sales, while operating autooomously experienced any notable quality problems and cusert with separate leadership teams. Oe key area for synergies were generally satisfied with performance of the r on tomensExplanation / Answer
1. How important is quality and performance of the gearbox to CCM’s customers? What is the cost of a gearbox quality issue?
Gearbox is every essential for the truck-mounted concrete mixer. It is not like some other component without which the truck can still run. Also, problems in gearbox will take a long time to get repaired, not to mention they are costly. The gearbox itself is a costly affair for end consumers as well as CCM. The consumer generally can compensate for other components but not really for the gear box. The quality, reliability, durability, and performance is paramount to end consumers for reliable performance and trust. This may be a deciding factor in their purchase.
A quality issue in gearbox affects the
Purchasing decision- consumers, especially in industries like truck industry, depend largely on word of mouth and such quality issues change the purchasing decision towards another brand resulting in lost sales and decreased profit
2. Is it time for CCM to make a statement to BGK and change suppliers?
From the evaluation criteria, we find that in spite of the importance of the performance and quality of a gearbox, the value given for warranty is only 5, assuming that warranty is an indirect factor for quality.
But at the same time, we find that quality mentioned by defect rate is not much different between IGR (defect rate=1%) and BGK (defect rate=0.5%). This may be practically less worrisome.
IGR offers just in time delivery which will reduce inventory costs and improve service level dramatically for CCM. Also, customer satisfaction will be improved paramount. It also offers a 5-year warranty. CCM is also known for its service level and this 5-year warranty will build a huge trust among consumers. The number of years of warranty is an indirect message about quality to consumers. This increases consumer belief about the brand. IGR also quotes a lower price.
BGK seems to be not compromising on price, warranty, service and lead time. Competitors offer better in these important terms. Also, their responsiveness and service levels seem to be poor with increased complacency and decreased capacity. They are also affected by shutdowns. They don’t adjust the gearbox price for steel price
Hence I believe it is time for CCM to change suppliers. Even if they want to change as a whole, having another supplier like IGR is definitely worthwhile to reduce risks
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