HQ case - good luck PDF

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What happened seven years ago at HQ? The company injection molding HQ was one of the most important suppliers of components in the field of home accessories.About ten years ago, a large group and largest client of HQ (market share of 50%) had started a restructuring under which the demand of the HQ ...

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CASE HQ 1. What happened seven years ago at HQ? The company injection molding HQ was one of the most important suppliers of components in the field of home accessories. About ten years ago, a large group and largest client of HQ (market share of 50%) had started a restructuring under which the demand of the HQ group would be phased out within two years. Demand for HQ would be drastically diminished. Alongside this, HQ had another problem: the range of housewares company was having to face competition from small companies which can compete effectively in this market segment, offering similar products at a market price comparable to that of HQ (if not lower), which moreover competed right on the money rather than on the characteristics of the products. It was therefore necessary to implement a change: the company decided to develop a marketing strategy to design, produce and sell a range of new products and that they were chosen to furnish as beautiful and high quality. This would allow HQ to compete in a different market segment, where the price was the main order winner. 2. What alternatives were available for the General Management? Alternatives Continue to compete in the same market with the same characteristics of the product, trying to broaden the base of their customers (same product, same market, new clients).

Advantages and disadvantages Alternatively difficult and unrealistic goal, it should be able in two years to increase sales by 100 % over the rest of the customers in a market where sales volumes are stable.

Disinvest and decrease the capacity of the organization (downsizing).

Decision completely legitimate. However, there are significant problems: it is said that a capacity reduction is accompanied by a proportional reduction in costs (ex: depreciation costs, rents, staff…). In the presence of fixed costs, this alternative could drive up unit costs and this would affect negatively on the ability to compete with small producers.

Try to follow the customer on different technologies (new product, same market).

There are new business opportunities (new customers and volumes) from the new volume potential (ex: switching from plastic to aluminum). It is to consider the risk inherent in change, barriers to change and to bear the cost. It is an alternative not significant in itself: I have the same new customers than before.

Evaluate the possibility of integrating downstream.

The integration process is critical: the downstream stages are manned by large and powerful companies and, even if there was a real opportunity to integrate, they should address the critical issues related to the change (new product / service).

Maintain the same characteristics of the product but try to penetrate new markets in terms of geography (same product, new geographic market).

Internationalization requires proper understanding of the "direction" to which to move. The choice is divided between : Markets in greater (or equal wealth): target, given the characteristics of the product. Markets poorest: difficult to compete on price because they have to be added transport costs.

Change the target market by offering a new product to a new segment (new product, new market).

It seems the most viable and most suitable in the capital of knowledge possessed by HQ (molding and mold making). This decision is implemented.

Sell

Moves the problem, not solves it

CASE HQ Close

Plausible but not of our interest

3. What are the actions that took on the General Management from the market point of view? He has chosen to compete in a different market segment, where the price was not the main order winner , by introducing a new range of products. The company has developed a marketing strategy to design, produce and sell a range of products that were chosen to furnish, because beauty and quality. 4. What actions have been taken by General Management from the Operations point of view? How the characteristics of the production system have changed in the last seven years? Technological- Plant (Structural/Hardware)

Organizational (Infrastructural/Software)

Management

Investments in machinery: decreases the number and changes the mix and fractionation of productive capacity. They sold the old machines now defective and replaced with larger machines.

Change the duties of the Technical Service: requires new skills, by precise adjustment of a mold design, mold production start, determine which modifications. Introduced a new group of people in the area of packaging.

Maintaining an inventory level higher (MTS): to ensure a higher level of service, to satisfy greater orders variability and cycle times which are very long compared to LT (Lead Time) in the market.

Distribution channel: it is chosen a new distribution channel (small shops) and not only large-scale retail chains for this new market. Introduced new molds: more complex, sophisticated and with a greater number of imprints (from mono/bi to multi footprint ). This determines an increase in productivity but also an increase of complexity and costs of the production process.

From "on the cheap" logic to “search for quality”: increase the thickness walls, color matching, etc. Quality becomes a daily thought.

Warehouse capacity for RM and WIP (Work In Progress) increased significantly: the new range requires additional space for storage and packaging.

New type of employee (technical machines and molds): the best staff in the machines set up has taken over this role and these have been replaced by the best operators.

5.

Do you feel that the actions of the General Management have been successful?

On first looking and looking only to financial and economic data, the situation seems to be greatly improved: gross profit increased by eight times compared to zero; also sales have tripled. However, there is a fact that is of particular concern: the level of inventories. It is increased in proportion to the increase of sales and, as a result, there has been a progressive decrease of the index of rotation. This brings with it the problem of the typical costs associated with stocks: 

Opportunity cost of the capital asset.



Cost linked to the risk of obsolescence and perishability (particularly relevant for the new market, characterized by fashion and taste).

Correcting the values with the cost of depreciation of stocks, you get a very different situation from that observed in the first test:

CASE HQ

It is evident that the profit has a strong fluctuation, symptomatic of a low control over the new reality (strong uncertainty of results): the company seems to be at the mercy of events. Why these conditions have been created? The decision to enter into a new segment is correct. As a result, greater variability and lower volumes need to be managed. However, the changes introduced at operations level have gone in the opposite direction (suitable for less variety and greater volume, higher setup times and less flexibility, which are typical for large volumes) and therefore it doesn’t result coherent with the bonus (misalignment between operations and needs of the market). General Management led to modify its operative and characteristic processes, without looking at what were the characteristics of the market and the company.

What the various stakeholders should have done was a "round table" following the participatory and bi-directional model, evaluating the performance desired by the market, identifying priorities and setting accordingly the variables of operations in order to align the benefits provided (alignment of operations at the market). 6.

Are there any elements of the budget in recent years of concern? Why?

The level of inventories. See the considerations made in the preceding paragraph. 7.

What actions would you suggest to management? Why?

First, it would be necessary to start from the requirements of the two different markets. Then it be necessary to analyze the different levers that can be used by HQ.

CASE HQ On the basis of these considerations and imagining that you have complete freedom over the decisions, it would be appropriate to set up the system of operations as follows: Technological-Plant decisions (Structural/Hardware) Overall production capacity and fractionation

New market

Consolidated market

Capacity>demand: to be fast to confront changes in volumes in a market where demand is influenced factor between fashion and obsolescence.

Capacity= demand. Few large machines: they allow achieving high efficiency at high volumes, with the ability to afford long set-up times.

Many small machines: allow greater flexibility and are more easily saturable individually. Mono-impression mold: provide greater flexibility. Setup time shorter: are made by more different products at the same time. Marginal Small customers and retailers

Multi-cavity molds: guarantee efficiency on large volumes. Setup times longer: solution less flexible, but allows to produce more pieces of the same type. High Large scale distribution

New market

Consolidated market

Control on the moulds, modifications and repairs. Low: dedicated department to do maintenance, set up… Effectiveness Objectives of quality and response speed under the clients command. Not differential Marginal: organization by objectives and greater delegation. High: high product novelty and continuous technological change.

Check and change the moulds to each interval default (setup). High: operators perform little activities regarding maint., set up,… Efficiency Objectives of reducing costs and on-time delivery. Not differential Effectively definable. Low: more repetitive process that requires less integration.

Management decisions Demand response mode

New market MTO (Make To Order): Speed, responsiveness and flexibility.

Consolidated market MTS (Make To Stock): Punctuality and leveling of demand.

Coordination along the supply chain

High: The need to respond to small customers with specific needs.

Minor: The need to respond to a few large customers.

Sales forecast

Necessary and subject uncertainty. Small shops incapable.

to are

Unnecessary: orders given well in advance by the “large-scale retail trade” customer.

Production scheduling

Fundamental: high number of installations and of product types Not critical: small machines can have alternated maintenance

Not necessary: standard products, low product variety Critical: a few large machines. If one stops the costs would be high.

Facility Technological process

Degree of automation Configuration of supply-chain Organizational decisions (Infrastructure/Software) Expertise in tooling Machine operator skills Objectives Incentive systems Work organization Procedure Integration of functions

Systems management realization of maintenance

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