Managing the Supply Chain

Introduction

Capital Improvements, Inc. was founded in the early 1980s and specializes in home remodeling projects. In particular, the company offers a product line of high-quality vinyl replacement windows, vinyl siding, roof replacement services, bathroom remodeling, kitchen remodeling, and sliding glass doors. The company’s estimated value is $30 million, and its products and the quality of its work are considered to be of extremely high caliber. The company services a number of U.S. states along the mid-Atlantic region of the East Coast, primarily Pennsylvania, Delaware, Maryland, Virginia, North Carolina, South Carolina, and Georgia. The company maintains the highest grade contractor’s license available in each of these states. Capital Improvements also maintains the Better Business Bureau’s highest rating and holds corporate membership in the Green Builders Council. The latter is a professional organization for corporations with energy-efficient, and therefore, environmentally friendly products.

The corporation maintains many branch offices in primary and secondary cities in the regions of the United States where its products and services are offered. The company has its own trademarked brand of vinyl replacement windows, called “Great View Windows,” that is available exclusively through the company. This line of window products is not sold in ordinary home improvement related retail outlets such as Home Depot. The corporation maintains thousands of employees. Among these is a wide assortment of administrative personnel and financial specialists. In addition, there are varying levels of management, including departments for sales, marketing, installation, shipping, customer service, and telemarketing. Each department of this type maintains its own staff that is specifically trained to perform the tasks assigned to it.

Supply Chain Management

The process of supply chain management at Capital Improvements, Inc. is rather complicated, given the highly specialized nature of the company’s operations (Larson & Halldorsson, 2004). A crucial aspect of Capital’s organizational apparatus is the fact that the company’s signature product line, so-called “Great View Windows,” is manufactured within the context of the corporation’s in house operations. The corporation maintains its own manufacturing division in Hanover, Maryland, including its own industrial facilities where the vinyl replacement windows sold by the company are produced through factory operations. This central manufacturing location services all of the corporation’s branch offices and regional divisions.

When a sale is made to a homeowner by one of the company’s sales representatives and the sale is subsequently approved for financing, a manufacturing order is placed with the production center in Hanover, Maryland. The company’s window products are custom made to suit the specifications requested by the homeowner. A variety of production specialists are employed by the manufacturing center which produces the corporation’s vinyl replacement window line. The windows are made to conform to the specific customer requests associated with the order. Once the window product has been produced for each order, the finished product is reviewed by a quality control manager. If errors in the process of production are detected, the window product is returned to the production staff to be corrected. Because the company considers the quality of its work to be one of the principal elements of its business, a very strong emphasis is placed on quality control within the context of the production process. A failure to maintain high quality would severely harm the company’s reputation.

New Product Development Process

As mentioned, Capital Improvements, Inc. maintains a wide variety of home renovation products that are available to its customers. While the “Great View Windows” product line is the company’s signature product, the corporation also offers very high-quality vinyl siding, roofing services, kitchen remodeling, bathroom remodeling, and sliding glass doors. New gutters and trim work for the home are also available to customers who purchase a new roof from Capital Improvements. Each of these products was developed by the corporation and placed on the market at various points during the company’s history.

As with its window products, the products offered by Capital in these other areas are also very high quality in nature (Kouvelis, Chambers & Wang, 2006). The company’s vinyl siding is one hundred percent pure vinyl, which prevents breakage and the fading of the siding’s color. The vinyl siding also comes with very thick foam insulation that is present for the purpose of ensuring the maximum amount of energy efficiency possible. The roofing materials used by the company are the very best available in the home improvement market. The roofs that are installed on homes by Capital are intended to have a fifty-year life span.

The bathroom remodeling products offered by Capital are the most recent additions to the company’s product line. The company maintains its own special division for the production of its synthetic marble bathroom fixtures that are designed to give the bathroom a marble penthouse look. The synthetic marble was developed by specialists employed by the company specifically for the purpose of developing a product line of non-porous bathroom materials that are intended to prevent the accumulation of mold, mildew, and fungi in a bathroom. This is the bathroom material’s primary selling point.

The Process of Purchasing Equipment and Services

Capital Improvements, Inc. prides itself on its ability to be self-contained in house operation management. Indeed, it is for this reason that the company is able to undercut many of its competitors in the regional markets where it operates with much lower prices. Capital’s ownership and top management prefer to avoid the use of subcontractors or contracting its work to outside companies if at all possible. Instead, when new services and equipment are needed, the management of Capital will normally consider it to be more prudent to actually invest in the particular types of equipment needed (Lavassani, Movahedi & Kumar, 2009). For example, when the company was developing its product line of bathroom remodeling services, it was determined the company would need to establish a separate division for the production of not only the aforementioned synthetic marble products but also the acrylic layovers that are also an essential component of the company’s product line.

Observing that the largest competitor in its Virginia and North Carolina markets would go through the process of purchasing its own bathroom remodeling products through an outside manufacturer, Capital’s management determined that this process utilized by its competitor had the effect of raising the competitor’s prices by fifty percent. It was determined that Capital could gain a highly significant advantage over its competitor in its various regional markets by opening its own production center that was located adjacent to its window manufacturing center in Hanover, Maryland. Hence, the division of Capital Improvements, Inc. known as “Bathworks” was founded. This division operates on the same model as the manufacturing center for the “Great View Windows” product line. Its purpose is to keep the cost of the company’s products low by avoiding the overhead associated with the use of outside contractors.

The Decision to Outsource and Locating Suppliers

While Capital Improvements, Inc. takes great pride in being a largely in house operation, it is true that the company at times finds it necessary to outsource some of its labor efforts or to locate outside suppliers. The high quality of the company’s vinyl siding and roofing replacement products has already been discussed. The company has regrettably concluded during the years that it has offered these products on the market that it is more practical to use a process of outsourcing to outside suppliers for the sake of producing these materials. The corporation has considered expanding its manufacturing division in order to bring the production of these product lines under the umbrella of its in house operations (Hines, 2004). However, each time such an avenue has been explored, the top management will end up concluding that the necessary capital investments that would be required for such an expansion are excessively risky.

A principal reason for this conclusion is that these products do not sell with as great an ease as either the vinyl replacement windows or the bathroom remodeling projects. For example, in the company’s Richmond, Virginia office, it was determined that for the calendar year 2012 only twelve percent of the leads for the roofing replacement products generated by the marketing department resulted in an actual approved sale. A similar ratio was found concerning the number of leads generated for vinyl siding versus the number of these leads that actually sold. Given the low percentage of leads for these products that produce approved sales, it has been determined that neither of these product lines is profitable enough to warrant investment in the creation of new manufacturing divisions. If these products could be produced at a lower cost, a lower selling price might result in more sales. But the company has determined such a venture is too risky.

Contract and Legal Issues

Capital Improvements, Inc. is very conscientious about covering all of its bases and warding off potential dangers in the legal arena (Movahedi, Lavassani & Kumar, 2009). For example, all new employees with the corporation are given a comprehensive overview of each of the company’s policies. Included in such information are the terms of employment, rates of compensation, specific duties required, and grounds for termination. Employees are likewise informed of their legal rights concerning disputes with the corporation and required to sign formal contracts indicating the employee has a full understanding and recognition of what their precise conditions of employment actually are. When new policies are enacted by the corporation, employees are given a priori notice and are expected to indicate their recognition of any policy changes in writing.

A similar approach is maintained when dealing with contracts between the corporation and the actual home-owning customers. A sales representative will provide the homeowner with a very detailed overview and explanation of the conditions of the contract they are being offered by Capital Improvements, Inc. The company prides itself on the quality of its relationship with customers. For example, the company maintains the highest rating possible with the Better Business Bureau, and actively guards this status. The corporation makes every reasonable effort to settle disputes with customers in a way that is acceptable to all parties involved. Indeed, after signing a contract with Capital Improvements, a homeowner has a three-day window during which they may have an attorney review the terms of the contract. If after further consideration the contract is found to be unacceptable, the prospective customer may cancel the contract.

Production and Inventory Control, Scheduling and Demand

As mentioned, Capital Improvements, Inc. places a very high emphasis on quality control. The company maintains a professional staff of specially trained quality control officers. These quality control specialists examine all products that are generated by the company’s manufacturing center in Hanover, Maryland. Any product that is found to be either defective or not in keeping with the specifications requested by the customer is returned to the manufacturing center to be corrected or replaced. The quality control specialists not only examine products that are generated by the company’s in house operations but also examine the products that are purchased from outside the company and are produced by external manufacturers (Ketchen & Hult, 2006). Such products primarily include the aforementioned vinyl siding and roof replacement products.

When an order for these products is generated by a sales representative, the order is placed with the external manufacturer that produces them. Currently, the external manufacturer being utilized is an independent firm located in Baltimore, Maryland. Capital Improvements, Inc. has a contractual agreement with this outside manufacturer that shipped inventory provided by the manufacturer that does not meet with the contractual specifications provided by the company will be immediately returned, and the manufacturer will be expected to provide a replacement with the necessary corrections at no extra cost. Therefore, the outside manufacturer is provided with a powerful contractual incentive to maintain its own internal system of efficient quality control. Whenever new outside suppliers are needed, the company conducts an extensive background investigation and reference check of any prospective supplier before any kind of contractual agreement will be accepted.

Supply, Demand, and Logistics

The corporation maintains an ongoing process of assessing what its likely needs will be in terms of product generation over specific periods of time (Cooper, Lambert & Pagh, 1997). Normally, the company makes such determinations on the basis of its prospective sales over the periods of quarter years, half years, and full years. The projections are determined as part of an ongoing joint effort by the sales and marketing departments of each particular branch of the corporation. For example, the sales and marketing divisions of the Atlanta, Georgia branch will establish their own projections concerning the estimated production volume they will require in the month ahead. All of the other branches within the company will do the same. These figures will then be sent to the corporate headquarters for further examination by corporate planners. The finalized statistical data will then be provided to both the internal manufacturing division and any outside suppliers or contractors so that adequate preparations for the necessary volume of production can be made.

Logistically, all of the company’s products are shipped directly from the company’s central headquarters in Hanover, Maryland. The majority of the corporation’s actual workforce of carpenters, construction workers, professional window installers, and the like actually reside within relatively close proximity to the corporation’s central office. Indeed, the company will only hire personnel for these positions who possess substantial experience and pass a thorough background and reference check. Teams of these professionals are sent out on a daily basis carrying products to be delivered to homeowners, and with assignments to complete a particular renovation or installation process. The corporate headquarters in Maryland maintains teams that service the surrounding states, while the teams that service Georgia and the Carolinas are located in the Atlanta office.

Conclusion and Assessment

Capital Improvements, Inc. maintains a remarkably efficient process of generating leads, producing sales, manufacturing products, making purchases from outside suppliers, managing logistical arrangements, and fulfilling its contractual responsibilities to customers (Mentzer, 2001). The process of supply chain management involves a fairly high overhead for the corporation. Some of this is offset by the reduction in costs made possible by the elements of the manufacturing process that can be maintained as an in house operation. The company regards the remainder of the costs as a legitimate and worthwhile cost of doing business. Because of the high quality of both the company’s products and the work provided, the corporation is able to sell its products at a rather high price. These higher prices, however, are still lower than those of competitors in the same markets who are offering comparable products. The company’s commitment to quality and its reputation also enhance the value of its brand name.

The major challenge the corporation faces is the need to reduce the production costs associated with its secondary products like vinyl siding and roofing replacement. If production costs could be lowered, then these products could be sold at a lower price thereby increasing the overall volume of sales. The company is currently caught in a kind of vicious cycle that makes such an innovation cost-prohibitive at the present time. Further, the company incurs a great deal of costs in overhead related to the centralized location of its work and installation teams. If the personnel for these teams could be more dispersed throughout the geographical regions serviced by the corporation, costs in these areas might be lowered as well.

References

Cooper, M.C., Lambert, D.M., & Pagh, J. (1997). Supply chain management: More than a new name for logistics. The International Journal of Logistics Management, 8, 1, 1–14.

Hines, T. (2004). Supply chain strategies: Customer driven and customer focused. Oxford: Elsevier.

Ketchen Jr., G., & Hult, T.M. (2006). Bridging organization theory and supply chain management: The case of best value supply chains. Journal of Operations Management, 25, 2, 573-580.

Kouvelis, P., Chambers, C., & Wang, H. (2006). Supply chain management research and production and operations management: Review, trends, and opportunities. Production and Operations Management, 15, 3, 449–469.

Larson, P.D. &Halldorsson, A. (2004). Logistics versus supply chain management: An international survey. International Journal of Logistics: Research & Application, 7, 1, 17-31.

Movahedi B., Lavassani K., & Kumar V. (2009). Transition to b2b e-marketplace enabled supply chain: Readiness assessment and success factors. The International Journal of Technology, Knowledge and Society, 5, 3, 75–88.

Lavassani K., Movahedi B., & Kumar V. (2009). Developments in theories of supply chain management: The case of b2b electronic marketplace adoption. The International Journal of Knowledge, Culture and Change Management, 9, 6, 85–98.

Mentzer, J.T. (2001). Defining supply chain management. Journal of Business Logistics, 22, 2, 1–25.