Susan and Bill, procurement managers at Avion Inc.

, are reviewing a performance report about

their supplier, Foster Technologies. Their report highlights issues with material quality and on-
time delivery. Both of them are disappointed because Foster Technologies seemed like a star
supplier during the initial visit with smoothly-operating management. They discuss the supplier’s
innovative capabilities but note a lack of depth in key manufacturing engineering positions. Bill
suggests finding another supplier immediately due to the ongoing problems and the risks
associated with a single-source contract. However, this could take time and potential cost of
new tooling.
Susan is concerned about the reason why Foster didn’t inform them about the problems caused
by these changes.
Susan and Bill, procurement managers at Avion Inc., are reviewing a performance report about their
supplier, Foster Technologies. The report highlights issues with material quality and on-time delivery.
Susan expresses disbelief because Foster Technologies seemed like a star supplier during the initial visits.
Bill, who was part of the audit team, feels deceived by Foster's smooth management. They discuss the
supplier's innovative capabilities but note a lack of depth in key manufacturing engineering positions. Bill
suggests finding another supplier immediately due to the ongoing problems and the risks associated with
a single-source contract. Susan expresses concern about the time it would take to search for a new
supplier and the potential cost of new tooling.
They mention that Kevin, another procurement manager, had spoken to Foster's production manager, who
suggested that Avion should take responsibility for some of the issues. Kevin enters the room and reveals
that he visited Foster Technologies and discovered that Avion's production requirements had increased
significantly without proper communication. The monthly volume requirements were now over 4,000
units instead of the projected 2,500, and the lead time had been reduced to 10 days instead of two weeks.
Additionally, Avion had been making last-minute changes to material release quantities. Bill remembers
that Foster's production system could only handle up to 3,500 units per month and a two-week lead time.
Susan questions why Foster didn't inform them about the problems caused by these changes, but Kevin
explains that Avion's materials management team was responsible for communication after the contract
negotiation. Foster had sent multiple memos, letters, and calls to address the impact of Avion's production
and scheduling changes, but they received little attention from Avion's materials group. Kevin speculates
that Foster might be eager for the contract to end so they can stop working with Avion. Susan asks what
they should do next.

Q1. What part of the supply chain is most closely involved with the situation in the case?
What is the responsibility of each part in order to maintain a smooth flow of material?
-The following parts of the supply chain are mostly involved with the situation in this
case:
 Procurement Department: Their responsability is to communicate with the production
group and with the material group more often. If they had known that the monthly
volume requirements and the lead time was changed by the production group, they
would have not blame to Foster Technologies. Also, they should work with engineering
more closely so they can locate more sources of technology and select suppliers
efficiently. The flow of information with the supplier is also very important to identify
the problems
  Production Department: Their responsibility is to produce the goods ordered. They
should not have changed the requirements for the material. If they need to change
them, they should communicate to the material management group
 Marketing Department: The Marketing Department knew that the demand was over
4000. Such as, they should have informed the materials department regarding the
demand and should have proceeded accordingly.
 Forecasting: The demand forecasting was highly erroneous and had very little accuracy.
They should perform checks and can change forecasting methods for a more accurate
amount of forecasting

Q2. What initially appears to be the problem? What really is the problem in this case?
- Initially the problem appeared to be on the supplier side with the quality of the
products not upto the standards and also the suppliers were not able to meet the
deadlines and there was delay in orders.
- However the real problem here is with the Avion Inc. as they had a revised
projectionvolumes of 4000 units per month while the previous forecasts were around
2500 units amonth. The revised projection of 4000 units per month is 500 units more
than the supplier’smaximum capacity of 3500 units per month. Also the fastest that the
supplier could give the materials after release was two weeks (i.e. lead time 2 weeksk.
But Avion Inc. production group wanted the materials by ten days. So the main problem
here is stretching the supplier beyond his ability. And moreover the materials group of
Avion Inc. didn’t respond properly when the supplier – Foster’s production manager
complained and sent letters to inform that these changes were causing the problems

Q3. How easy is it to switch suppliers? What could complicate a firm’s ability to switch to a
new supplier?

- It is not easy to switch suppliers. Because of many factors like time, costs and activities
changes
+ Time: It takes a long time to find a new suppliers, and to get used to the new way of
working, time to build the relationship with the new supplier
+ Costs: The supplier might charge higher which would result in higher switching cost.
Some of the tooling have to be changed and replaced to be adapted to the new supplier

- The switch could be complicated if:

+ There is a lack of trust, a lack of information between supplier and the firm, and the
new supplier might look for a transactional or basic relationship rather than becoming a
preferred supplier or a strategic partner
+ Difficulty negotiating leads to high switching costs
+ There is no guarantee of quality

Q4. What does it mean to get to the root cause of the problem?
It means that if a company could get the root cause of a problem, they could find where the
problem has started and they change the cause of this problem from the beginning. A problem
in a supply chain leads to other problems, finding where the first problem was, could made a
firm save time managing with the problems derived from the first problem. In this case the root
cause of the problem was the lack of information flow with the supplier

The root cause of the problem here seems to be the lack of information flow with the
supplier company Foster.
Q5. What does it mean to be a good customer? Why does a buying firm want to be perceived
by a supplier as a good customer? Provide a specific example of what a firm must do to be a
good supply chain customer?
To be a good customer (in the context of the case) means to fullfill the requirements projected
in the contract and ensures that the supplier is also benefitted in the process of
transaction. Benefit here doesn’t mean merely monetary benefits but also benefits in terms of
gain sharing and learning.
A firm wants to be perceived as a good customer owing to the following reasons:
- Switching cost of the supplier would be reduced.
- Long-term strategic relationships can be developed which would benefit both the parties
- Quality of products procured would be assured
- Backward integration is not always possible
- Long term plans can be drawn up on the basis that the
vendor/supplier wouldn’t change.
Some specific example of what a firm must do to be a good supply chain customer:
- Proper communication to vendor/supplier
- Encourage vendors to improve continuously so that both the supplier and buyer benefit.
- Look for a long-term relationship
- The importance of the supplier and the supplier’s product should be made clear to the
supplier.
- Every decision taken by the customer should also be informed to the supplier
- An atmosphere of mutual trust and understanding should be built.
Q6. Explain the importance of performance measurement in supply chain activities?
Firms must leverage supply chain capabilities and resources to deliver products and services
efficiently, cost-effectively, and with high quality. Performance measurement is crucial for
effective supply chain management, considering both suppliers and customers. These measures
indicate the performance of the supply chain and aid in understanding and improving it.
Measurement is necessary to compete in a dynamic environment.
Q7. Why can changes within the supply chain disrupt the normal flow of goods and services
within the supply chain?
As a chain, everything is connected, if a change is made, the following processes in the chain
will be changed and by the end goods and services will be different as they were planned and it
will be a disruption of the normal flow of them
A minor change in the processes can have a major impact on the flow and as such it
is important that the supply chain is largely stable and at the same time effective and efficient.
Q8. Why might Avion want to reduce the lead time on its purchased
materials and components?
They might want to increase their production, reduce their production disruption and stocks out
of inventory and match fluctuations in the demand. It is one of the most important ways to
improve competitive edge. If a firm wants to reduce the lead time might be because their
customer demand it and they have to meet the request on time
Q9. Why do firms-single source contracts?
Single source contracts, though associated with a certain amount of risks, enjoy the following
advantages for which firms single source contracts:
1. Reduced costs: help to lower their operational costs, allowing firms to use their budget for
other important business matters.
2. Improved product quality t Enhanced product consistency: ensuring each product appears
and functions in the same way and at the same level of quality.

3. Personalized supplier relationship: When a company works with only one supplier, the supplier may
provide it with specialized or personalized treatment. This can mean the supplier is more flexible and
available.

4. Improved supplier-related problem-solving: easier to monitor the supplier's performance and

identify ongoing problems
Q10. Develop an action plan for Avion that addresses the issues presented in this case. Be prepared to
fully explain your recommendations
at the very outset, Avion should
hold a meeting with Foster and
discuss the issues. The
production schedule should be
intimidated and a proper re-
planning should be done.
Moreover,
Avion should stop working in
silos and break the functional
barriers. Cross functional teams
should be formed and the
processes should be re-
engineered. To ensure better
information flow,
ERP should be implemented
which would result in better
visibility and better information
flow
across the supply channel. At
the same time, Avion should
also involve Foster in the
decision
making process so that the
supplier’s interests are also not
hur
We can work on some short term changes for now to manage the immediate issues and then
maybe work on more long term solution to have a sustained supply of quality goods at the right
time
So for short term, the first thing that Avion should do is to go for a proper communication
between stakeholders for quality and time management. The production schedule should be
intimidated and a proper re-planning should be done. Cross functional teams should be formed
and the processes should be re-engineered. Then they can reduce their order to 3500 and
match it with the supplier capacity. And may look for some other supplier who could produce
the rest small quantity. To ensure better information flow, ERP should be implemented which
would result in better visibility and better information flow across the supply channel. Also the
Avion should focus more on improving their forecasts and communications problem in the
material management department. At the same time, Avion should also involve Foster in the
decision making process so that the supplier’s interests are also not hurt
On long run they should go identify a supplier who could fulfill their orders with expected
quality and at right time. However this process may take time as they may have to do this as
they may have to carry out the whole procurement stages from start. So, in parallel with
implementing short-term strategies, Avion can make investments in suppliers, improve
productivity and quality of suppliers, advancing the long-term interests of both parties

There are several lessons we can learn from this situation.

One lesson is the importance of effective communication between the buyer and the supplier. Avion and
Foster had different expectations and assumptions about the contract, and they did not communicate
clearly or frequently enough to resolve the issues. Avion’s materials management team failed to
acknowledge Foster’s concerns and requests, while Foster did not escalate the problems to Avion’s
procurement managers. This led to a breakdown of trust and cooperation between the two parties.
Another lesson is the need for proper planning and forecasting of production requirements. Avion
increased its volume and reduced its lead time without considering the impact on Foster’s production
system. Foster could not meet Avion’s demands without compromising on quality and delivery. Avion
should have consulted with Foster before making any changes to their production schedule, and Foster
should have communicated their capacity and limitations to Avion.
A third lesson is the value of supplier relationship management. Avion and Foster had a single-source
contract, which means they were dependent on each other for success. However, they did not invest in
building a strong and mutually beneficial relationship. They did not share information, collaborate on
problem-solving, or seek feedback from each other. They treated each other as adversaries rather than
partners. This resulted in dissatisfaction, frustration, and poor performance for both parties.