YELMAR JABRAYILOV MMG 712 OM

09/22/2021

TRIAS Case

Background.

TRIAS was founded in 1987 and is manufacturer of cable management support and electrical
switchgear located in Jakarta, Indonesia. The company's products and services include cable
management system, struts support system, electrical switchgear, metal works and mechanical
and electrical contracting works, intended to protect the investment of building, facilities,
factories, and industries owner by providing proven and trusted energy solutions.
(https://pitchbook.com/profiles/company/442962-19#overview )

They have had numerous competitors internationally but have been able to develop into a
successful cable manufacturing business. TRIAS currently uses a welding technique to create
their cable ladders and are constantly looking for ways to become more efficient and profitable.
They have used their research and development team to look for newer techniques that can
possibly use less time and money. TRIAS has recently won their biggest ever bid to supply a
paper pulp mill in the Indonesian province of South Sumatra. To meet the demands from the bid,
TRIAS must get their materials from a supplier. That supplier is GI, which TRIAS has had a
long-term relationship with. TRIAS has become familiar with their supply process and their
older welding techniques. GI’s manufacturing technique of welding takes four steps to complete
and relies on skilled workers to get the job done. Welding will cut profits significantly due to
increased costs for skilled labors and their four-step process. TRIAS is unsure of the high costs
brought on by welding. Although this is their biggest job yet, they want to make as much money
as possible. With welding, TRIAS will sell their finished cable at $1.68/kg and leaves little room
for profit. Welding has multiple issues associated with its manufacturing process. Welding then
requires a Hot Dip Galvanization (HDG) Quality Control Test to ensure that it is corrosion
resistant and can last for a long time.

The CEO of TRIAS Salim Sunaryo considered 5 per cent of profit margin to be extremely low
when they use the service of GI, therefore he conferred with R&D engineers, and they came out
with some startling news. They informed that there are two different companies from South
Korea and Japan, those companies using the material, which is more expensive, however they
are using more up to date process, riveting, that suppliers other than GI are using. Riveting has
only two steps and these other suppliers do not have to rely so much on skilled worker.
Yelmar Jabrayilov

The new suppliers were PSC from South Korea and NSH from Japan. The adoption of the new
material would eliminate two production stages HDG and HDG QC Test. Although, this
appeared to improve productivity, its technology, cost, and risks had to be evaluated against
those from the existing material. To analyze pros and cons of each company the features of each
potential supplier are summarized below:

GI – Current Supplier
 Reliable, long-term relationship
 Uses older process – welding
 Relies heavily on skilled labor
 Uses a 4-step process
 GI steel bars are priced at $.65/kg
 20% of GI product is incorrectly manufactured and needs to be reworked at $.35/kg
 Steel bars will be welded together at a cost of $0.25/kg
 HDG. Transportation cost of about $0.10/kg to and from GI’s HDG plant
 $0.48kg for galvanization service
 1.5% of the material sent had historically become unusable due to mishandling
 The rest of 98.5% of the material, about 7% had to be scrapped after failing to pass QC.
 TRIAS had cost sharing agreement with GI due to product loss or HDG QC test failure
 TRIAS would pay $0.45/kg for unusable material while GI would cover all residual cost to
deliver the amount of cable ladder required to complete the tender.

PSC – Riveting Supplier from South Korea

 Uses the new riveting method that requires only 2 steps
 Does not rely heavily on skilled labor
 Has extra capacity for new customers like TRIAS
 The probability of an unsatisfactory riveting job is 30% and rework cost is $.025/kg
 Only two mills would be able to provide the new corrosion-resistant material.
 TRIAS should apply for clearance permit from Indonesian Customs and Excise
Department
 Could have delivery delay
 Riveting cost of 0.15$
 Penalty of $0.56/kg on the entire order if not delivered on time.
 New material costs $0.98/kg with additional import cost of $0.20/kg
 Has less local and global demand rather than NSH
 TRIAS must pay 25 per cent for delay of product shipment

NSH – Riveting Supplier from Japan

 Uses the new riveting method that requires only 2 steps
Yelmar Jabrayilov

 Does not rely heavily on skilled labor

 Is a very popular vendor that has many existing customers and may not have capacity
for TRIAS
 Offered a comparable new material priced at $0.95/kg, with a further import cost of
$0.14/kg
 The Japanese currency, the “Yen,” is fluctuating, so pricing may go down, which would
mean a higher profit for TRIAS. However, the “Yen” may go up!
 TRIAS must pay 40 per cent in case of the delay in shipping of product.
 Only two mills would be able to provide the new corrosion-resistant material.
 TRIAS should apply for clearance permit from Indonesian Customs and Excise
Department
 Could have delivery delay
 Penalty of $0.56/kg on the entire order if not delivered on time.
 The probability of an unsatisfactory riveting job is 30% and rework cost is $.025/kg
Issue: What supplier should TRIAS select?

Alternatives:
There are three alternatives for TRIAS to select and they are as following:

1. GI – Current supplier
2. PSC – Supplier from South Korea
3. NSH – Supplier from Japan

Let’s look at the margin of the profit from each alternative that TRIAS would benefit. To do so
we have the following attachments.

Attachments.

Attachment 1. GI Decision Tree

 Yelmar Jabrayilov

1.5%
YES

20% (.015 X $.45=$.00675) 7%

Mishandling
YES (.20 X YES (.07 X
Initial SS Product Loss
$.35= $.45=$.0315)
Cost
$1.48
$.07)

98.5%
NO Scrap after HDG GI Initial Cost =
QC Test Failure $.65 (Stainless Steel)


$.25 (Welding)
GI Welding 93%
NO $.10 (Transportation)
Rework
$.48 (HDG Fee)
$1.48
1.5%
YES

(.015 X $.45=$.00675) GI Profit Analysis =

$1.48 (Initial Cost)
80%
Mishandling YES $0.07 (Welding Rework)
NO 7%
Product Loss (.07 X $.45=$.0315) $0.01 (Mishandling)
98.5% $0.03 (Failed QC Test)
Scrap After HDG
NO $1.59 (Total Cost)
QC Test Failure
$1.68 TRIAS Selling Price
93% -$1.59 Total Cost
NO
Cost $0.09 Profit Margin/kg.
 Yelmar Jabrayilov

Attachment 2. PSC Decision Tree

25%
YES

30% (.56 X $.0.25=$.14)

Shipping
YES (.30 X
Initial SS Delay
$.025$=
Cost
$1.33
$0.0075)

75%
NO PSC Initial Cost =
$.0.98 (Material)
PSC
 Riveting
Rework
$.15 (Riveting)
$.20 (Import Cost)
$1.33
25%
YES

(.056 X $.25=$.14) PSC Profit Analysis =

70% Shipping $1.33 (Initial Cost)
NO $0.01 (Riveting Rework)
Delay
75% $0.14 (Delay Payment)
NO
$1.68 TRIAS Selling Price
-$1.48 Total Cost
$0.20 Profit Margin/kg.
Cost
 Yelmar Jabrayilov

Attachment 3. NSH Decision Tree.

40%

30%
YES (.30 X (.56 X $.0.40=$.22)
Shipping
Initial SS $.025$= Delay
Cost
$1.24
$0.0075)

60% NSH Initial Cost =
NO
$.0.95 (Material)


$.15 (Riveting)
NSH Riveting
$.14 (Import Cost)
Rework
$1.24
40%
YES

(.056 X $.40=$.22) PSC Profit Analysis =

70% Shipping $1.24 (Initial Cost)
NO $0.01 (Riveting Rework)
Delay
60% $0.22 (Delay Payment)
NO
$1.68 TRIAS Selling Price
-$1.47 Total Cost
$0.21 Profit Margin/kg.
Cost

Analysis of Alternatives.
Looking at the decision trees, it is apparent that if TRIAS would continue to work with GI it will
have just $0.09 Profit Margin/kg which makes is suboptimal. GI is using an older process which
is welding, relies heavily on skilled labor, and uses a 4-step process which makes the whole
process more costly.
NSH- is the second suboptimal despite it has greater profit margin for TRIAS as $0.21/kg.
Although, NSH uses the new riveting method that requires only 2 steps, they are Japanese
company and the currency, “Yen,” is fluctuating, so pricing may go up which involves a higher
risk for TRIAS comparing to PSC. Furthermore, NSH is a very popular vendor that has many
Yelmar Jabrayilov

existing customers and may not have capacity for TRIAS and in case if TRIAS choose to work
with NSH then it must pay 40 per cent in case of the delay in shipping of product.

PSC is optimal which lets TRIAS make profit of $0.20/kg. PSC has extra capacity for new
customers like TRIAS and generates less risk for TRIAS. In case TRIAS decides to choose to work
with PSC it only must pay 25 per cent for delay of product shipment rather than 40% in case it
chooses NSH.

Recommendations.

Discerning all the available options for TRIAS, PSC is the best option to cooperate with, however
TRIAS should be very careful with the regulatory compliance as TRIAS should apply for
clearance permit from Indonesian Customs and Excise Department in order to be able to import
products from abroad. (South Korea). Also, it is always important to control the shipping
process as for delay TRIAS needs to pay extra. All in all, business is always risky and what the
companies need to do is to maximum degree minimize the risk and keep the whole process
under control.