In this modern day context, it has been viewed that coordination and competition has increased amid different industries but their competencies are still remaining varied and there is a need for further amendments in order to maintain their sustainable position in the business market (Whitley, 2007). Tombow Pencil Co., Ltd. was founded in the year 1913 that deals with manufacturing pencils fundamentally aimed at enhancing its profit margin due to increased market competition (Harvard Business School, 1993). It has been viewed that sub-contracting systems can be of several types that include Arm's-length Contractual Relation (ACR) and Obligational Contractual Relation (OCR). In this context, ACR engages a sort of a specific as well as a discrete financial transaction. It is regarded as a contract that is related to expected capabilities of mankind that enhances the trading activities between the involved parties at every possible occasion. The contract possesses certain vital rules that are quite normative in nature as well as settlements amid the involved parties that assist them to make a particular economic transaction successful. On the other hand, OCR signifies the engagement of contracts economically on the basis of trading of services and goods. In OCR, the transactions of activities between two parties take place without any initial settlements of conditions in order to perform trade. It has been apparently observed that transactional dependence is quite lower in the case of ACR owing to the reason that both buyer and sellers are competing with one another in trading activities by taking into concern certain major aspects that include economies of scale and cost of transaction among others. The terms as well as the conditions of the contracts within the circumstance of ACR are written and substantive in nature and takes place with varieties of procedures such as bidding and negotiation (Sako, 1992).
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In case of OCR, the buyers are observed to provide securities to limited suppliers. Moreover, the bidding process might not take place in OCR due to higher transactional dependence between the buyers and the sellers. The suppliers within the background of OCR tend to begin necessary activities based on oral communication with the parties prior to the attainment of the written orders (Sako, 1992).
Advantages and Disadvantages
With regard to determine the advantages as well as the disadvantages of the particular sub-contracting system relating to the case of Tombow, it can be stated that the pencil company typically follows the sub-contracting system of ACR (Harvard Business School, 1993).
The advantages of the particular sub-contracting system i.e. ACR relating to the case of Tombow can be identified in the form of outsourcing of products that can be considered as a chief determinant for the company. One of the significant advantages of ACR that can be recognized in the case is that it facilitated the company towards reducing manufacturing costs and made the company to pay much more emphasize upon minimizing the expenditures related to marketing as well as sales promotion and product development among others. These facets ultimately made Tombow to sell quality products in the business markets at a cheaper rate. Moreover, development in various products of the company and avoiding delays in delivery periods can also be considered the other decisive advantages of the sub-contracting system i.e. ACR in the case of Tombow. In relation to outsourcing of products, the risk of competition also gets reduced as the suppliers depend largely upon the business as well as the export markets of a company such as Tombow due to the effect of the sub-contracting system of ACR. This can also be one of the chief advantages of ACR relating to the case of Tombow. Under the sub-contracting system of ACR, the process of production and supplying the products to the subcontractors allowed Tombow to decrease its capital investments and fixed overheads that are broadly considered as significant aspects in the field of marketing and R&D.. It can be affirmed that the higher level of the relationship between the buyers and suppliers generally enhances the efficiency of the business deal between two involved parties through the application of ACR within a particular company (IESE Publishing, n.d.).
One of the major disadvantages of the sub-contracting system of ACR in the case of Tombow is that the reliance on the subcontractors caused the company to possess limited control in its production system that can greatly hamper in producing quality products or services. In this similar context, it has been observed in the case that the company experienced communication gap with the suppliers while producing Object EO that eventually affected the deliverance of quality products to the valuable customers and failed to comply with their requirements. It is worth mentioning that the inadequacy of delivering quality products in the business market or to the valuable customers can impose adverse impact upon the profitability of a company by a greater extent (Harvard Business Publishing, 2013).
Effects of Tombow Due to Alterations in the Business Environment
Always on Time
Marked to Standard
Tombow, one of the leading manufacturers of pencils, ball pens, marking and roller pens has been observed to be greatly affected due to sudden changes made in its business environment. It has been apparently observed in this context that the company continued to develop its broad assortment of product ranges by introducing as well as developing pioneering technological advancements in order to enhance and raise its market share due to increased level of market competition that augmented after the commencement of World War II. Moreover, the company focused upon developing its manufacturing process in order to remain competitive in the business market. In general, the distribution of innovative products in the business market in current years has provided a greater influence upon the producers or the manufacturers in the business activities traditionally. Besides, the emergence of convenience stores has also provided a considerable impact upon the manufacturers in order to produce quality and cheaper products. In this way, the business environment has been changed. As Tombow has been noted towards incessantly making enhancements in producing as well as developing quality products along with keeping the production costs low, this particular activity of the company ultimately affected its manufacturing process by a significant level (Harvard Business Publishing, 2013).
Ways to Change the Production System and Involvement of Risk Factors
Tombow has faced constant pressure in order to maintain its profitability as well as productivity due to the reason of various significant factors. The factors encompass shortage of incorporated information, ineffective communication and unstructured supply-chain system. These factors have been recognized to be affecting the company in terms of maintaining high level of inventory as well as production system. Thus, on the basis of the above discussion, it can be stated that Tombow needs to alter its production system with the intention of accomplishing its predetermined business targets. There are various ways through which the system of production of Tombow can be developed that have been depicted hereunder.
Enterprise Resource Planning (ERP) System
Tombow can use the concept of an ERP system through which it can lessen its inventory costs, manpower expenditures, enhance product sales along with customer service. Moreover, it can also assist the company in mounting its financial efficiency at large. The risks that can be involved while implementing this particular concept include allocation of budgets, inadequate training and software instability (Leon, 2007).
Just in Time (JIT)
Tombow can use the notion of (JIT) by which the company can focus upon enhancing the quality of its broad assortment of products. This particular conception can support the company in raising its productivity and gaining competitive position among others. The various risks that can be involved with this process encompass generating lower inventory as well as storage functions and production stoppages (Hutchins, 1999).
Six Sigma and Total Quality Management (TQM)
Tombow can also use the perceptions of TQM AND Six Sigma for the purpose of altering its entire production system. From the perspective of TQM, it can support the company by emphasizing upon preserving the existing quality standards of the products and making effective collaboration with the suppliers among others. In relation to Six Sigma, it will assist the company in lessening its various operational expenditures by focusing upon cost savings and defect reduction. The risks that are involved with the aforementioned procedures comprise ineffective product customization and lower demand individualization (Yang, n.d.).
Tombow can employ the idea of knowledge management through which the company can strengthen the interrelation between every member of the company that will ultimately help the company to enhance its production process by their active participation as well as cooperation. The risks that are involved with this particular concept are financial as well as strategic issues and unrealistic expectations among others (Wallace, 2007).
Lessons Learnt from the Case
In order to manage the suppliers especially in Japan and in other nations with various types of business firms, two types of views can be considered that include the relational as well as contractual view. In this similar context, it has been viewed that the traditional view emphasizes upon maximizing the suppliers' bargaining power along with the buyers in the markets. On the other hand, the relational view emphasizes upon establishing as well as preserving ongoing interrelation with every member within a company. It is worth mentioning that in order to manage the suppliers in Japan; it is required to select the suppliers who are capable enough to provide better quality of products for a longer period of time at a cheaper rate for attracting customers in the business market. It has been apparently observed that this relation view has contributed towards the attainment of success of the different companies belonging to Japan. In other words, it can be stated that the relational viewpoint is regarded as one of the important determinants of relationship marketing that has contributed effectively in the accomplishment of firms in Japan (Dyer & et. al., 1996). This is owing to the reason that this particular viewpoint enables the different members of a company to coordinate with one another and share relevant information regarding investments and periods of task completion among others in order to produce quality products for the valuable customers (Pernot & Roodhooft, n.d.).
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In the context of determining the interrelation between the buyers and the suppliers, the example of automobile industry can be taken into concern. It has been observed that the automobile industries broadly considered the aspect of inter-organizational learning as one of the imperative facets in accomplishing superior competitive position over the chief business market contenders (Dyer & Nobeoka, 2000). According to various researches, it has been viewed that the automobile industries particularly in Japan or in any other parts of the world prefers the idea of inter-organizational learning as a determinant of generating as well as storing effective knowledge instead of lessening transaction costs. With regard to manage the suppliers in Japan and other nations with various sorts of firm, it has been observed that there exist three types of suppliers. The first category of suppliers are lesser in number and are closely linked with the automakers holding over 20% of the equity shares that are possessed by the owner. These suppliers produce higher level of automotive parts in accordance with the requirements of the owner. The second category of suppliers supports the industries by forming effective suppliers' associations and coordinating with every individual member involved with the automobile industry. Finally, the third category of suppliers intend to produce more standardized product parts by utilizing different valuable procedures which include knowledge management and Six Sigma among others that ultimately assist the automobile industries to attain their respective business targets by a considerable level (Pernot & Roodhooft, n.d.).
Thus, on the basis of the discussion, certain imperative lessons can be learnt through which managing suppliers in Japan and in other nations with different kinds of firms is quite possible. The lessons include the impact of relational viewpoints that largely contribute towards the success of the different automobile companies and the importance of inter-organizational learning. This particular perception of inter-organizational learning can eventually support the automobile industries in attaining their predetermined business targets in terms of accomplishing superior competitive position and rising productivity as well as profitability among others (Kim & Michell, 1999).