Page 403 - Operations Strategy

378 case study 2 • aztec component supplies
Are we ready to put up with so much interference in our business? They are talking about
putting their own quality people and production planning people in offices in our plant! As
part of the deal they are also insisting that we abandon our old ERP (Enterprise Resource
Planning) system and use the more modern ERP system that they use. They are also insisting
that we lease the ERP system from an Applications Service Provider (ASP).’ (Applications
service providers hold computer applications such as ERP systems, together with
dedicated data bases on their own servers, which their clients access using internet-
type technologies.)
Alice Chang, the purchasing vice-president of Desron, was particularly keen that
‘single source’ suppliers, such as Aztec might be, outsourced their planning and control
effort using ASPs.
‘Getting our suppliers to use ASPs is particularly important for us. It encapsulates what we
are trying to do with sole suppliers. First, we want them to use compatible systems to ensure
seamless co-ordination of material flows between their plants and ours. Second, we don’t
want to get into negotiations every time we update our systems. We can do a deal with the
ASPs for suppliers to update their own systems at relatively low cost at the same time as we
update. Third, there needs to be far more transparency around planning decisions with our
suppliers. We don’t want to get into plastic injection moulding ourselves; that isn’t our busi-
ness, but we want to ensure as smooth a supply of parts as if their operation was an integral
part of our plants.
It is difficult to understand why they are hesitating in accepting this deal. We both agree
that, providing they can keep reducing costs, they will be overall more profitable and get bet-
ter return on assets under the new deal. Also they will have a chance to participate in, and
directly influence, our success on which they themselves ultimately depend. For example,
they will be expected to take an active part in new product development so they can contrib-
ute their expertise in moulding for our mutual benefit. We are not even preventing them from
dealing with other companies. I would prefer that they didn’t of course. Just coping with our
increased business will be a tough job for them. But they have to understand that unless
they make up their minds soon, and fully commit to the deal, we will lose patience. They
are not a particularly large supplier, accounting for less than 10 per cent of our purchased
parts expenditure. The Desron Group are fifty times bigger than they are, can’t they see we
are in a position to help them?’
Ethan Condos was not so sure. ‘Sure it’s a great opportunity but the choice is just too
stark for comfort: accept the deal, or reject it. Maybe we have to simply be courageous and
make a decision one way or the other. If so, we need to fully understand the advantages,
disadvantages and, above all, risks of accepting the deal or not. However, I would also like
to explore the possibility of some kind of deal which would involve a less radical move than
committing ourselves so totally.’

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