Answers to Textbook Case – Dixon Audio Systems
1. Identify the pros and cons of a JIT relationship from a supplier’s point of view.
A supplier such as D&S can obtain several benefits from establishing a JIT relationship with a buyer such as Dixon. Usually, such relationships are longer term, more cooperative, and with a small set of vendors. D&S will then have a more certain, steady demand for their product. They should also have more accurate forecasts further into the future. Besides these demand benefits, D&S could improve its production and distribution efficiency. Better knowledge of the size and timing of orders would allow them to plan operations more efficiently. As they are ...view middle of the document...
A buyer, such as Dixon, can obtain many relationships from a JIT relationship with a supplier. Order timing becomes the responsibility of the vendor. Quality should improve and deliveries should become more reliable. Through better coordination, the supplier’s costs should improve, which may eventually be reflected in their price.
Buyers often have several concerns of such an arrangement. For one, seldom does a supplier have only one customer in a market. Buyers worry that sensitive information, such as upcoming product promotions, may become known to their competitors through the information they share with the supplier. Buyers are also often reluctant to give up the ability to play one vendor against another in search for the lowest price.
3. What factors should Dixon and D&S consider before making a decision on this relationship?
Dixon should be concerned with whether D&S has the capacity to deliver all that they need. They also need assurance that D&S can meet their quality and timing requirements consistently. Dixon should also make certain that sensitive company information will not fall into the wrong hands. Finally, they should make sure they are not committing to a price that may evolve to a higher than market price if conditions change.
D&S need to protect themselves also. What are their liabilities if they are responsible for poor quality or missed orders at Dixon? What assurance do they have that the agreed price will remain competitive? Also, Dixon is not their entire customer base. Does this commitment limit their freedom to accept other, possibly more profitable, orders?