MGT Group: Reconstructing the Supply Chain After a Cross-Border Factory Relocation Harvard Case Solution & Analysis

Background

MGT group established in 1945 has been involved in various operations since its inception. The company along with its core operations has been involved in various mergers and acquisition that allowed the company to gain a strong competitive position in the market but due to differences in culture and management style of the companies, MGT saw a major decline in its profitability as the return on investments were unlikely to come. LSD is an example of a poorly managed company that MGT acquired in March 2005. LSD manufactured and designed high precision valve for aviation, navigation, and energy industries. This company had a well-known brand image. After the acquisition however, the company’s performance started declining, and no improvement was seen and this also had a positive impact on the MGT group as it gave them an opportunity to expand to European and Asian countries.

After a long period since its inception, the company due to market conditions such as fierce competition and low profit in Europe, decided to seek new opportunities in Asia. However, the company has to reduce the response time therefore, they decided to shift their LSD factory from France to China.

Issues and Problems

The major issue the group is encountering is the performance of its latest acquisition LSD that has shown no growth at all with no return on investment as well. This performance forced the company to shift operations from France to China, which required revamping of the supply chain process completely. A team was made by Lurton with an assigned task to minimize the cost although the country was suffering from the financial crisis in order to ensure this transition.

Issues that are more likely to occur during this transition process include the time constraint as the process is lengthy because the entire set up will be relocated. The rise in the bargaining power of suppliers due to shutting down the operations for LSD will bring instability in the original supply chain. Increase in the overall cost was due to the increase in the cost of raw materials and that will also require long procurement cycle. The pressure on inventory will also increase and the risks involved in the form of government regulations and taxes. These are some major issue that the company is facing and will face in the coming future.

Analysis

Agile strategy

The company can gain strong position in the new market and can become highly competitive using the agile strategy. On the other hand, this strategy will also help in formulating an agile supply chain that will provide better and easy access to the markets and help in understanding the market conditions. Besides that, a better access to consumers’ demand patterns will be provided that can help improve the production process and gain economies of scale. On the other hand, a major disadvantage remains that will require the company to maintain high inventory every time.

Manufacturing strategy and inventories

The company has shown responsiveness by integrating the types of inventories that has resulted in lowering the cost. On the other hand, the company has to take a decision regarding prioritizing the type of inventory as the suppliers demand a year’s inventory to carry this integration.

Besides this, the selection of suppliers is important and vital as the company will have to identify these suppliers that will agree on  this inventory policy. On the other hand, the company also has to cater their unnecessary demands as well.

The company also has to cater some challenges during the relocating process like carrying extra and a huge amount of inventory in order to keep the production process running. This strategy, on the contrary, will be favoring the company as the company will face less challenge in meeting the demand and supply challenge.

Operation strategy

Factory relocation in China will lead to a new market and new customers, using the market development strategy which can result in increased profits and can be highly feasible for the company as new offerings will be offered to the new customer. This strategy can help in the overall growth of the company resulting in increased profits and consumer base...........................

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Founded in 1945, MGT Group (MGT, or the Group), headquartered in France. His LSD factory was known global supplier specializing in the development and manufacture of high-precision valves. In late 2007, MGT decided to transfer the acid plant in France to Fuzhou factory in China. Two people were put in charge of this project: Kevin Lurton, deputy chief of operations of the MGT department management systems, and Jian Li, CEO of MGT Fuzhou. Lurton and Lee faced a number of problems, ranging from the need for strategic planning for the need to implement policies for the supply chain during the reconstruction of this transboundary plant relocation. Among the wave of globalization, companies are already able to expand its presence in every corner of the world. For many multinational companies, the transfer of the product line, or even a plant in another country was a key step towards globalization. "Hide
by Xu Zhiduan, Shi Yong, Xu Yong Source: Richard Ivey School of Business Foundation 15 pages. Publication Date: September 19, 2011. Prod. #: W11199-PDF-ENG

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