History
AIC Systems located in Taichung Taiwan, was a manufacturer of printed circuit boards, primarily motherboards and graphic cards. In the early 2000, the company evolved into an original design manufacturer by innovating and designing new generations of components. They also took the opportunity of opening a plant outside Shenzhen, when the restrictions on investment in mainland china were relaxed by the government. In 2007 AIC Systems decided to get involved in the fast-growing market of mobile technology, specifically ultra-portable laptops. The new netbook market as a competitive market provided an opportunity for AIC Systems to design and manufacture a branded product in the mobile industry.
Issues and Solutions
Before starting the design and production of motherboard for their new netbook, QuiN, the production manager, Elias Chen, had to select the processor which is going to be used in their netbooks. One option was using the same processor that has been used in ASUS netbooks, and the other option was to wait for the new Intel processor to become available. Chen decided to wait for the new processor and then design a motherboard based on that. I believe this was a wise decision, because AIC Systems was like a new kid on the block in the netbook market, and they could have a lot more chance of finding costumers for their products, if their first generation of netbooks were technologically up-to-date.
While designing the new motherboard, Chen established the assembly line. Immediately after that, they started the production in full capacity; 700 netbooks per assembly line per working shift, 2 shifts per day, and 6 days of work per week. If it was me, I wouldn’t have started the production in full potential, because I wouldn’t know if I can actually find enough costumers for my product. At least I would have produced a number of netbooks and offer them to some people who accepted to test them and give feedback to the company, before starting the production in full capacity. Anyway, after a short time they began to face unpredictable spikes in demand occasionally. To keep the costumers happy, they had to meet their demands as much as possible. The Chen’s solution was to increase the hours of work per shift at the peak times. Therefore at that times, the workers had to work more and their efficiency might have dropped, and also there wouldn’t be enough time for repairing and applying changes to the production lines because the production lines were busy almost 24 hours a day. I think they could have produced netbooks a little more than required each month and store the extra netbooks for the time of peaks in demands. This way, the production process could be more smooth and controllable. Moreover Chen will probably have to add more assembly lines sooner or later, because of the growing demand for netbooks. At the beginning the planned monthly output was about 145,000 units, while the estimated demand was 130,000, but the demand is increasing and they’ll eventually have to increase the production. So it is not a bad idea for him to invest in a new production line in order to increase the output of the plant.
Although a low-cost strategy is a good way to make your way into the market, you’ll have to provide your costumers with good quality products in order to keep them. To reduce the number of possible mistakes in the assembly line, Lapin designed the line such that each worker had to count the number of parts required for the assembly operations at the next station, thus they built a double check into the process. One other way of reducing the number of mistakes by workers is to give each worker the responsibility of checking the work that has been done in the previous station. This is normally not very time-consuming and thus the direct labor cost would increase too much, whereas it could help improve the quality of products. Another program that is being used in AIC Systems company, is the “kaizen” meetings, in which the workers are encouraged to identify actions that will improve the process. But still Chen found that the supervisors are always trying to solve each problem without fixing the root causes. To attack this problem, they can set up monthly meetings between all supervisors and managers, in which all the problems in the process, assembly lines, or products are brought up, and they can view the problems from the top and discuss about root causes and generic solutions.
Decreasing the product cost is an important issue for any manufacturer, especially for the ones like AIC Systems which has adopted low-cost strategies. An AIC netbook unit cost consists of direct material, direct labor, and manufacturing overhead. Direct labor cost only covers about 2 percent of the unit cost. Therefore reducing the labor cost is not going to make a big change in the unit cost. Whereas direct material cost covers almost 90 percent of the unit cost. So I think it is better to focus on decreasing the direct material cost. This can be done by investing in purchasing the required technology to produce some of the outsourced parts of the netbook. Although this might not be possible for items like CPU, there are some other parts that can be manufactured by AIC Systems if the required technology is available. They can also invest on a research and innovation program that can help designing new generations of products with more features and less problems, and also finding new and more efficient ways of production.