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Coolit Systems: Developing An Operations Strategy Case Solution & Answer

Coolit Systems: Developing An Operations Strategy Case Solution

Problem Statement

Coolit systems has been focused on providing cooling systems for high end work-stations, gaming computers and data centers, since its inception in 2001. The company was previously focused on maintaining a supply channel with most efficient lead times, and the production was outsourced to a Chinese manufacturer – XIT Industries(Chandrasekhar, 2020). Using an outsourced production facility provided the company with more flexibility and it reduced the costs. But the current industry predictions suggest that the hyper scale market (which represents large data centers) will achieve substantial growth, as huge capital investments of about $120 billion have been made in the industry by the hyper scale companies. The number of hyper scale data-centers have increased from 386 -500 from 2017 to 2019.Overall, the data centers market is expected to reach an annual CAGR of 17% till 2023. These expected forecasts have a positive impact on the demand of cooling system provided by Coolit, as the Coolit sales to data centers is expected to reach 30 million in current year, 56 million in 2021 and 85 million in 2022.The target market for data centers included more price sensitive, sensitive, execution sensitive customers who want the most quality and reliable product with quick and easy delivery, as compared to the target market for the gaming computers segment. Peter Calverley, the company’s CEO, had a meeting with the executive vice president of the manufacturing and supply chain department in determining out the solutions for challenges created for the company in offering solutions to the data centers. The meeting was to focus on determining out the best production source an in-house production at Calgary, outsourced manufacturing in North America or a hybrid approach of having a contract manufacturer and Calgary office both.

Alternatives

The three possible alternatives that can be used the company in delivering its cooling systems to data centers, a market with huge growth potential, which include an in-house production, an outsourced manufacturing and hybrid manufacturing alternative. The three alternatives are discussed as under

i.In- House Production

In-house production refers to the manufacturing of product within company’s own infrastructure and boundaries (Malik, 2019). The company’s owned manufacturing source is located in Calgary office, which was developed to provide the quality cooling systems to the North American consumers, with easy and quick execution. The pros and cons of producing cooling systems in house are explained below

Pro

  • The company will be able to meet the product quality standards, according to the customers’ requirement.
  • The company will be quick in its execution of cooling systems because of its location in Calgary, as the data centers target market includes North Americans.
  • By using an in-house the company will be able to meet the demands of its price sensitive, execution sensitive, quality and execution conscious customers of North America, as the company will be having control on its operations.
  • The company will expand more by satisfying the customers and it can reach high growth and profitability levels over future.

Cons

  • The company has to manage more suppliers as the Vice President has suggested that the company is currently managing 80 supplier after starting the Calgary production, earlier it just had to deal with one supplier, because the production was outsourced.
  • The company’s inventory levels are already high with an advance two months inventory, warehousing costs will add up creating another challenge for the company…………………….
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