Eastern Waves, Inc.
- Pages: 5
- Word count: 1192
- Category: Government
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(Benton 2010) Mr. Patton, the situation in Malaysia is not looking good. “In 1997 Malaysia was hit by the Asian financial crisis.” One of the most effected areas was the manufacturing sector. “In order to rescue some of the largest state-owned companies, the government has imposed several strict trade barriers on certain goods. Included under law in these protected goods are the steel billets, the raw material for use in the downstream steel industry.” The government has also put into effect new labor policies for both domestic and foreign labor in order to protect the domestic workers. The Malaysian steel industry is forced by the government to buy more expensive local steel billets because of the restrictions put on imports to protect the local economy. With falling steel prices, domestic steel prices are getting higher and the foreign prices are getting cheaper. The local billets are priced at RM760 metric ton (MT), while foreign prices are between RM600 and RM680 per MT F.O.B. This 15 to 20% price difference is continually dropping the profits of Eastern Waves Inc. located in Malaysia.
Eastern has done research and found that scrap steel can be used as a substitute, but not without its problems. (Benton 2010) There is also a problem with the price of labor for Eastern Waves Inc. in Malaysia: The domestic workers are protected by the government by a new labor policy for workers who make less than or equal to RM1,500 per month to assure economic progress and a good investment climate. The domestic workers are protected by worker-friendly laws. They are hard to manage, difficult to fire, free to resign or quit, and demand full pay each month, even when there is no work. They strike if they are not paid in full each month and are happening more and more as Eastern’s cash-flow problems increase.
The foreign workers are paid at the same basic rate as the domestic workers, but the government imposes a yearly levy of RM125 to RM1,500 on each foreign worker and only gives them a 2 year work permit. In addition to this are two other expenses that go along with the foreign workers: half of the airfare expense is to be paid to the foreign worker within one year and housing has to be provided. This makes the foreign labor higher. Eastern decided to go with the foreign labor, even though it is higher. They decided to do this because Eastern thinks that they will save money in the long run. The decision is based on: not likely to quit, dismiss them without legal problems, and they work harder. Administration believes this would give them more labor control and stabilize production flow and reduce costs in other areas. Analysis
(Benton 2010) Eastern will be able to ship the 2,000 MT within the next 6 months based on the half production of 15 MT per day = 15 MT * 25 days * 6 months = 2,250 MT. Eastern has estimated the price of steel at RM1,300 per MT (mega ton). Eastern’s profit margin is 17%. Eastern employs 40 workers at RM1,500 per month basic wage. Malaysia consumes on average of 2.7 MT of billets annually. The domestic billets cost RM760 with a yield of 95% qualified angle steel, 4% semi qualified angle steel, and 1% scrap. The price of the three outputs are: RM1,300, RM1,000, and RM380. The international billets cost RM600, but its purchase is restricted by the government. The substitute plate waste has a holding cost of 15% (about one-third of the holding cost is separating good from bad plate waste, of which about 50% is bad), only a 85% yield of qualified angle steel, 10% semiqualified angle steel, and 5% scrap. Also, the supply of plate waste is irregular and depends on the production schedule of the plate mill Eastern is receiving it from. Eastern is at this time only operating at half capacity. This situation could be resolved because there are plenty of domestic billets, but the high costs of these billets make it not very feasible to purchase them.
I suggest in this situation that Code C, Inc. check into their legal rights and see if the contract is enforceable. There really isn’t enough information available for me to be able to make a determination about the contract. I would check into another supplier on prices, delivery times and quantities to see if there is time to change suppliers in case the contract is bad. If there isn’t time to change suppliers, and Code C’s profits don’t take too much of a hit, I would go ahead and purchase from Eastern if they can deliver on time. To me it would be better to lose some profit than lose customers.
(Handfield, 2007) Code C should cultivate supply chain strategies that plainly deliberate two parameters that “intensify” the negative influence of interruptions on customer and brand performance: globalization and product/process complexity. Second, Code C should plan strategies with countermeasures that diminish the impact of these things, that is: better visibility to strategic supply chain nodes that can rapidly identify disruptions. They should also have well-positioned resources that allow rapid short-range retrieval plans. They need to have in place long-range cooperative methods to remove disruptions in the future. Research also recommends that companies with a great exposure to global supply chain risk invest more in improved inventory and capacity visibility systems. Code C should make sure and have back up suppliers whom they have already researched and approved. (Benton 2010)
Code C should use this table on reviewing any future suppliers whether domestic or foreign. This would have hopefully kept them out of the situation they are currently in with Eastern Waves Inc. They should also when deciding whether to use domestic or foreign suppliers the: total costs of the foreign supply, (include freight, delivery time, duties, government policies, and cost of lost customers if shortages occur) versus domestic supply, seems higher, but is it really? The advantages to domestic supply might be: (no freight costs, sooner delivery time, no duties, no negative government policies, and keep customers if all orders are filled on time).
In conclusion, Code C should have done a better job of investigating it supplier, Eastern Waves Inc. before committing to buy from them. Code C should have had back up suppliers as should any purchasing department of any company. If they had done this, I believe they would have found out about the problems of labor issues, raw material problems with supply and costs, and the negative government policies that affected Eastern Waves Inc. With Code C having all of this information in mind, I think they would have elected not to have them as a supplier and would not have found themselves in this bad position. In the future, I believe Code C will make better supplier decisions. Too bad they had to learn the hard way.
Benton, W. J. (2010). Purchasing and Supply Chain Management. New York: McGraw-Hill/Irwin. Handfield, R. (2007, N/A N/A). SASCOM. Retrieved January 28, 2013, from SASCOM: www.sas.com/resources/asset/sascom.pdf