BOSE

=** BOSE **=

Amazing sound, quality, and leading innovative audio equipment can be said in one word, Bose. In order to consistently deliver the absolute best commercial, home, and car audio experience; Bose must address the following questions: // Make or Buy Plastics? Decentralize, Centralize or hybrid? Vertical Integration? //

As Bose brand continues to penetrate foreign markets and production increases, taking action will include the following:

THREE MAIN CATEGORIES

HYBRID CENTRALIZING

Combining of decentralized procurement and centralized procurement will accomplish local demands for pressed for time products and also going global opening new markets. Allow for more control from central office in procurement decisions.

Benefits: This will help lower costs on certain components that we decide to source from other countries, but still purchasing key parts from local suppliers.

VERTICAL INTEGRATION

The Purchasing G&F in the next ten years assuming G&F are our main manufacturer. Moving toward an in house operation for select areas.

Benefits: Ease of access to major component of audio systems. More internal control in the long run. Improved knowledge of supplied components if a supplier is purchased.

PRODUCT INNOVATION

Following Achieving through vertical integration innovative products dealing with the secret trademark of Bose will eventually be assembled in Bose factories.

Benefits: Higher security and easier to innovate with more centralization. Learning high skill production processes from better centralizing allows for more innovation at lower cost.

** HYBRID CENTRALIZING : ** ** An analysis proving this is the best decision in the long run is stated: ** **__ The current production layout as of 1990-1991: (Extracted from Bose Corp. Case) __**

The company has a decentralized layout allowing its manufacturing facilities to do its own purchasing. Due to the innovating nature of the product a responsive supply chain is required and the prompt response from the vendors has allowed Bose to rapidly supply its market with product. The program JIT II has been criticized to eventually make the company lose the opportunity of gaining expertise in the manufacturing of its related components. However, since the company motto stands for improvement through research, the focus gained with its loss it is compensated. Bose can concentrate into its forte; the creation of better and high quality audio systems.

There is room for improvements. Our team suggests a hybrid process of centralizing some of its procurement on components which could be obtained from international suppliers in order to lower some costs. There will be again on mass purchasing pricing and its delivery will have to orchestrate to all its manufacturing facilities. Key components will remain being purchased from local suppliers and other parts such as electronic parts could be purchased straight from China or whichever place gives BOSE some cost advantage.

__The new production layout will looking like this:__

BOSE plan of expansion includes manufacturing facilities in Hillsdale, Michigan and San Luis, Mexico as well as a possible facility in Japan. It would be key to expand to Japan. Illustrated below is the before and after. After expanding to Japan, you have now opened Australia, and other Asian countries. This is the key better trade routes as well. These manufacturing facilities will streamline operations and facilitate product manufacturing and distribution on those markets.

** Vertical Integration **

A vertical integration plan needs to be implemented in due time because plastics are an integral component to the audio systems. For vertical integration, Bose needs to take a two step process in order to create in-house plastic making operations.

Step 1: BUILD STRONG RELATIONSHIP WITH G&F

Looking at the aspects if Bose were to Buy G&F immediately, the following would need to be achieved:

__ Capital Expenditure __

Bose would need to determine how much they would be willing to spend on buying G&F. Ultimately; Bose would spend a higher up-front cost.

__ Human Capital __

Bose would gain access to the knowledge, skills and abilities of G&F’s technicians. This would save Bose precious Research and Development time spent on trial and error operations.

__ Plant, Property, and Equipment __

Bose would acquire G&F’s molds, molding machines, and facilities. This would not totally factor out costs of the molds, it would only reduce costs of each mold (original costs of $75,000-$150,000 for molds) but in turn would be buying molding machines ($200,000) and building new facilities. Time is critical in owning G&F, Bose should not buy too soon because it is not assured that G&F have the capabilities to handle all plastics of Bose. Granted Bose is one of G&F number one customers but are they ours at this point in the ball game.

<span style="background: white; color: black; font-family: Calibri; line-height: normal; margin: 0in 0in 0pt;">Certain precautions need to be sought out: <span style="background: white; color: black; font-family: Calibri; line-height: normal; margin: 0in 0in 10pt;">As of 1991-1993 Bose Corporation’s goal should be to build a strategic alliance with G&F so strongly that seven years from now when Bose is their only customer, they will have no reason to say no when Bose offers to buy G&F. <span style="background: white; display: block; line-height: normal; margin: 0in 0in 10pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: center;"> Key point is to: BUILD STRONG RELATIONSHIP
 * 1) <span style="background: white; color: black; font-family: Calibri; line-height: normal; margin: 0in 0in 10pt; tabstops: list .5in;">Specify clearly the relationship between Bose and G&F
 * 2) <span style="background: white; color: black; font-family: Calibri; line-height: normal; margin: 0in 0in 10pt; tabstops: list .5in;">Requirements should be known and not implied
 * 3) <span style="background: white; color: black; font-family: Calibri; line-height: normal; margin: 0in 0in 10pt; tabstops: list .5in;">Frequent communication between both companies need to be present (mutually beneficial to Bose and G&F)
 * 4) <span style="background: white; color: black; font-family: Calibri; line-height: normal; margin: 0in 0in 10pt; tabstops: list .5in;">Responsibilities stated in a Contract and signed by both parties

Step 2: Create own Plastic Production Facilities

__ Capital Expenditure __ Bose would need to set aside capital for building and upkeep up plastic facilities, technicians, and laborers.

__Human Capital__ Bose would need to hire technicians that are familiar with plastic molding. Staffing these technicians presents a higher salary cost. They would also need laborers to run the machines after the technicians set the specifications.

__Plant, Property, and Equipment__ Bose would need to create new facilities or add-on to existing ones. Molds and molding machines would need to be bought.

It is our suggestion that Bose buy G&F (projected 1997-2000.) It is important that a quick decision is not made on buying. This is assuming that analysis and close watch with G&F, essentially to build a close relationship. Like the saying, "You want your friends close and your enemies even closer." If careful planning is not taken seriously, G&F could potentially be an enemy.

This relationship would turn into a joint venture and Bose eventually gain ownership of the company. The knowledge gained from the transaction could be spread to other facilities in Bose, and over the course of 5 years, Bose can move from outsourcing to total in-house plastic making operations. This is determined on the basis of plastics being a major component in the audio systems.

PRODUCTION STRATEGIES

Considering the high quality standards that BOSE stresses to suppliers; there is always the fear that out of standard product could damage the image and reputation the company professes. Gaining expertise by manufacturing key components would be a good way to start ensures productivity excellence. What products should be manufactured?

1.- Cabinets: The reason for manufacturing this component is due its continuing improvement to becoming attractive and its exterior surfaces high standards. Both wooden and plastic cabinets should be manufactured by BOSE and expertise developed in its manufacturing. A vertical integration makes sense to implement due to its heavy impact as part of the audio component. The company should consider purchasing G&F.

2.- Innovating components: Components innovative in nature should be assembled at BOSE facilities to avoid leakages of information and technologies. This will be accomplished when working with G&F and then owning. Ensuring that the leakages of information will be minimal to begin with to none as the years go on of owning G&F. Depending on how critical these are could range from electronic boards to speakers.

There are some components that are not critical and require less expertise to develop, such products should be outsourced or purchased from overseas to lower the costs of producing BOSE audio finished product. BOSE is trying to penetrate the general audio market which general product acquires. The product BOSE Companion 2 series is an example of inexpensive high quality product available at electronic retailers. If such strategy is to be pursued; then it makes sense to start seriously looking into lowering costs to remain competitive in that market

__ Reviewing Key Concerns: __

__Key Questions addressed:__

Ø Make or Buy Plastics? Ø Had the day of Vertical Integration arrived? Ø Stay local or go global? (“C//ould Bose justify a large staff of buyers in the Corporate Procurement to provide expertise in specific commodity areas?”)// Ø Decentralize or Centralize? __ Bose Mission __ “Provide outstanding sound experience to everyone in the whole world.” What are the components that go into making //sound?// 1. Transducer 2. Electronics 3. The Cabinet

Two-thirds consist of Bose’s main Mission. The Transducer and the Electronics. How these two components are made and designed should not be shared to the world. This is what makes Bose stand out from other speakers. The third being cabinets, does not necessarily have to be kept from everyone. There is a market for making cabinets and competition as well. The only detail when dealing with Bose is that Bose demands high quality and no imperfections. If Bose is going to sell something it will be in the best condition possible. Quality Issues: This becomes a problem when assigning vendors for certain projects. It would be easy to say, “Well if we demand quality who better than to make the product than BOSE?” Answering a question with questions: Is making Cabinets cost effective?

__ Bose Strategies __ Original Strategy in 1964: “Build a company based on innovations in //acoustics and electronic.”// 1990’s: 1. Company sought new markets around the world and opening markets. 2. Sought broader channels of distribution 3. Produced systems as well as components

Looking from a simplistic view, Bose specializes in electronics and Sound; Cabinets are an offset in regards to the relation to the set up of Bose Corporation. This is reason one why to outsource plastics to G&F. Can Bose continue to search for new markets around the world if plastics are outsourced? Ø Yes, in fact this would make it more open to search for more markets. It will be less likely to lose track of the mission of Bose Corp. Can broader channels of distribution be sought for if plastics are outsourced? Ø While G&F are doing the majority of the plastics that Bose needs, there will still be need to find other manufacturers that can fill in the gaps, this would eliminate the amount of risk that Bose would encounter if Bose needed to depend on a variety of Manufacturers. With Bose concentrating a few other manufacturers it is likely to come across different channels of distribution also tying into the first strategy, opening new markets to sell Bose products. Is it possible to still produce systems and some components if plastics are outsourced? Ø Yes, having G&F manufacturing the majority (really all that they are able to manage while still maintaining a high quality product of plastic) there will be the need of evaluation of producing some components. When determining which products to outsource consider the following:

· Through Procurement aid figure where and how much it would cost to have another manufacturer make component. · The figures need to be solid in order to compare with the costs that Bose would incur. · Consider location, is the location farther or closer to final destination. · Shipping Costs · A basis then needs to be made of how much it would cost Bose versus another manufacturer. (//Just a reminder these are not main plastic parts, only minimal parts)// · Also look long run. Just because it looks good in the short term does not echo for the long term. o Is this effective to Bose as a whole? o Will it distract from the Mission of Bose? o Are we fully equipped to compete with Manufacturing companies that are solely focused on Manufacturing and technologies that go hand in hand with this?

Want the individual plants for Bose that they are making decisions giving them a control. But also maintain an invisible leash just in case they decide to go outside their bounds. As a growing company it is crucial that a close watch on these plants be secure, one big mistake might cost Bose.

CONCLUSION Concluding that it is all about timing in decision making and having the right mind set. Bose Corporation has a strong personality to do all and conquer all, but in order to do that other team members need to be initiated into the Bose Team. Through a hybrid procurement system, vertical integration, and continued growth in production Bose will in time become an even more global corporation.

Extra FACTS

Bose wants is considers several alternatives to improve operations. Among its alternatives there is a centralized approach of controlling it all, down to making all their parts. The only thing that they do not want to go into is “trucking and steamships.” When Bose did outsource out to vendors they faced some problems. 1. Bose wanted specific products that these vendors were capable of making but they did not necessarily want to make a __//special effort//__ to do so.

2. Even if Bose decided to have a __//long-term vendor//__ that would “allow that vendor to acquire whatever specialized capital might be desirable and develop particular expertise in manufacturing those parts.” Bose would not be able to have the “expertise” to themselves it would be sold to others. (NOT GOOD) 3. Bose believes that it would cost more to outsource and the only people that truly understand Bose are Bose’s employees. Basically, there is a conflict between purchasing and manufacturing the necessary components to produce Bose's products.

1990 – Purchased $300 million in materials

Vice President of Manufacturing: Tom Beeson Director of Procurement: Lance Dixon


 * Reports to VP Tom Beeson

Lance Dixon background info
 * Managed an engineering support facility for Honeywell Corporation
 * Was in charge of centralizing the purchasing of printed material
 * Established a network of 12 warehouses providing promotional support for the combo of GE/Honeywell sales force
 * Helped integrate the procurement policies of Honeywell’s 14 divisions (TOOK 3 YEARS)
 * Changed the way non-production items were purchased
 * Dixon was in charge of creating and managing a consolidated function to buy all non-production material for 12 Minneapolis-area Honeywell divisions
 * Standardized prices with vendors & established consistent procurement practices
 * Sought to establish more uniform procurement policies in all areas of spending activity

So, Beeson and Dixon are the guys that make decisions for BOSE regarding production and procurement. Manufacturer locations:

1. Westboro, Massachusetts (A) 2. Ste-Marie, Quebec (B) 3. Carrickmacross, lreland (C) 4. Hillsdale, Michigan (D) 5. San Luis, Mexico (E)

1990- Purchasing at Bose Corp. was decentralized. Plants did “their own day-to-day purchasing, typically against contracts.” A. Westboro 1. Electronic components 2. Plastics 3. Printing 4. Corrugated boxes/packaging 5. Cables/cords
 * Spent $140 million/ yr on items purchased from an active base of about 200 vendors
 * 50% of plant’s purchasing $ were spent in 5 catagories

Stage I: Business Planning Stage II: Aggregate Production planning Stage III: Production Scheduling
 * Purchasing was planned into 3 stages