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Small Is Beautiful

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“Small is beautiful”[1]:

Manufacturing Marketing Dilemma at Signode Tracko Components Ltd: PCB Division

Amit Thomas was exuberant. Ever since he joined as Chief Marketing Officer, STC’s PCB division is showing exponential growth. From a sales of just over Rs24 million in 2000, during his first year of service itself, he could raise it to over Rs 40 million. Now browsing through the figures, he found that in the last nine months (Jan-Sep[2])the sales have reached over Rs 68 million[3]. He knew his strategy worked…Accepting both small and big orders had made this dramatic growth possible. He is looking forward to the next review meeting. He couldn’t wait to laugh at those production fellows who always cry foul at his strategies!!!

The company

Signode Tracko Components Ltd (STCL) is the Indian subsidiary of the Fortune 500 German MNC Signode Components Inc. STCL started operation during the rapid liberalization phase of India during early part of the last decade and soon positioned itself as an OEM and a major electrical component manufacturer that go into the production of many household white goods and electric equipment. During the late 1999, STCL decided to bifurcate its Printed Circuit Board division at Faridabad as an independent company under the same brand umbrella, to tap the booming electronic toys and edutainment market. During 1999, there were over 250 Printed Circuit Board (PCB) manufacturers in India, most of them in public sector. These manufacturers are generally contract manufacturers and have huge facilities for manufacturing PCBs in bulk. Most of the electronics majors in the country like BPL,BEL, Videocon etc. have their own PCB making units for their internal usage. As against the existing companies, STCL’s original strategy was to cater to customized small lot size orders, generally used for experimental devices, pilot production runs, electronic toys and edutainment gadgets. By positioning as a small-customized manufacturer, STCL thought it could carve a niche in the market

The Product

Printed Circuit Boards consisted of a thin sheet of insulating material with narrow metal strips- generally copper called conductors- bonded to its surface. The insulating sheet acted as a structural member and supported electronic components connected by the conducting strips. In the customer’s plant assemblers positioned electronic components (like transistors, capacitors, LED etc..) in the drilled holes in the board, soldered them into place, and installed the board in the final electronic product. The manufacturing process for making the PCBs involves various stages. Exhibit 2 gives the process followed in the STCLs PCB division. The PCB manufacture starts with the customer order (customer gives the design also) and is generally carried out on a batch mode. Once a customer order is finalized a batch number is printed on the first board on the batch, and the batch is delivered within three weeks for orders less than 1000 boards and five weeks for larger orders. As the batches (designs) vary drastically from one another almost all the machines require setup before starting the processing of the batch. Exhibit 2 gives the set up for each of the processes and exhibit 3 gives the standard process flow during September 2002.

Review meeting on October 10,2002

The review meeting on October 10,2002 was attended by Vinod Iype, the President of the division, Satish Teheran, the CFO, Amit Thomas CMO, J Venketarantham Swamy the COO and Gregory Von’Reich from Signode Components Inc Germany. Iype was the President of the company ever since its inception 1999 and Teheran and Swamy also joined him from STCL as Chief Finance Officer and Chief Operating Officer looking after the entire manufacturing operation. Thomas joined as Chief Marketing Officer of the division at the end of 2000. He had over 20 years of experience in Industrial Chemicals marketing and has a strong reputation in B2B marketing circles. Mr. Von’ Reich is on his annual tour of the various divisions of the company and choose to attend the review meeting as an observer. Amit Thomas was extremely happy because he was sure that he can easily impress the representative from the parent company, through his achievements.

Meeting Started with Iype on the Chair.

Iype: “Good Morning friends” he said addressing the august audience, “ I am very happy that despite the economic slow down, we have done extremely well during the last nine months. Thanks to Amit and his team we have a lot of orders and if this is the way we proceed I am sure we can easily achieve the Rs 200 million target very soon. Right Amit?”

Thomas : “Thanks Vinod” he said with a beaming face, “ It was a tough job to realize all these sales. We all worked very well. In fact, our strategy of promising the rework worked very well. And after Swamy had implemented our suggestion of a chaser for small orders, the delivery of the small orders improved considerably. But I cannot say the same regarding the big orders. In spite of our repeated requests the production continues to deliver the big orders late.. even two weeks late. If this continues, I doubt whether we can achieve even 100 million target. If we want to gain market, we should accept and deliver quality in all : small and big. My boys tell me that even the rejection rate has also increased and customers sure are not happy about it”

Swamy : “ Well Amit, it must have worked well for you, marketing guys. But look at my facility. We are strained a lot after we start accepting the large orders and start promising rework. Everything had gone tipsy topsy. We have quite a lot of backlogs and you should come on the month end to the shop to see how we work. I think robots will feel ashamed looking a my boys. Vinod, you should tell these marketing guys to be realistic. It is true that they are correct sometimes. For instance their proposal for a chaser, it worked very well. But that doesn’t mean they can promise heaven to the customer always. It will push us into hell for sure”
Von’ Reich: “Excuse me gentlemen, what is this concept of Chaser?”
Thomas: “ It was our idea, we found that production was delaying a lot in small rush orders(generally 2-3 in a month from very important clients), so we suggested that small orders to be handed over to a single individual who will chase the order through the various stages and ensure that the product comes out in time. Luckily Swamy put his best worker on the job and he has no backlogs, no rejects and he delivers even in 4 days. So if they want they can do..”
Iype: “Let us not start blaming each other again. We all know that Amit and team is doing a good job. Initially I was also not in favour of accepting large orders. But I think he had proved me wrong. Look at our sales (Exhibit 1). I am sure even Von’ Reich will be impressed”
Teheran : “Don’t get too excited Vinod. It is true that our topline had improved but bottom line had gone down a lot. The profit is showing a steady decline. The overheads have increased. I think Swamy owes us an explanation”
Swamy: “ I don’t know. I am doing my best. Look at my capacity utilization, the labour utilization. Come to the plant. You won’t see a single soul lazing around. In case any one is free we put them immediately on some other task. I have already asked for a capacity expansion. Satish, have you gone through my proposal”
Teheran: “ I had gone through it. But I still feel that your capacity utilization is low. See you have used CNC router hardly for 50 hours in September (see exhibit 3). I think there is something really wrong with your policies. Look at the rejects. It is about 7% internally and 3% from customer’s end. Are you passing the items without checking Swamy”
Von’ Reich : “What do you do with rejects Mr. Venketarathanam?
Swamy: “ Sir We do rework in most cases (around 80%) and others we discard. I am not the only one to blame for the customer rejects. The customers are also crazy. Sometimes they accept a board with a dent but sometimes they reject even if a hairline crack is there. With Amit breathing over my shoulders to get the order done in the shortest time possible, I have no time to think for improvements. Let us accept only small orders Vinod, this mix is killing us in the shop. After all the STCL’s focus was on small orders isn’t it? ”
Iype: “ No Swamy. I cannot fully agree with what you say. I find there is some misunderstanding between Manufacturing and Marketing. Now that Mr. Von’ Reich is here today why don’t we have a detailed discussion”

They discussed the whole day looking at the actual orders (Exhibit 4) and actual shipments (Exhibit 5). With Swamy giving a list of production problems (Exhibit 6), they could see the cracks happening in the bottomline. But what they could not figure out is the reason for the same. Von Reich promised to look at it once more and report on the next day.

Sitting at his desk at night amidst the reports from the meeting, Von’ Reich was wondering how to start the analysis. “Is Amit doing the right job by taking all the type of orders? Or is Small really beautiful as Swamy pointed out” Von’ Reich wondered looking at the classic lying on his desk….

| | |Standard Process Flow : Sep 2002 | | | | |
| |Exhibit 3 | | | | | |
| | | | | | | | |
| | |(minutes) | |Sep-02 | |Sep-02 | |
| | | | | | | | |
| |b. Per hole; A circuit board has 500 drilled holes | | | | | | |
|c|c. The setup time is used for setting up the computer control of CNC | | | | | | |
|.| | | | | | | |
| |d. Per circuit board | | | | | | |
| |e. As per the existing shop floor policy CNC drill is used only if the order has more than 100 boards | | | | | | |

Exhibit 4 Actual Order Size during September 2002

|Order Size |Number of Orders |Total Number of Circuit Boards |
|(Number of Circuit Boards | | |
|in Each order) | | |
|1 |7 |7 |
|2 |7 |14 |
|3 |2 |6 |
|4 |7 |28 |
|5 |2 |10 |
|6 |2 |12 |
|10 |3 |30 |
|11 |2 |22 |
|12 |6 |72 |
|14 |3 |42 |
|20 |1 |20 |
|40 |2 |80 |
|50 |2 |100 |
|60 |1 |60 |
|84 |1 |84 |
|100 |1 |100 |
|113 |1 |113 |
|136 |1 |136 |
|140 |1 |140 |
|154 |1 |154 |
|200 |1 |200 |
|229 |1 |229 |
|252 |1 |252 |
|800 |1 |800 |
|1000 |2 |2000 |
|1050 |1 |1050 |
| |60 |5761 |

Exhibit 5 : Value of Actual Shipments in September (in ’00 Rs)

|Date (September) |Shipment |Cumulative |
|1 |11118 |11118 |
|4 |(1188) |9930 |
|5 |4057 |13987 |
|6 |1696 |15683 |
|7 |2226 |17909 |
|8 |8430 |26339 |
|11 |2395 |28734 |
|12 |(684) |28050 |
|13 |2560 |30610 |
|14 |5926 |36536 |
|15 |(147) |36389 |
|18 |3952 |40341 |
|19 |13216 |53557 |
|20 |10070 |63627 |
|21 |5561 |69188 |
|22 |2275 |71463 |
|25 |176 |71639 |
|26 |(1327) |70312 |
|27 |(7975) |62337 |
|28 |17939 |80276 |
|29 |44560 |124836 |

|Exhibit 1 | | |SUMMARY OF FINANCIAL STATEMENTS | |
| | | | | |

| | | | | | | | | | | | | | | | | |(Figures are in Rs '0000) | | | | | | | | | | | | | | | | | | | | | | | | | |SEPTEMBER |2002 |AUGUST |2002 |JULY |2002 |JAN-JULY |2002 |2001 |2000 | | | | | | | | | | | | | | | | | |NET SALES |1248 |100.00% |1444 |100.00% |857 |100.00% |3279 |100.00% |4045 |100.00% |2460 |100.00% | | |COST OF GOODS SOLD | | | | | | | | | | | | | | |Materials |426 |34.13% |499 |34.56% |291 |33.96% |1103 |33.64% |1380 |34.12% |772 |31.38% | | |Direct Labour |323 |25.88% |327 |22.65% |197 |22.99% |919 |28.03% |1090 |26.95% |672 |27.32% | | |Indirect Wages, Salaries |82 |6.57% |88 |6.09% |48 |5.60% |233 |7.11% |367 |9.07% |260 |10.57% | | |Manufacturing overhead |259 |20.75% |258 |17.87% |138 |16.10% |484 |14.76% |588 |14.54% |380 |15.45% | | | | | | | | | | | | | | | | | |Total Cost of Sales |1090 |87.34% |1172 |81.16% |674 |78.65% |2739 |83.53% |3425 |84.67% |2084 |84.72% | | | | | | | | | | | | | | | | | |GROSS PROFIT |158 |12.66% |272 |18.84% |183 |21.35% |540 |16.47% |620 |15.33% |376 |15.28% | | | | | | | | | | | | | | | | | |Selling Expense |45 |3.61% |43 |2.98% |41 |4.78% |145 |4.42% |254 |6.28% |262 |10.65% | | |Administrative Expense |82 |6.57% |81 |5.61% |78 |9.10% |303 |9.24% |345 |8.53% |183 |7.44% | | | | | | | | | | | | | | | | | |Total Selling& Admn.exp |127 |10.18% |124 |8.59% |119 |13.89% |448 |13.66% |599 |14.81% |445 |18.09% | | | | | | | | | | | | | | | | | |NET PROFIT BEFORE TAX |31 |2.48% |148 |10.25% |64 |7.47% |92 |2.81% |21 |0.52% |-69 |-2.80% | | | | | | | | | | | | | | | | | |
Exhibit 6: Report of COO

From
J Venketarathnam Swamy
Chief Operating Officer

Submitted

Sub : The problems in shop floor : reg.

With reference to your query regarding the problems in the shop floor, I am enclosing a detailed list of the same for your consideration. In my opinion, capacity expansion is the only way to eliminate these problems. Please expedite the same.

( sd/-)
J.V. Swamy Encl : List of problems 1. Production bottleneck is perplexing as it shifts from one operation to another without any pattern 2. As individual orders (depending on size) impose varying workloads on each operation, it is difficult to predict inventory pile up. 3. Except for the small four day rush orders handled by Mr. Tukker (the chaser), the average delay in other orders is 9 days. 4. The large orders are generally getting delayed a lot 5. The information flow in the shop for normal orders is given in the figure 1 6. The 4-day rush orders are met properly by Tukker. But the rework orders are generally pending 7. Approximately one-fourth of the orders delayed are due to phone calls made by marketing on behalf of the customer to intimate a design change at their end 8. The quality issues are also complex. The customer rejection rates have increased to 3% from 1% 9. Many days some workers run out of work while others will be neck-deep in work. 10. The workers are working throughout and they are generally tired and demoralized looking at pile of work in the factory

Exhibit 2: Process Flow Diagram pa: panel; 1 panel: 8 boards

Set up : 29 min Run : 0/panel 15min 40/board

Setup : 20 Run 0.5min/panel 10min 0.5/pa 10 0.75/pa

240min 16/panel

5 0.2/pa 20 2/pa 20 0.2/pa 25 8.5/pa 5 0.2/pa 10 0.2/pa

50 1/board

45 1.5/pa 30 0.5/pa 45 1.5/board

Ship 150 0.5/board

Figure 1 : The Information Flow
-----------------------
[1] ©IIMK, 2002; Case prepared by Prof Saji Gopinath, IIMK for class discussion only. Does not depict the correct or incorrect handling of any management situtation. Names are changed for confidentiality. Some technical facts adopted from HBR Case 9-689-030 are gratefully acknowledged.
[2] STC follow the calendar year for accounting purposes also
[3] See Exhibit 1

-----------------------
Small
Orders

Specs

Rush Order

Bid

Estimate
Sheet

DPR

Factory
Order

COO

Blue Print

Manager1

Raw Material

Normal

Tukker

Shop Floor

Batch#

Factory
Supervisor

Vendors

Purchasing

Factory Order

Blue print

Design Engr

Customer

DPR: Daily Production Report

Artwork Generation

Manual drill
(7 machines)

CNC Micronic (1 machine)

Metallize

Inspect & Shear

Raw
Material.

Punch Tooling
Holes

Punch Press

Solder Dip

Soldermask

Etch &Tin Strip

Strip DFPR

Electroplate

Laminate &
Expose

Develop

Panel Preparation

Inspect , Test
And Pack

CNC Router

rework

Please note Batch No. is printed only on the top board on the order. The factory supervisor keeps the blue print and issue the design order against the batch number.

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... beauty is defined as the quality present in a thing or person that gives intense pleasure or deep satisfaction to the mind, whether arising from sensory manifestations, meaningful designs, or something else. By this definition, anything that provides pleasure to one's mind can be considered beautiful. This concept of beauty is seen as being quite abstract. “Beauty is in the eye of the beholder” is the phrase that is often heard when discussing the topic of attractiveness but is this true? Does beauty really depend on who is looking? Beauty or aesthetics are often looked at in reference to artwork. Aesthetic means to be “concerned with beauty or the appreciation of beauty; also the philosophical theory or set of principles governing the idea of beauty at a given time and place (dictionary.com).” These words will be used interchangeably throughout this paper. There are many different opinions on what aesthetic qualities allow a painting to be considered beautiful. Some of these qualities are balance, rhythm, emphasis, proportion, sequence and repetition (Clair, 1939). Another article by Chen (????), measured what participants looked at when deciding whether or not a painting is beautiful and the frequent factors were meaning, brushstroke, style, shape, perspective, mood, originality, balance, and unity. An exhibition at the Birchfield Penny Art Center displays many of Charles Birchfield’s famous artwork and with every second Friday being free to students, it’s no wonder visiting...

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...In a small island at the end of the earth, their once ruled a great powerful Queen. Her name was Lady Song. The reason she had such a unique name was because her singing could calm crowds of angry, wild people. She was very beautiful and cunning/smart. Her gentleness and humbleness was what made her people adore her. Lady Song was always giving and sacrificing for her people. She loved the trust and adoration that her people gave her since her parents never gave her the love she needed when she was a little girl. She thought her people were her number one priority at all times. The island was very beautiful and tropical, warm and sunny most of the time. The islanders loved the juicy fruit and beautiful flowers that grew around everyone’s houses....

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