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Nicole Angiuli
BUS 384 – Business Operations & Planning
10 April 2019
Individual Project: Microfuse, Inc.
Internal Analysis and Current Situation
Microfuse, Inc, who produces circuit-protection products, is the leader in this industry.
Currently, they utilize a vertically integrated business structure. This is because Microfuse
believes control is a critical part in their position as the industry leader. They also believe that
their efforts in making their products themselves creates expertise and proficiency. Their ability
to control their quality and level of products has given them a reputation of producing high-
quality and reliable products.
Microfuse, Inc. has a lot of competitive advantages. They offer the broadest line of
circuit-protection products relative to all the other competitors all over the world. The seven
major products they produce are FUSES, POLYMER PTCS, MOVS, GAS TUVES, DIODES,
THYRISTORS, and POLYMER ESD. They create products in three different industries: electronics,
automotive, and electrical. Their diversification of products is one of the reasons they have a
worldwide presence. Another competitive advantage, as stated above, is they have a long-
standing tradition and reputation of producing high-quality and reliable products. Their goal is
to provide unique and valuable products, and at the same time, preserve the current customers
and attract new ones.
Microfuse, Inc. is having trouble with their inventory levels. With the current vertically
integrated business structure, their inventory levels are too high. This is resulting in a high cost
they have to pay. In order to improve their performance and reduce their costs, Microfuse is
looking to adjust their current business strategy and outsource their non-core products.
Microfuse, Inc. manufactures their products at two international facilities, one in China
and another in Southern China. Based off of research, Val concluded that it would be beneficial
to move the European division to Vietnam, because of its low cost. Microfuse’s expectation for
the future is that they will produce 70% of their products abroad and the domestic operations is
forecasted to reduce. Microfuse’s main headquarters where most of the planning and
development is conducted, in Champaign-Urvana, Illinois. It is believed that this location will
never be completely relocated. This is because of Microfuse’s control-oriented mindset.
External Industry Analysis and Competition
Microfuse, Inc. has ten main competitors, XFFUSE, BUSSMAN, RAYCHEM, EPCOS, AVX, ST
MICRO, VISHAY, TECCOR, WICKMANN, and BEL FUSE. This industry is highly competitive. So
competitive that all the firms around the world compete with one another. In order to survive
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in this competitive industry, Microfuse has to stay innovative and competitive. Competition is
based off of three factors, price, quality, and value-added functions.
The category of products Microfuse and its competitors are in are non-commodity
products. Companies in this industry are determined to provide customers with valuable and
unique products in order to not be viewed as a commodity product.
The industry is facing an outsourcing trend. More specifically, in order to reduce costs,
companies within this industry are outsourcing more than 40% of their manufacturing
capabilities. There is a projected future increase in the number of customers in the market for
circuit-protection products in China. The upwards trend in China’s demand for these products is
another reason why companies in this industry are outsourcing.
Problem
Microfuse is experiencing an increase in competition. This competition is putting pressure on
Microfuse to continue to be innovative, efficient, and at the same time, reduce costs. The
industry trend is to cut costs. This is done by outsourcing more than 40% of their
manufacturing capabilities. All of Microfuse’s major competitors are implementing this.
Another problem Microfuse, Inc. is encountering is their high inventory levels.
Microfuse, Inc. Goals
1. Create a limited outsourcing strategy with non-core products
2. Reduce high inventory levels
3. Reduce production costs
4. Integrate the changing industry trends
Outsourcing
Outsourcing takes place when a company acquires goods or services from an outside or
foreign supplier. It is a complete transfer of business processes, that were originally managed
by the company, to an external independently owned company. The independently owned
company will then be in charge of things such as people, facilities, equipment, technology,
and/or other business functions. Instead of making a product, “in-house”, outsourcing allows
the company to produce their produces someplace else.
General Benefits of Outsourcing
1. Reduce and control operating costs
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2. Change company focus
3. Improvement in operating performance
a. Increase in quality and productivity
4. Gain flexibility
5. Acquire eternal capabilities
Factors to Consider for Outsourcing
1. The number of suppliers the company can choose from to outsource their products
2. Hidden costs and risks associated with outsourcing
a. Quality Costs – although there are costs associated with insuring a certain
amount of quality by producing products internally, these costs may increase
when the firm chooses to outsource. It will be harder to track quality if the
products are being produced externally.
b. Relationship Management – since Microfuse is producing non-commodity
products, creating a good relationship between the supplier and vendor is very
important.
c. Internal Coordination – these internal costs include overhead administrative
functions. Even if a company decides to outsource, it is a possibility that a
reduction in these costs may not happen. Management needs to have a good
understanding of these expenses and how the firm will be impacted by
outsourcing.
d. Implementation of External Sourcing – there is a cost associated with the
transition from producing internally to externally. These costs include searching
for a reliable supplier, evaluation, contracting, transferring physical assets,
training, and travel costs
e. Product Service Design and Development – there is a high cost associated with
coordination between the supplier and manufacturer. Microfuse’s highly
integrated product designs comes with a cost when outsourcing.
f. Government and Policy – in both outsourcing and off-shoring, there is a cost
associated with complying to government laws, regulations, and local business
customs.
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g. Supply Chain Risk Management – outsourcing increases the risks associated with
the supply chain.
3. Long-term commitment
Against Outsourcing
Off-Shoring
Instead of outsourcing, Microfuse, Inc. has the opportunity to use an off-shoring
strategy. This is when a company still produces their products internally, but in international
locations. As stated above, Microfuse has two production facilities, one in China and one in
Southern China. The benefit of off-shoring is that the company will still remain in control of
their products. As stated in the case, “by being able to say that we actually make the product,
we imply a certain level of proficiency and expert knowledge.”
Factors to Consider for Off-Shoring
1. Microfuse, Inc. will still remain in control
2. Similarly to outsourcing, there are still costs associated with government and policy
3. Long-term commitment
Memo to Tom Cecil
To: Mr. Cecil
From: Valerie Simmons
To Outsource or Not to Outsource
Hello Mr. Cecil,
I appreciate putting your trust in me to determine if Microfuse, Inc. should outsource
their products. It has come to my attention that Microfuse, Inc. is suffering a problem with
having too high of inventory levels. It has also come to my attention that Microfuse, Inc.
competitors are decreasing the cost of their products by 40 percent. With a highly competitive
industry, this puts Microfuse, Inc. in a rough situation. Competitors are outsourcing their
products as a means to reduce their costs. This strategy, as well as changing the business
structure, is something that Microfuse, Inc. has made it clear it is interested in.
Internal and External Analysis of Microfuse, Inc.:
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Microfuse, Inc. current business strategy is utilizing vertical integration. This allows you
to stay in control of the production and quality of your products. Their ability to control your
quality and level of products has given you a reputation of producing high-quality and reliable
products. This is a major competitive advantage for this corporation. However, it is believed
that the utilization of the vertical integration business strategy is the reason why Microfuse, Inc.
is suffering from high inventory levels.
Microfuse, Inc. has many competitive advantages. You offer the broadest line of circuit-
protection products relative to all the other competitors all over the world. Alongside this, you
create products in three different industries. Another competitive advantage you have is a long-
standing tradition and reputation of producing high-quality and reliable products. Your goal is
to provide unique and valuable products, and at the same time, preserve the current customers
and attract new ones. Implementing a vertically integrated business strategy is one of the
reasons why this completive advantage and goal is reachable.
This industry your company completes in is highly competitive. In fact, all the firms
around the world compete with one another. In order to survive in this competitive industry,
Microfuse, Inc. has to stay innovative and competitive. I have concluded that competition in
this industry is based off of three factors: price, quality, and value-added functions. In addition
to high competition, all the companies in this industry are determined to provide customers
with valuable and unique products in order to not be viewed as a commodity product.
Microfuse, Inc. Goals:
Based off of the information that has been given to me, the industry structure, and the
company’s background, I have listed goals that Microfuse, Inc. is looking to accomplish.
1. Create a limited outsourcing strategy with non-core products
2. Reduce high inventory levels
3. Reduce production costs
4. Integrate the changing industry trends
Outsource:
There is a noticeable change in the industry you compete in. Costs are decreasing, on
average, by more than 40 percent. It is thought that outsourcing is the primary factor that is
helping this decrease in costs. Outsourcing has potential for many benefits, such as, reducing
and controlling operating costs, changing the company focus, improvement in operating
performance, increase in quality and productivity, acquire external capabilities, and a gain in
flexibility.
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Although the benefits may seem helpful for Microfuse, Inc., there are many hidden costs
and risks associated with outsourcing. These costs include, but are not limited to, quality costs,
relationship management, internal coordination, implementation of external sourcing, product
service design and development, government and policy, and supply chain risk management.
Alongside this, outsourcing results in a long-time commitment.
Off-Source:
Instead of outsourcing, Microfuse, Inc. has the opportunity to use an off-shoring
strategy. Microfuse, Inc. will still produce their products internally, but in international
locations. You currently manufacture your products at two international facilities, one in China
and another in Southern China. It has come to my understanding that it brings Microfuse, Inc.
joy, knowledge, and proficiency being able to actually produce their high quality and reliable
products themselves. This is one benefit of choosing not to outsource. The downside to
continue this path of production is that there are still costs associated with exporting and the
government, such as tariffs, taxes, exports, and legal.
Recommendations
1. How Microfuse, Inc. can create a limited outsourcing strategy with non-core products as well
as integrate the changing industry trends and reduce production costs:
With a lot of thought, research, and understanding, I have come to the conclusion that
Microfuse, Inc. should implement an outsourcing strategy, under certain circumstances.
Microfuse, Inc. should outsource products components that produce less of a profit, as
well as products that are not as important. This will allow Microfuse to become
comfortable with managing quality by outsourcing, before doing that for the more
important products. Another consideration Microfuse should consider when
outsourcing is outsourcing product components that would allow them to create a
short-term commitment or contract. This prevents Microfuse from entering into a long-
term commitment with a supplier. It would also be smart for Microfuse to consider
where the outsourced supplier is located. Choosing a reliable supplier next to
Microfuse’s current manufacturing plant in China will help reduce production costs as
well as costs associated with transportation. This is because we are seeing an upwards
trend in the demand for your products in this location.
2. How to reduce high inventory levels:
I am well aware that the high inventory levels are one of the main concerns for you and
the entire Microfuse, Inc. company. However, I do not believe that outsourcing will
result in lower inventory levels and costs. High inventory levels tend to be a result of
inaccurate forecasting of demand and long lead times. The large number of products
Microfuse, Inc. produces may also be a reason why inventory levels are so high. Having
a high level of product to produce makes it harder for companies to forecast their
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demand accurately as well as produce products when needed. In order to fix the high
inventory problem, as well as reducing production costs, I believe that Microfuse, Inc.
should apply a lean or pull manufacturing strategy. This will help with a better, more
controlled, and accurate forecasted demand of products.
Please let me know if you have any further questions.
Thank you,
Valerie Simmons
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