Consultants in Lean Manufacturing Á Manufacturing Strategy

Consultants in Lean & Manufacturing Strategy


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Key Manufacturing Task Example

 Competition In Substation Transformers

The Market Segments

The company, we will call them Sirius Corporation, is one of many smaller firms in an industry dominated by giants such as Siemens and General Electric. The "Name Brands" often have very long lead times and a significant backlog.

All Segments

For manufacturers of large power transformers, product design and features are fairly standard. Different manufacturers offer unique features but this rarely dominates a customer's buying decision.

Most potential customers reference several industry standards such as ASTM D 3487 and IEEE Standard C57.12.90. Conformance to such standards is a Qualifier. Without such conformance, a manufacturer cannot compete in this market.

Quality is not a major issue in the normal selling process. When the product meets the usual specifications, quality is acceptable. Quality can, however, have a significant cost impact. If a transformer does not meet final test requirements, it must be emptied, disassembled and repaired-- a very costly process.

Large Utilities & Constructors

Large utilities and construction companies such as Bechtel are the largest market segment. Delivery speed is usually not a decider, as it is in most markets.

Most power transformers become a small part of very large construction projects. Construction firms plan and schedule these projects years in advance and the delivery of transformers is rarely on the critical path. The nine months or so lead time for a power transformer would be considered very poor performance in some industries but is perfectly acceptable in this market.

Delivery reliability is another matter. While transformers are a minor part of most construction projects, they are physically large. Customers order well in advance and suppliers have ample time to build the product. But, customers do not want the product early because it is difficult to store. Customers will not tolerate late delivery at all. Late delivery may stall a half-billion dollar project.

Once the delivery time is agreed, meeting it is critical. A firm's historical performance in this respect is a major deciding factor in the buying decision.

Substation Transformer

Substation Transformer

The large utilities and construction companies use a short list of "preferred suppliers." Generally, these lists contain only the largest companies and well-known brands. Sirius is effectively excluded from this market segment because of their size. This qualifying criteria greatly reduces price competition in this segment.

Small Utilities

There are many smaller utilities and rural coops that will purchase from smaller manufacturers. Their projects are smaller and often not managed as well as those of the large utilities. Delivery speed is often an important decider in this market. When delivery speed is not critical, price competition tends to dominate. 

In their analysis, Sirius further segmented this market into those customers who planned adequately and did not require short lead times (Normal) and those that typically ordered at the last minute or later (Fast).

Emergency Replacement

Lightning strikes, poor maintenance and random events occasionally destroy a substation transformer. When this happens, delivery speed is crucial.

The needs of large and small utilities are essentially identical in these instances and the large utilities tend to ignore their "preferred supplier" lists. Price also becomes almost irrelevant.

When a large-utility customer has good experience with smaller suppliers due to an emergency situation, they may add the supplier to their preferred supplier list. While this is not common, it can be important for the growth of the small manufacturers.


Market Segments & Criteria

  Image & Reputation Delivery Speed Delivery Reliability Cost/ Price Product Features
Large Utilities & Constructors A U A A U
Small Utilities  (Normal) E I E I U
Small Utilities (Fast) O A E O U
Emergency Replacement O A A U U

Rating Code

A-Absolutely Dominant

E- Especially Important

I- Important

O- Ordinary Consideration

U- Unimportant

Analysis

The table above summarizes market segments and criteria. An additional qualifying criteria of conformance to the various standards and codes has been omitted because it applies to all segments.

Sirius is effectively excluded from competing in the "Large Utilities" segment by the industry practice of preferred suppliers. They can make occasional penetrations to this segment as the opportunity arises from emergency replacements.

The techniques that Sirius is considering to increase delivery speed will also improve delivery reliability. Therefore, they will consider both aspects of delivery together.

The size of these market segments also has some importance. Sirius believes that the "Small Utilities-Fast" segment is actually quite substantial and should be their primary target. The "Emergency Replacement" segment, while not as large, will also be a primary target.

The "Small Utilities-Normal" segment will be a secondary target as capacity and backlog allows.

Key Manufacturing Tasks

  • Deliver It Fast & When Promised

  • Maintain adequate quality at component and final assembly stages to meet codes & standards

The Role of Cost

But, where does cost fit into this? And what about Quality of Work Life and the company's role in the community and the environment and all the other things a company must do?

Of course, Sirius cannot totally ignore other objectives, but they are secondary. Moreover, a Lean Manufacturing Strategy will deliver most of these secondary objectives as a matter of course. In addition, many of these "secondary" objectives are prerequisites for achieving the primary objective. For example, if the quality is not high delivery cannot be reliable.

Other Implications

The identification of these Key Manufacturing Tasks is also significant in what the factory will not do. For example:

  • They will not serve as a development laboratory for new engineering designs.

  • They will not take on new product lines or markets that differ significantly in processes or Key Manufacturing Tasks

The analysis also clarifies Marketing Strategy. For example, Marketing must now:

  • Emphasize delivery in their promotional material.

  • Gain attention within the "Large Utilities" for their role as emergency responders.

  • Identify firms in the target segments and find ways to address them with promotions and personal contact.

Summary

Key Manufacturing TaskThis case study illustrates how a manufacturer can move from a "We have to do everything for everybody" mentality to a more focused emphasis, in this case, Delivery and Quality. Implementing such a strategy brings lower costs as a collateral effect. Conversely, when cost is attacked directly, the actions may negatively affect both quality and delivery.

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