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A Solution to Butler Systems Case

A Solution to Butler Systems Case

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The case presents a supply chain issue faced by Butler Systems, a manufacturer of

environment control systems and power conditioning equipment. One of the products

manufactured by the company is Emergency Power Supply (EPS) system. EPS is a power

protection system that safeguards network systems from limited power outages allowing them to

shut down in a smooth fashion so as to avoid loss of data and damage to hardware. The customer

requirements are determined by the design engineering department. The core component of the

system is HD-5 battery that the company procures from certified suppliers.

The supplier of HD-5 battery poses a great importance in the supply chain of Butler

Systems hence the selection process is very thorough and involves careful screening process.

This is done through competitive-bidding pricing process. Two of the suppliers that offer the best

prices are negotiated with and the one that proposes the best set of offerings is signed up as the

official supplier for the company. The case mentions of contract terms that the vendor needs to

meet and accept in order for the contract to go into effect. The current supplier of HD-5 batteries

for Butler Systems is SDX Chemicals. As the sole supplier of the company SDX holds a very

high bargaining power over the buyer.

Butler Systems is running low on the inventory of HD-5 batteries. Normally, it stocks a

90-day supply of batteries, which has been reduced to a mere 20-day supply. SDX has been

unable to honor its commitment. It has declared the contract to be null and void and demands

that in order to continue the supply of batteries the price of new batteries will be double the

original price agreed. SDX has pinned this change in price to change in the industry dynamics.

The battery industry has been facing shortage of HD-5 batteries whose demand has spiked due to

recent decision by Chinese auto-makers to use this battery in their electric cars. It has also been

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noted that if the electric-car market sees a boost in sales, SDX will allocate more of its capacity

to production of batteries for the auto sector.

Butler System has remained competitive due to its efficient battery procurement process.

It believes that supplier relationship is of crucial importance to Butler’s success. Hence any harsh

action will only result in situation getting worse. Legally speaking, SDX Chemicals could be

sued over dishonor of commitment as mentioned in the contract. This would end the relationship

between Butler and SDX but would not help cater to the worsening inventory situation. One

solution could be to break the immense bargaining power of the supplier. This could be done by

purchasing a 10 to 40-day supply of batteries at double the price on immediate basis so that time

could be bought which new suppliers are sought. Moreover, this additional inventory will help in

case the relationship worsens between the two and Butler decides to sue SDX. When new

suppliers are sought some changes in the contract need to be incorporated. The clause over

breach of contract needs to be added. The party that dishonors the agreement or commits a

breach of contract will be liable for a fine.

A second solution is to work with the current supplier and enter into a negotiation

process. This option makes more sense in case the suppliers of the battery are few. A mid-level

price could be agreed upon by letting go of a clause or two from the original contract. This action

however will only work in the short-run since by implementing this solution the company is

giving in to the demands of the supplier who can demand a even higher prices later in the stage.

A third solution could be that Butler starts producing the batteries in-house so as to

reduce the reliability over suppliers, specially due to changing industry dynamics resulting in

more suppliers willing to cater to auto-makers in China than to companies like Butler. Again,

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The case presents a supply chain issue faced by Butler Systems, a manufacturer of environment control systems and power conditioning equipment. One of the products manufactured by the company is Emergency Power Supply (EPS) system. EPS is a power protection system that safeguards network systems from limited power outages allowing them to shut down in a smooth fashion so as to avoid loss of data and damage to hardware. The customer requirements are determined by the design engineering department. The core component of the system is HD-5 battery that the company procures from certified suppliers. The supplier of HD-5 battery poses a great importance in the supply chain of Butler Systems hence the selection process is very thorough and involves careful screening process. This is done through competitive-bidding pricing process. Two of the suppliers that offer the best prices are negotiated ...
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