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Class 8 - TCO - Industrial Systems

Class 8 - TCO - Industrial Systems - INDUSTRIAL SYSTEMS...

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INDUSTRIAL SYSTEMS – Total Cost of Ownership Industrial Systems, a $5 billion business headquartered in Dallas, Texas, is developing a new line of industrial pumps. This unit will assemble pumps in its own facilities, but intends to outsource many of the key components and subassemblies, including the electronic control sensors that are becoming the accepted standard on new pumps and compressors. The decision to outsource the electronic sensors resulted from an executive-level study that concluded the cost to manufacture electronic sensors in-house was highly prohibitive. Marketing, which is responsible for forecasting and demand planning, estimates that first year demand for the new line of pumps, and therefore the control sensors that manage the operation and performance of the pump, would be approximately 500,000 units, with a 20% growth expected for year two. Sensor demand depends totally on final product demand, which can be somewhat volatile. Industrial Systems is targeting the price of its pumps from $1300-$1800, depending on the model and configuration. The electronic sensor must be in the $125-$150 range. Industrial Systems relies on cross-functional commodity teams to develop sourcing strategies for key purchased items. Executive management views this supplier selection decision as critical to the success of the new product line. Control sensor technology helps differentiate the final product in the eyes of the customer. The commodity team has spent the last several weeks visiting three suppliers, and is currently evaluating various supply options. The team expects to
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