Question 1. What are the tag requirements and available capacities under the different options through 1984?
Answer 1. By 1980 Sensormatic dominated the market for electronic article surveillance systems, accounting for 70% of U.S sales and over 50% of the European market. Sensormatic’s major competitor at that time was Kongo Corporation, whose technology includes low-frequency radio waves in comparison with Sensormatic’s microwaves technology. Sensormatic’s microwave system had some health concerning issues which at that time Kongo Corporation tried to use for undercutting Sensormatic’s position in the market. But healthcare investigations showed that emissions from the product was at the allowable stage, and had no any affection on human health. Initially, Sensormatic or product-tags was only soft kind of products that need to be protected from theft. But as market was filled with not so huge but potential competitors, Sensormatic was forced to develop new kind of tags for meeting market requirements. That new kind of product was tagging system that could be used for hard kind of products such as records or cassettes. In addition, it added several variations on the basic system, including different sized transmitter and receiver for shops with wide entrance, several kind of tags (ranging from inexpensive tags to top line Aligator tags), and several tag removers. Company’s tags were reusable ones with life of approximately four year. Aligator tags were the company’s best variety tags with sales price of $17,500. Moreover sustainable growth was indicated especially for the products which used alligator tags. The small version of Aligator tags was Half Gator tags and the projected tag requirements included the demand for both Aligator and Half Gator tags. Usually market requirement referring to tags was about quick replacement of it. As tags can be reused, this consequently brings to a depreciation of it, and company should analyze and pay attention to that potential demand-replacement quantity as well, in order to be able to satisfy full market demand. So, another step in the market requirement domain was new product type development by company. Company was working on projects for improved tag type production, which at that time was an important move for company. One of the new moves was Gemini tag, which will adopt an autorotation process. At that time market requirement referring to tags were: * Cheap throw-away tags * No microwave surveillance system which would lower tag manufacturing cost at least 30%. In 1980, all activities (four types of tags and diodes production) were performed in Deerfiel Beach plant. Volumes of production was varied from 30 units per month for the floor-mounted transmitters and receivers designed for the European market to 400 units per month for the small, hand-held Double-Checker units that enabled employees to check purchased merchandise to insure that all tags had been removed. The production of tags was quite labor intensive process and production requirements here is another important issue to be considered. Tag production involved two major groups for final tag production. One group was responsible to produce the diodes which should be in the tags and another group was responsible for tags itself. This separation was done for providing main production requirement criteria for diodes production, which is “clean room” environment, for acquiring high quality standards for future tags. On the other hand there was a cost-capacity issue which a company should handle. Company decided to produce those semiconductors in-house and gain cost savings approximately 0.8 cents (1.2-0.4=0.8) per unit of diodes. But cost issue was not the main factor for that in-house production decision. The separate fabrics such as Texas Instruments refused to take that not large amount of production order because they were specialized in large volume fast production of diodes. That’s why Pinneo designed and manufactured machines which Sensormatic should use to produce diodes which will satisfy both market and production requirements related to tags. Finally, company acquired the desired and required tags for that time market. Those are: * Soft tags, which can be attached to articles like any other tag and ticket * Hard tags, which were little more than soft tags encased in plastic * Aligator tags, which attached securely to articles to a special reusable fastener * Half Gator tags, which were smaller version of Aligator tags Unlike the Alligator and Half Gator tags hard tags didn’t involve injection plastic parts. The other requirement referring to tag’s production was about soft tags. Soft tags, with diodes bonded inside, formed basis for all other types of tags. That’s why for this type of tags especially precise centering was required immediately responding to the frequency of transmitter and receiver. The injection molding plastic parts used for clips and straps had traditionally been supplied to Sensormatic by outside vendors. But vendor’s market was small with surveillance competitive and small margins, which causes backlogs in supply. Temporary shortages were rising because of limited number of molds-and hence the limited capacity of vendors. Hence, for solving backlog problems and provide company with appropriate capacity and potential, Sensormatic should decide whether or not to integrate into injection molding, Solution to which we will address in the second question of case study.