CASE STUDY: JUST-IN-TIME AND LEAN SYSTEMS

Dixon Audio Systems had developed a reputation as a leading producer of speakers, audio
systems, and car stereos. Dixon accomplished this through creating strict organizational quality
standards and demanding these same standards of its suppliers. Meeting quality standards was
critical, particularly of plastic component parts. These parts were sourced from a number of
vendors and required considerable experience and skill to make. However, as Dixon’s quality
standards increased, the number of defective components returned to vendors increased too. This
was increasingly holding up production and costing the company in excess inventory and unmet
orders.

Dixon’s director of purchasing proposed a new approach to dealing with the vendor quality
problem. She proposed that they develop a new arrangement with their top vendor of plastic
components, D&S Plastics. Under the relationship, D&S Plastics would become Dixon’s JIT
supplier. The arrangement would require D&S to station a full-time representative at Dixon’s
headquarters. The representative would be paid by D&S but would work as a plastics buyer for
Dixon, placing orders to D&S. The representative would also monitor material requirements on
plastic components that D&S supplied to Dixon and become involved in manufacturing planning
at Dixon. The plan would provide the D&S representative full access to Dixon’s facilities,
personnel, and computer systems. D&S Plastics would be a sole supplier to Dixon and was
guaranteed business, provided it maintained the quality and delivery requirements. Dixon was
assured a reliable supply of plastic component parts.

The proposed arrangement would completely change the way in which the two companies
worked together and had a number of risks. Dixon’s managers worried that the company would
lose control of its procurement process. Although Dixon was one of D&S’s biggest accounts,
D&S worried that it would lose control of its operations. Many factors had to be considered
before embarking on this type of arrangement.

Case Questions

1. Identify the pros and cons of a JIT relationship from a supplier’s point of view.

2. Identify the pros and cons of a JIT relationship from a buyer’s point of view.

3. What factors should Dixon and D&S consider before making a decision on this relationship?
 Answers to Dixon Audio Systems Case Study

1. There are many positives that can come from a JIT relationship with Dixon. It can result in a long term
and a more accommodating relationship. D&S will always be certain of the orders coming from Dixon
and can be ready to accommodate them. Due to the steady stream of orders the company can more
accurately forecast the future and allow further orders to be planned and distributed more efficiently.

Despite there being a number of positives for a JIT relationship from a supplier's point of view, there are
still a few things that D&S is justified in worrying about when it comes to some potential negatives. This
newfound relationship between Dixon and D&S transfers the responsibility of handling supply over to
D&S. There is then a significant amount of pressure placed on D&S to perform well because of the
increased risk factor for Dixon. Along with that, there is a tremendous amount of responsibility on the
D&S-paid employee to monitor material requirements and place orders

2. The pros of having a relationship in a buyer’s perspective with another company to be their supplier
would be that the vendor assigned would be the one in charge of ordering, so they would have to make
sure they would be doing ordering in a timely manner. Also the representative would be paid by D@S so
Dixon would not be paying the representative. Having this relationship could also reduce Dixon’s cost
because ordering would be done as needed and not blindly ordering. The representative would be the
one to pay attention to the company’s needs.

There are a few cons of a JIT relationship from the buyer’s perspective. Even though buyers will receive
products made to order, if there is ever a need for backup products the supplier might not have them or
charge more for the last-minute order. Suppliers most likely have more than customer in a market and
information about products could be somehow released to competitors.

3. Both Dixon and D&S need to protect themselves in before entering this relationship. Dixon needs to
be sure that all orders will be of the standards that they request and that a shorter window of time will
not translate into poor quality products. Dixon needs to be sure the D&S has the volume to handle all
the orders and deliver them in a timely fashion and that information about those products or
promotions does not get leaked. Dixon needs to be assured that the cost of the products will not rise to
be higher than market price. D&S also needs assurances; what are they going to be held liable in case of
poor quality products or orders that are not timely met. D&S needs to make sure that they are free to do
business with other companies in the same field as Dixon and that they are not exclusively Dixon’s.