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BOSE CORPORATION: JIT II

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Lance Dixon sat in his Framingham office struggling to keep his mind off an impending
snowstorm and concentrate on questions about JIT II. Framingham, Massachusetts, was the home
of Bose Corporation, a manufacturer of high fidelity audio systems, where Dixon was director of
purchasing and logistics. Dixon had formulated JIT II several years earlier. Bose had been
successfully employing just in time (JIT) practices with its suppliers, but had sought further
improvements in purchasing operations.

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The inspiration for the Bose JIT II approach to supplier relations began in the late 1980s,
when Dixon happened to notice an excellent salesperson for G&F Industries, a manufacturer of
plastic parts and a major supplier to Bose Corporation, talking to one of his best buyers. And Dixon
realized what they were doing.

The salesperson was not selling. The buyer was not buying. These two highly paid
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people were talking about day-to-day ordersadministering the relationship.

Dixon thought that this could be improved upon, because neither man was operating at the
high end of his skill set. A salesperson needed to be out opening accounts rather than servicing them,
and the buyer ought to be working with design engineers doing value analysis. Each man was doing
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work that could be accomplished more efficiently by:

Providing better access to Bose for their suppliers;


Empowering the supplier representative in the Bose system;
Selecting a person with a skill set different from either the salesperson or the buyer to
manage the ongoing buying relationship and design engineering interface.
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Dixon wondered why trusted suppliers were not brought in house and were not treated just as
liaisons, but as workers with the power to function as an integral part of the system. He thought
about removing the buyer, the planner, and the salesperson. Replacing these persons with a full-time
supplier and in-plant representative empowered to use Bose purchase orders to place orders for his

This case was prepared by Rhanna Kidwell (MBA 92) under the supervision of James R. Freeland, Sponsors Professor
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of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective
handling of an administrative situation. Copyright 1995 by the University of Virginia Darden School Foundation,
Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No
part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any
form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the
Darden School Foundation. Rev. 10/95.

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companyin effect to place orders for himself. Dixon decided it would dramatically shorten the
communication process and bring the suppliers insights directly into the ordering process.

Company History

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Bose Corporation was formed in 1964 by Dr. Amar Bose, a professor at the Massachusetts
Institute of Technology (MIT) in Boston, Massachusetts, who started the company to test the
practicality of his sound system research. His work led to the creation in 1968 of the Bose
901/Direct/Reflecting loudspeaker system. This product set a new standard in music reproduction
and achieved international acclaim.

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In 1995, the company designed and produced a range of high-end audio products. Bose
emphasized research and development in order to maintain a leadership position in the introduction
of new technology. The company produced consumer sound products and professional sound
systems and was also manufactured the original equipment for the music systems for many top-of-
the-line domestic and imported automobiles. Bose also produced the noise-canceling headsets that
were used on the experimental aircraft Voyager during its nonstop, around-the-world flight in 1986
and the sound system used at the XV Winter Olympic Games in Calgary, Canada. Exhibit 1 displays
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portions of an advertising brochure for Bose High Fidelity Audio Systems.

Sales in 1994 were expected to be in the $500 million to $800 million range. The company
had manufacturing locations in Framingham and Westboro, Massachusetts; Colebrook, New
Hampshire; Hillsdale, Michigan; and in Canada, Mexico, and Ireland. Sales subsidiaries were
located worldwide. Dr. Bose, while primarily concerned with the company, maintained strong ties
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with MIT and the Boston academic community where he occasionally taught a class.

Dixon knew when he conceived of JIT II that the corporate culture of Bose would be
favorable to testing his idea. Bose was active in the management of the company and his innovative
spirit permeated its operations. Boses President Sherwin Greenblatt also had a reputation for
stressing continuous improvement and excellence in company operations and for creating a culture
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that encouraged the implementation of new techniques and ideas. Furthermore, the hard-won
acceptance of JIT in the United States had resulted in a change of attitude of many manufacturing
companies toward fostering close partnerships between buyers and suppliers.

The JIT II Concept

JIT II was an extension of the JIT concept intended to increase savings in Boses purchasing
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department. Under the JIT system Bose was using, the purchaser and vendor worked closely
together to eliminate the need for inventory and multiple suppliers. The considerable savings were
divided between both companies. Additional benefits resulted from a drastically improved
manufacturing process.

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Dixon thought that the JIT concept could be used to reduce the administrative costs and
increase efficiency in placing purchase orders for materials between Bose and its suppliers. Prior to
1987, the purchasing function required four people. The Bose materials planner communicated plans
to a plant buyer, who placed an order with a member of the vendors sales force. This salesperson, in
turn, informed vendor manufacturing personnel about the order. Because Bose supplied companies

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characterized by particularly volatile demand, its production planners were constantly changing their
requirements from suppliers.

Dixon felt that having vendors place a full-time representative in the Bose plant would
streamline the process by combining the prior roles of planner, buyer, and salesperson. The
representatives salary would be paid by the vendor company, but this person would have free access
to manufacturing and engineering programs and would have the authority to place purchase orders

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for Bose with his or her company. These in plants, as the vendor representatives would be known,
would also be encouraged to practice concurrent engineering. That is, the in plants would attend
all Bose design and engineering meetings involving the products sold by their companies and would
use their knowledge of their companies manufacturing capabilities to suggest improvements in
Bose products or efficiencies in manufacturing.

Dixon had given careful consideration to what type of vendors would be the most appropriate
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for testing his idea. He eventually decided that, for the deal to be attractive to both parties, the
vendor would have to be doing a high volume of business with Bose and have a large number of
purchase transactions with the company. Specifically, he decided that a vendor should have at least
$1 million worth of business with Bose in order to be considered for JIT II. But even if a vendor had
this volume, if it filled only a small number of orders for Bose a year, the administrative savings
would not justify JIT II.
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In addition, Dixon thought about which particular vendor to select as supplier for a particular
function: You want the very best vendor that you do business with in that areaone who you do
high volume with, and one who has established a record of dependability and high quality. Bose
looked for vendors who already had competitive cost levels, who had strong engineering support,
and who had a history of continuously developing technology.
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Selecting the individuals who would be Boses in-plant representatives was also a critical
factor. Different criteria were necessary for different types of suppliers. For example, in the area of
transportation, a qualified candidate would have to be a licensed import/export broker with specific
technical expertise in that field. For in-plant plastics, Dixon preferred a production-control manager
who understood the capabilities of her or his vendor in responding to sudden changes in demand.

Additionally, an in plant would have to have specific personality characteristics. A strong


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candidate would be outgoing, willing to take initiative, and able to gain the trust and cooperation of
Bose employees quickly. The ability to establish trust was essential, because in plants would have
free access to Bose purchase requisitions in order to place orders with their companies. Finally, an in

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plant, who would be spending 40 hours a week in the Bose plant, had to be a good personality fit
with the Bose culture. Exhibit 2 is a list of guidelines Bose developed to govern the work of in-plant
representatives.

The only check on the freedom of an in-plant was a signal sent to the purchasing manager if

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an in plant placed an order that exceeded a set dollar amount, a control on internal buyers that was
common in most purchasing departments. The in plants were also required to sign a confidentiality
agreement stating that they would not disclose privileged information to which they had access as a
result of the relationship between Bose and the vendor. An example of this confidentiality agreement
is shown in Exhibit 3; Exhibit 4 shows the general contract outlining the terms of JIT II to be
signed by the vendor.

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The Success of the Idea

While selling the idea to suppliers appeared to be the biggest hurdle in implementing JIT II,
Dixon did not encounter much resistance. Several years into the program nine vendors provided in-
plant representatives to Bose. Several vendors even requested to place two representatives with Bose
in order to keep up with all aspects of business. Exhibit 5 lists the vendors in the JIT II program and
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the location of each in plant within the company. Bose typically supplied between 3% and 40% of
those vendors revenues. Bose was not only involved in JIT II relationships with suppliers of
material goods, but also with three suppliers of transportation services.

When Bose selected a vendor with whom it wanted to begin JIT II, Dixon usually met with
the presidents or an executive vice presidents who had responsibility for sales to Bose. While their
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initial reactions were often disbelief, they were usually excited about the program by the time Dixon
had laid out all the potential benefits.

Dixon believed that the operating efficiencies provided by JIT II to both Bose and its vendors
were considerable and had exceeded his expectations. For Bose, the purchasing department had the
option of reducing staff or using members of the staff liberated by JIT II (mostly buyers) to fulfill
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other needs in the area. Bose had experienced dramatic improvements in communication and
purchase order placement, since the Bose production planners had begun dealing directly with the
vendor in plants. Even more efficiency was achieved when the planner role was combined with that
of the buyer and the salesperson.

When JIT II was initiated, the vendor agreed to give Bose an immediate price reduction in
exchange for increased volume and an evergreen contract. This contract was signed by both parties
and, like most contracts, specified a start date, quality standards, and an initial price. The contract
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had no end date, however, and would continue indefinitely as long as both parties were satisfied.

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Bose was also able to realize ongoing material cost reductions as the in plants pursued
concurrent engineering. According to Dixon, The technology leaders in many material areas are the
vendors. Bose benefited immensely from having vendors with technological expertise on site in the
Bose plant.

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JIT II provided a natural standard parts program, because the vendors were participating in
concurrent engineering. Use of standard parts was encouraged by the purchasing department,
because it reduced the cost of ordering and maintaining inventory. Engineers, however, often
preferred to use parts from vendors with whom they were most comfortable or familiar. An on-site
vendor representative could help ensure that the engineers conformed to the requirements of
purchasing for that respective vendors parts. Furthermore, the in-plant personnel had strong
motivation and were thus very effective participants in design engineering to improve efficiencies

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through the use of their materials. Another natural result of JIT II was electronic data interface
(EDI), a paperwork reduction technique that led to administrative savings through computer
terminals and software that linked Bose and the vendors together with real-time data and easy
access.

Economic benefits to the vendor were also apparent. The cost of adding a full-time in plant at
Bose was offset by the elimination of a salesperson and associated costs incurred in servicing the
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Bose account. The vendor also benefited from the dramatic improvements in communication and
purchase order placement. The evergreen contract eliminated the costs associated with rebidding
every few years, as well as the risk of losing the contract and the increased volume guaranteed to the
vendor offset the price reduction offered to Bose. Vendors ability to sell their process and skills was
enhanced, and the program ensured the future use of vendors products, which would be engineered
into future Bose designs. Moreover, free access to the engineering function enabled the in plants to
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look for new uses of their products within Bose. Errors in invoicing and other administrative
paperwork could be reduced and eliminated. For example, the in plants had the ability to access
accounts payable and determine any reason for delay, which ensured timely payment of invoices.
Finally, vendor in plants had the potential for a dual career path. They could continue to advance at
their vendor company, or they could opt to job post at Bose after one year.
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The In Plant

A typical day for an in plant might begin with a meeting with Bose material and production
planners to receive the latest information on material requirements. These needs would be translated
into purchase orders placed by the in plant with the vendor company. The in plant might then attend
a new product review to gather information and offer input on material requirements. The day could
also include work on a quality control issue with Corporate & Plant Quality personnel, and a
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meeting with design engineers regarding possible process changes and cost tradeoffs of materials.
Later, an in plant might visit the manufacturing facility of the vendor to review the status of Bose
orders and to adjust production schedules if warranted. An in plant could also expect to travel to
Bose facilities worldwide, at the expense of Bose, as demands arose for new products or new
process technologies.

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Chris LaBonte, an in plant representing G&F Industries, had been at Bose since the
beginning of the implementation of JIT II. G&F produced plastics used in Bose products and
provided two in-plant representatives. LaBonte had observed the evolution of JIT II from an
administrative idea to an integral and exciting part of the purchasing function. Over a period of

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time, it created its own synergy, he said. I became available to production managers and
production schedulers, and I became a resource for them. From the start of the program, he found
Bose employees to be friendly, receptive, and to have helpful attitudes that made his job easier and
contributed to the eventual success of JIT II. Like anything else, you have to prove yourself,
LaBonte related, but he recognized the importance of the Bose employees giving him the chance to
prove himself.

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Labonte felt that one of the most important aspects of JIT II was concurrent planning. He
explained, Under JIT, the supplier is held hostage to the demands of the buyer. Under JIT II, you
become a valve of the heartan indispensable part of the process. He cited the example that JIT II
allowed G&F to ship directly to Boses work in process and eliminate any incoming inspection of
materials. These money-saving changes resulted from Bose sharing its planning and scheduling
functions with vendors, but the in-plant vendor representative was the planner.
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The relationship between Bose and its transportation in plants was even more unusual than
that with its material suppliers. The role of the transportation in plants was to provide system control
and support, as well as interface with worldwide Bose locations through software and on-site
terminals at the Bose manufacturing locations. Transportation vendors provided access to their
mainframe computer systems, which controlled material movement in the United States and
internationally. For example, information about a Bose container being shipped from Taiwan would
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be captured by a freight forwarder and transmitted to the Boston office of Proctor Company. This
information, accessible to Bose through on-site terminals, had a significant impact on the planning
and scheduling of production. Having accurate information about the location of materials in transit
allowed Bose to provide a cushion sufficient to avoid affecting the factory production schedule.
Furthermore, more than 95% of Boses in-bound freight was cleared through U.S. Customs and
Border Protection, using paperless EDI between the Bose computer system and the customs system.
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Sharing the Idea

The outside interest that JIT II generated was something Dixon had not anticipated, but he
was surprised at the high level of interest from the onset. JIT II was now a registered service mark of
the Bose Corporation, and various Fortune 500 companies were requesting licenses to implement the
technique and to use the service mark in their product marketing programs. Five years after he had
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first thought of JIT II, Dixon found he was spending at least one day a week giving plant tours to
explain the concept to other manufacturers. He estimated that as many as 30 companies were
considering implementing a JIT II system based on the Bose concept. MIT had agreed to offer a one-
day seminar on JIT II twice a year in order to alleviate the burden placed on Bose in trying to share
the idea. Honeywell, APV, and AT&Tcompanies that had implemented JIT IIshared their

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experiences at seminars at MIT. AT&T had developed a similar system simultaneously with Bose,
and the two companies had been able to share their ideas and improve their respective systems.
Numerous articles about JIT II had appeared in business and trade journals.1

Dixon believed that the timing of the introduction of JIT II had been critical to its popularity

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and success: The concept of partnering is finally becoming very acceptable to American
manufacturers. By pioneering with the JIT II concept, we are sort of riding a surfboard on the front
of a big wave.

The top managers of Bose believed that they were showing good corporate citizenship by
freely sharing their idea with other manufacturers. Marketing the idea for profit was an option, but
Bose chose to share the idea openly. According to Dixon, We are in the business of manufacturing

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top-quality audio products. Meanwhile, Bose profited from the positive image that resulted from
JIT II and received enthusiastic feedback from its own customers about the companys use of the
system. Four of the suppliers with whom Bose used JIT II emphasized the system as a major sales
program with their other customers.

The Expansion of JIT II


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The dilemma facing Dixon this particular day concerned the extension of JIT II to areas of
sensitive or proprietary technology. He weighed both sides of the question carefully, because his
decision would affect the hard-earned success of JIT II.

When Dixon had started JIT II, he decided to offset the risk of implementing a radical change
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in the Bose purchasing system by starting with the easiest and least controversial parts of the
business. The success of JIT II naturally caused him to look for ways to expand the savings potential
to other areas of the company. He knew that Bose could recognize significant savings and efficiency
improvements, if the company began to use JIT II with vendors who supplied departments where, in
order to become an integral part of the engineering and design function, the vendors would be
exposed to sensitive or proprietary technology. This move could put Bose at risk, because
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technology that gave the company a market leadership position could be compromised. Patent rights
were also a major consideration; a question of ownership could arise concerning discoveries made in
a laboratory composed of people from more than one company. He wondered if the legal costs of
these complications would outweigh the savings potential of expanding JIT II.
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1
For example, Peter Bradley, Global Sourcing Takes Split-Second Timing, Purchasing (20 July 1989); John S.
McClenahen, So Long, Salespeople, Industry Week (18 February 1991); JIT II: A Purchasing Offer You Cant
Refuse, World Executives Digest (July 1991); Forging a New Kind of Shipper-Carrier Partnership, Transport Topics
(24 February 1992); JIT II Sounded Out at MIT, Northeast Journal of Transportation (24 February 1992).

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Exhibit 1
BOSE CORPORATION: JIT II
Bose High Fidelity Audio Systems

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No
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Exhibit 1 (continued)

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No
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Exhibit 1 (continued)

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No
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Exhibit 1 (continued)

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No
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Exhibit 2
BOSE CORPORATION: JIT II
Vendor In-Plant Guidelines

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Revised May 1990

In-Plant personnel are employees who are working in BOSE facilities that are employees of outside suppliers, and are
contractually bound by agreements with said suppliers.

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All In-Plant personnel will operate within the agreements issued between BOSE and their respective companies. In addition,
In-Plant personnel will:

1. Work under the supervision of a BOSE Purchasing/Logistics manager.

2. All purchase orders issued by In-Plant personnel require the signature of a BOSE manager under the appropriate
signature guidelines.

3.
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New parts must be reviewed for competitive bidding with the In-Plant's respective BOSE manager prior to placing
orders with their companies.

4. All engineering/part changes must be approved by the respective BOSE manager prior to the execution of any changes.

5. Will not commit the BOSE Corporation to any commitment or contract without the approval of their respective
BOSE manager.
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6. Adhere to all Purchasing policies and procedures.

7. Comply with all of the BOSE company guidelines.


No
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Exhibit 3
BOSE CORPORATION: JIT II
In-Plant Confidentiality Agreement

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1. BOSE will disclose to certain information in connection with other pertinent business matters. Engineering
specifications, material formulations and product concepts, and other information related to said products (regardless
of the presence of absence on such information of any restrictive markings); and, from time to time, BOSE may
supply to certain associated materials.

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2. Except as stated in Paragraph 3, hereof, agrees to hold all such information in strict confidence, not to reproduce
or use any of such information except in good faith furtherance of its service to BOSE; nor to disclose any of such
information to any third party not in its employ and to only such parties within its employ as shall have a need to
know same in order to further service to BOSE; nor to use any of such information for purposes of its own or of
any third party other than BOSE, including but not limited to the manufacture of any products for its own distribution
or for sale to third parties. Upon the conclusion of service to BOSE, it shall return to BOSE all copies of
documents or other embodiments of such information, retaining no copies thereof. The parties agree that all such
information shall be the exclusive property of BOSE and held or generated by as the case may be, solely as
trustee for BOSE.
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3. The restrictions hereof shall apply regardless of the generation of subject information by BOSE by third parties, and
regardless whether BOSE or said parties shall have made the disclosure to .

4. The restrictions hereof shall apply to such information as shall be generated jointly by and BOSE or solely
by as a result of its service to BOSE, or as a result of prior disclosure of other information by BOSE; and
specifically, without limitation, any production technique, machine, process, or the like generated or developed in
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connection herewith shall be subject to the restrictions hereof.

5. agrees that any materials provided to it by BOSE shall be used only in products supplied to BOSE.

6. The obligations and restrictions hereof shall extend for five (5) years from and after the date of the respective
information generation or disclosure, whichever is later; and there shall be no end to the obligation of Paragraph 5.

7. Restrictions herein shall not apply to such information as shall:


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a. Be or come within the public domain at the time of the disclosure thereof by BOSE or thereafter through
no act in contravention hereof by

b. Have been developed by prior to and independently of such disclosure, provided that this
exclusion shall operate only if shall have provided to BOSE acceptable documentation of its own
prior development within thirty (30) days of the disclosure thereof.

c. Become known to by disclosure thereto by a third party without restriction, which party shall
have a bona fide right to make such disclosure; or
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d. Be used or disclosed with specific prior written authorization of an officer of BOSE, and only within the
express terms of such authorization.

8. Prices and information submitted to BOSE for inside use, are not to be divulged to any outside source.

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Exhibit 4
BOSE CORPORATION: JIT II
JIT II Vendor Contract

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IN-PLANT CONS IDERATIONS

WHEREAS, the Corporation and desire the establish an in-plant representative at the Premises for the purpose
of providing services, all for the exclusive business use and benefit of the directors, officers, and employees of the Corporation
as hereinafter provided:

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NOW, THEREFORE, in consideration of the promises and of the agreements herein contained, the parties agree with each
other as follows:

1. RIGHTS AND PRIVILEGES GRANTED

The Corporation hereby grants to and accepts in accordance with the terms hereof the right, privilege,
and obligation to establish an in-plant representative at the Premises for the purpose of providing services to the
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directors, officers, and employees of the Corporation for the business purposes as requested from time to time.
It is agreed, however, that the Corporation shall have no obligation to purchase all such services from or through
.

2. TERM OF AGREEMENT: RIGHTS OF TERMINATION

The term of the Agreement shall be continuous, commencing on such date provided that either party shall have the
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right to terminate this Agreement upon giving to the other party ninety (90) days' prior written notice of such
termination. No reason or cause for termination need be stated or established by either party hereto. It is
specifically agreed upon the Premises and have, hold and enjoy such space, fixtures, and equipment furnished to
by the Corporation shall automatically terminate without the necessity of any other act by either party.

3. CONDUCT OF THE BUSINESS

shall conduct its business in conformity with the business reputation and goodwill of the Corporation.
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Without limiting the generality of the foregoing, it is agreed that will conform to the regular business
hours of the Corporation.

4. FACILITIES AND EQUIPMENT

The Corporation shall make available to the office space which shall be used only for the conduct of the
business of and during all regular business hours of the Corporation, will provide appropriate access to the
areas utilized by . Heat, lighting, air-conditioning, electrical, telephone, and cleaning services will be
provided to by the Corporation, consistent with the quality of service generally applicable to the
Corporation's business premises at The Mountain, Framingham, Massachusetts 01701.
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Exhibit 4 (continued)

5. INDEMNIFICATION

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A. The Corporation shall hold harmless and indemnify from and against any and all injuries, damages,
fines, costs, and expenses including but not limited to reasonable attorneys' fees caused by or resulting
from the negligence of the Corporation.

B. shall hold harmless and indemnify the Corporation from and against any and all injuries,
damages, fines, costs, and expenses, including but not limited to reasonable attorneys' fees, caused or
resulting from the negligence of in the performance of its duties hereunder or caused by or resulting

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from any breach by of any of the terms and conditions thereof.

C. Except as specifically provided herein, no person other than the Corporation shall have any rights
under this Agreement. Neither party shall have any obligations or liabilities to any other person other
than the parties to this Agreement, nor shall either party be liable to the other for loss of profits.

6. GENERAL

A. At such time as this Agreement and established hereunder may terminate, shall promptly
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remove from the premises any and all stock, equipment, and other properties belonging to or installed by
or at the direction of and will bear the cost of repairing any damage to the Premises occurring as a
result of installation or removal.

B. is and shall at all times be an independent contractor hereunder and not an agent of the
Corporation; and neither anything contained in this Agreement nor any actions taken by or arrangements
entered into between the parties to this Agreement in accordance with the provisions hereof shall be
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construed as or deemed to create as to such parties any partnership or joint venture. It is further agreed
that shall have no authority to contractually or otherwise commit the Corporation to any
obligations whatsoever to third parties.

C. may assign its benefits and interests hereunder to another party assuming and agreeing to discharge
the obligation of to the Corporation hereunder only with the prior written consent of the
Corporation.
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D. BENEFITS

will be responsible for all salary and benefits for their employee, herein called the "In-Plant
Representative." BOSE will provide office space and required equipment as aforementioned.

E. CAREER OPPORTUNITIES

BOSE will not solicit the in-plant representative for any job opportunity within the BOSE Corporation
for the first (12) months. Likewise, the In-Plant Representative may not apply for any position within
the BOSE Corporation within the first twelve (12) months. After this period, the In-Plant Representative
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may apply through the personnel office for career opportunities at BOSE.

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Exhibit 5
BOSE CORPORATION: JIT II
Location of In-Plant Representatives within Bose

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No. of No. of
Company Name Product Location within Bose Representatives
United Printing, Inc. Printing MRO purchasing and
Warwick, RI services plant locations 2
Duranco, Inc. Mechanical new product

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Attleboro Falls, MA Metal purchasing 2
W.N. Proctor Co., Inc.
Boston, MA Import/export Transportation 1
Roadway Express, Inc.
Akron, OH Transportation Transportation 1
Architects of Packaging, Inc. Purchasing and plant
Westfield, MA Packaging
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Monroe Stationers & Printers Rotation through plants


Brighton, MA Office supplies and various departments 1
G&F Industries, Inc. Corporate purchasing
Sturbridge, MA Plastics & plant locations 2
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American President Lines


Oakland, CA Ocean freight Transportation 1
Personal
Entex Corp. computers Purchasing 2
No
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