NORTHEASTERN EQUIPMENT COMPANY

The Northeastern Equipment Company manufactured goods for the consumer, government, and industrial
markets. The company was organized on a divisional basis according to product lines. Each of the four
division managers reported to the executive vice president, as did the personnel director and controller.
Each division manager was expected to operate his or her division as a separate business on a profitable
basis. (See Exhibit 1.) Each division occupied a separate building containing its entire production facility
home marketing office, and so on. The divisional plants were all within a 15-mile radius of the executive
offices where the president, vice president, personnel department, and accounting department were
housed.

The Test Equipment Division

The Test Equipment Division manufactured electrical and mechanical test equipment for industrial,
government, and laboratory use. The products of the division fell into two broad classes: relatively
inexpensive mass-produced units and expensive highly engineered units that were manufactured on a
low-volume or single-unit basis. Manufacturing, therefore, was placed under two supervisors: one who
was responsible for low-volume or “specialty products” and another who was responsible for the high-
volume or “mass production” items. A metal shop and a machine shop, each of which was responsible for
fabrication of subassemblies for both the specialty products group and the mass production group,
supported these two groups. (See Exhibit 2.)

EXHIBIT 1
Northeastern Equipment Company organization chart.

President

Executive
Vice-President

Personnel Accounting

Division A Division B Test Equip. Div. Division C

Division Manager Division Manager Division Manager Division Manager

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 Division Manager

Production Marketing Engineering

Manager Manager Manager

Production Production Supply Advanced Methods Quality

Receiving Inspection
Supt. Control Chain Mgt Development Engineering Control

Ass’t to
P.M.

Specialt Mass Metal Machine Chief Electrical Tube MRO Store-

y Productio Shop Shop Expediter Sup. Mgr. Sup. Mgr. Sup. Mgr. keeper
Product n
Forema Forema
Metal Mass. Prod. Parts Govt.
Sup. Mgr. Sup. Mgr. Unique Sup. Mgr.
Expediter
Sup.

File Clerks
Expediter

Order Typists
EXHIBIT 2 Expediter
Northeastern Equipment Company
Organization chart, Stenographers
Test Equipment Division.
Expediter

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Supply Chain Management—Test Equipment Division

The supply chain manager, who was very competent and had twenty years’ experience in
production, engineering, and supply, reported to the production manager because the division
manager felt that the supply chain manager’s primary function was to “see that production had
what it needed when it needed it.” The production manager was held responsible by the division
manager for keeping all production costs in line.

On the other hand, the marketing manager exercised functional authority over the supply
chain manager on all specialty products. These products, which were frequently large equipment
installations such as automation devices and communication systems, were normally made on a
job shop basis to customer specifications. Success in the sale of these products depended on the
ability of the division to produce efficiently to tight customer specifications and to deliver more
quickly than competitors. The marketing manager, therefore, could specify brands and suppliers
for component parts, and he frequently negotiated directly with suppliers and supplier
salespersons before placing an order through supply. The supply chain manager had repeatedly
tried to eliminate these direct contacts between the marketing manager and the suppliers since
several expensive duplicate orders and contract complications had arisen as a result of supply
chain management’s not being properly consulted or informed.

Because of his resistance to the marketing manager’s activities, the supply chain manager
and the marketing manager were hardly on speaking terms. Whenever the marketing manager did
want supply chain management’s assistance, he always went to the assistant to the supply chain
manager. This individual was a very competent engineer and former lawyer and was known to be
able to obtain excellent cooperation from all suppliers. Because of frequent favors asked by the
marketing manager in expediting and straightening out orders, the assistant to the supply chain
manager had only one other set of assigned activities. These duties were keeping up with special
features of government contracts in process or negotiation, government regulations concerning
procurement, and government liaison.

The internal organization of supply chain management is shown in Exhibit 2. The metal
supply manager bought castings, bar, plate, and extruded stock for the four production groups.
His responsibilities included all basic metals and alloys that were to be further fabricated in the
division. The electrical supply manager bought meters, wire, resistors, capacitors, and all similar
fabricated electrical parts, except tubes, for both the specialty products and mass production
sections. The mass production parts supply manager bought all fabricated parts for the mass
production section, other than electrical parts including tubes. The tube supply manager bought
cathode ray and miscellaneous tubes for both production sections. These tubes ranged in unit
price from a few cents to $8,000, some being off-the-shelf items and others special development
jobs. The parts unique supply manager bought all fabricated parts other than electrical parts and
tubes for the specialty products section. The MRO supply manager handled all operating and
clerical supplies for the entire division.

The government supply manager handled subcontracts and purchase orders placed under
government prime or subcontracts. Government work was handled by both production sections
and accounted for 40 percent of the division’s sales. Because government work was carried on in
the production section simultaneously with civilian orders, and because many parts were
interchangeable, the government supply manager only placed orders for parts unique to
government orders. For standard items that would be included in government orders, he merely
ensured that the other supply managers included proper clauses in the orders they placed. The
government supply manager worked closely with the assistant to the supply chain manager, with

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the marketing department, and with all other supply managers. He was well thought of by the
entire division and handled government contract materials with a minimum of friction.

The storekeeper kept all records on pre-production inventories and supervised the stock
clerks in the various storerooms of the plant. The expediters helped the supply managers by
following up on material orders until they were received in the plant and by picking up rush
orders, and so on, on request. Once materials were drawn from stores they became the
responsibility of the production foreman who had drawn them from stock. Because some
materials went directly from boxcars into production, rather than through stores, the receiving
department was placed under the production manager. Engineers performed inspection. The
engineering manager upon request by the supply chain manager assigned the engineers to the job.
There was no full-time inspection department.

The Test Equipment Division had been operating at a low profit ratio for several years.
Inventories of raw materials, goods in process, and final inventories were turning slowly, and
orders were being lost because of high quoted prices and slow deliveries. A new division manager
was appointed to clear up the situation.

1. What would you recommend the new division manager do to make supply chain
management more effective and efficient?

Adapted from a case copyrighted by the Purchasing Agents Association of Connecticut, Inc.
Reprinted by permission.

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