Case 2–1

Spartan Heat Exchangers Inc.

Summary of the Case: Spartan Heat Exchangers Inc., a company specializing in

industrial heat transfer equipment, is facing challenges due to increasing competition
in the heat exchanger industry. Historically, Spartan's strategy involved offering
highly customized products to meet individual customer needs. However, changes in
the market have forced the company to reevaluate its approach. A new corporate
strategy emphasizes standardization of product lines, reducing variety, and
decreasing lead times from 14 weeks to 6 weeks while significantly lowering
production costs.

The materials department, led by Rick Coyne, is tasked with supporting this new
strategy. The department manages raw material procurement, inventory, and supply
chain operations. Key challenges include reducing lead times, increasing inventory
turnover, eliminating stockouts, and achieving a 10% cost reduction in raw materials
and components.

Discussion of the Case/Issue and Proposed Solutions:

1. Standardization of Product Lines: Spartan's decision to standardize its product

lines is a strategic shift necessitated by increased competition. By focusing on a few
basic product designs, the company aims to reduce lead times and production costs.
This will require close collaboration between the materials department and
engineering to streamline the procurement of standardized components.

2. Reducing Lead Times: To meet the new 6-week lead time target, the materials
department must work closely with suppliers to secure timely deliveries of
standardized materials and components. Vendor management and negotiation skills
will be crucial in ensuring reliable supply chains. Implementing just-in-time (JIT)
inventory practices can also help reduce lead times.

3. Increasing Inventory Turnover: To achieve 20 inventory turnovers per year, the

materials department should prioritize inventory management. This involves
optimizing inventory levels, implementing better demand forecasting, and reducing
excess and obsolete inventory. Embracing digital inventory tracking and
management systems can enhance accuracy and efficiency.

4. Eliminating Stockouts: To eliminate stockouts, the materials department should

adopt a proactive approach to monitor inventory levels, usage rates, and lead times.
Implementing safety stock and safety lead time strategies can help prevent stockouts
during unforeseen disruptions.
5. Reducing Costs: Achieving a 10% cost reduction in raw materials and
components requires efficient supplier management. Rick's team should conduct
supplier evaluations and negotiations to secure favorable pricing terms. Additionally,
exploring alternative suppliers and materials can provide cost-saving opportunities.

Conclusion: Spartan Heat Exchangers faces the challenge of adapting to increased

competition by standardizing its product lines and reducing lead times and costs.
The materials department plays a critical role in supporting this transition by
optimizing procurement, inventory management, and supplier relationships.
Successful implementation of these strategies will be vital for Spartan to thrive in the
changing market landscape.