OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN

Case Study: Pyrex

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MBA Executive 28

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History of World Kitchen and Pyrex

World Kitchen was formed in 1998 by purchasing from Corning by Borden food corporation, but they has only 3 year to be about to use the name Corning. New setting from acquired KKR (Kohlberg, Kravir Roberts & Co.) General House wares and Ekco, the name have been fully change to World Kitchen (WKI)

The firm faced financial problem and sell the popular brand OXO to Helen of troy in 2004 to improve the financial status. At this moment in 2013 the firm has been back to relaunch the Corningware again.

Pyrex is accidentally discovering its potential by the wife of a scientist of Corning after she asks her husband a new baking glass for her sponge cake. That glass is a low-expansion borosilicate glass, and from the first used in 1913, real production has been start since 1915 from the order of Jordan March; the department store in Boston.

Strategic Sourcing

From the start they mainly use the outsource production for cost saving and to benefit from supply chain, WKI use they volume for keep the competitive advantage on both pricing and branding. As the result many plant have been closing and use the outsource from lower cost country such as China, Korea and Thailand.

At this moment they only own 2 plants in the State as PYPEX in PA and Corelle in NY. Many problem have been found from using out source such as

- Product quality lower than expect- Variation from lot - lot on color- Intellectual Property control

Also there are some treat from the big buyer such as Walmart, Target and Bed Bath & Beyond, that is the if the US brand move their production line out of the US, they will buy direct from supplier and use as they house brand.

The Market

There are 3 categories for PYREX

Prepware: for mixing blow and measuring cap, this is the highest volume for the firm.Bakeware: for anything use in ovenServeware: Use as serving on the table (lowest demand) PYREX dominate over 75% share in the glass kitchen banking ware; which has a research in 2006 shown that 79% of household in the state will has at least one PYREX in their kitchen.

Other interesting is that most of the glass prepware were product in the state nether from WKI in PA or Ancher Hocking in OH; their main competitor which has 22% share.

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Also the profit margin is become lower and lower (about 7%), this is not an attraction to new investor any further. Also as far as the glass as a heavy and difficult to carry together with the Tariff protection from the US government has implement, then the importer also need to consider this as detail.

Manufacturing

Since the start form 1915, the can make the PYREX about 45 millions pieces per annual with estimate selling “dollar-a-piece”. Production start from

- Ingredients coming from 8 difference sources, and store in Silos.- Melting and mixing in Furnace (tank) - Molding to be each demanded shape, excess will melt back to the system - Strengthen by annealing process (heat to the melting point and suddenly cool the surface down)- Painting: especially for the measuring cap or lab equipment glass.

From all processes the furnace is the most expensive, since it needs to give lot of energy to heat and melt the glass, which related to the energy use the machine will run 24/7 to keep the economics of scale. Also the heat barrier special designed block also needs a replacement every 7 – 8 years.

Make VS. Buy

In 2006 there are 2 major events to the company as

- New contract with the Union workers; which has come to also dead-end- Within 2 years the replacement of the barrier block would cost over 12 mio USD for about 8

years of service (straight-line depreciated would be about 1.5 mio per annual)

From above 2 main issues, the company on working the way out to find the best solution to go on or stop the production and move to outsource. Since the very high cost of the labor from below chart they looking into new emerging country for the better price, but also some factor needs to keep in mind such as, shipping cost, Lead-time and the custom Tariff.

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Discussion Questions

1. What are the Pros and Cons of continuing production at the Charleroi plant?

Pros Cons

Production can be control at the top quality Competitors can overcome with acceptable quality but lower price from over sea production

Utilize the current asset as to control stock and delivery (logistic)

More and more logistic cost and transaction increase in case difference manufacturing pattern

Able to control the lead time and production schedule

Cost can be higher due to labor cost in the State and the machine maintenance, which is coming about 12 mio USD

Brand’s protection due to keep the process or special requirement on hand and also has more flexibility on product design.

Cost of development product might be higher as local labor cost, if compare to give away the development to supplier

Will have fewer problems with the convenient store as to keep the product “Make in U.S.A.”

The convenient store might also try to bring their own house brand later, which would be cheaper

Lower inventory turn, since the production able to run 24/7

In case sales drop they are no turning back in investment costing; only option is to lower the price which at this moment already has lower profit

Can keep the brand awareness due to the quality as keep the production in the State

Since the equipment has higher cost and low margin, to invest on new technology might not possible to improve the quality or property

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2. What downside might there be with offshore outsourcing production of PYREX production line to overseas suppliers?

Supplier Location Cap UtilizationAvailable

Cap

Price per

PoundShipment Tariff

RateLanded Price*

Possible cap **

A Australia 100 97% 3.093 0.795 0.0200 18% 0.962 0B Brazil 50 95% 2.632 0.765 0.0110 22.5% 0.951 0C China 70 88% 9.545 0.755 0.0180 22.5% 0.947 4.900D Thailand 65 85% 11.471 0.776 0.0180 22.5% 0.973 6.500E Italy 110 96% 4.583 0.785 0.0075 22.5% 0.971 0F Turkey 90 85% 15.882 0.760 0.0085 22.5% 0.941 9.000G Mexico 80 75% 26.667 0.825 0.0050 4% 0.863 16.000 36.400

WKI 47 89% 5.809 0.93 0.0025 0.9325 * Landed price = CIF price plus TAX** Set the max production cap to 95% then calculate for the possible order quantities

From data above can conclude that there are not possible for ordering the production from over sea event we have from more than one site and some issues as below

a) There are no suppliers who can handle all the products by one site, then the difficult of handling

more suppliers will come.

b) US government might change their policy after we have close down the plant to increase tariff.

c) And from above if we calculate base on best case by giving them the max cap at 95%, total

volume still be only 36.4 mio lbs which is less than our demand at 47 mio lbs.

d) Lead time of product is higher and we would need to handle the cost of inventory and logistic

system more than the current which only one day.

e) Price difference is not that sufficient to move on, since there are only Mexico plant that has

benefit, but the production capacity also not fit to the requirement of the firm, another option is

to push Mexico to expand their capacity, but this project might took a long time to finished.

f) Protection on Intellectual property would be concern since we would need to give some

technical detail to the subcontract.

g) Quality might be less and the claim rate might be increase, this would lead to lower the brand

image.

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3. If the recommendation is to offshore outsource, what issue have to be address with the Charleroi Plant? And what can we do with the plant?

a) Need to build inventory for the transaction period which might took up to 6 months.

b) The Union would request a lot of compensation program for the plant closed down.

c) Staffs might be able to volunteer move over to the other plant for Corelle production in NY,

but company might also face some relocation cost.

d) Asset might not be able to sell out since it’s a special designed facility for Pyrex.

e) We also can study the joint venture with Mexico and move the equipment their.

f) One who buys the equipment might able to learn the technology from the asset and it also

might be brought over by competitors at the lower cost.

g) Since the offshore total production might not enough for local demand plant might not be

able to closed down 100 %

h) Plant can also be adept to be ware house or distribution center for the company.