Group Assignment
UNICON CONCRETE PRODUCTS (H.K.) LTD
CASE REPORT
Module 4: Operations management
College: Humber
Class: Wednesday, 6:30 pm – 9:30 pm
Submitted by: Shilpa Puri, Maria Tolokonnikova, Davinder Matharu, Adina Goldfarb, Zeeshan Hanif
Date: April 2nd, 2014

Table of Contents
EXECUTIVE SUMMARY Page Part 1 Executive Summary 3

ISSUE IDENTIFICATION Part 2 Immediate Issues 4 Part 3 Systemic Issues 4-5

ENVIRONMENTAL & ROOT CAUSE ANALYSIS Part 4 Qualitative Analysis 5-6 Part 5 Quantitative Analysis 6-7

ALTERNATIVES AND/OR OPTIONS Part 6 Alternatives 8-9

RECOMMENDATIONS Part 7 Recommendations & Action Plan 9-11

IMPLEMENTATION Part 8 Recommendations Implementation Plan 12

MONITORS & CONTROLS Part 9 Monitors and Controls 13 Part 10 Conclusion & Management Plan 13 Part 11 Future State 14 Appendixes 14-15 References 16

PART 1: EXECUTIVE SUMMARY
Unicon has already positioned itself strategically in the marketplace for partitions by acquiring a patent. However, there is a lot demand and competition in the slab and facades (rising star) business which is growing rapidly. To maintain Unicon’s competitive edge, they need to develop a strategy to stay abreast all competitors and gain favourable market share. It is therefore recommended that in the short-term, Unicon is to maximise the benefit of the market boom by meeting the current market demand as much as possible, while starting a strategy that will give them a competitive advantage. This strategy involves discontinuing pre-cast stairs and partition walls, and leasing out the patent to other companies in China, discontinuing the manufacturing of those products at the current factory. Unicon is to then transform all production and move 14 employees from partition production and 6 from stair production towards the fabrication of slabs and facades to take advantage of the current rise in demand. Patents will be created for 2 - 3 designs incorporating the strongest and most reliable designs wanted by the HKHA and the 12 other general contractors in the industry. The patents will be filed for every single design that will be approved by the HKHA and made standard in the industry. In the long-term, the company is to become the leader in the market of pre-fabricated concrete products and control the expansion of the company based on the anticipated rise and fall of the industry, utilizing research, patents and strong business relationships to gain a competitive edge. Approaching other pre-fabricated concrete companies in mainland China can help focus on precast only and work together with them on contracts with HKHA and other general contractors. To strengthen Unicon’s position in the market, it is also recommended to continue working with the HKHA and the civil authorities to obtain patents and pre-approval certificates for the slabs and facades. At the same time Unicon will create a cross functional team focused on researching better materials and construction methods to keep the company as an industry leader. After the 2 year boom, Unicon should then focus on facility expansion and completely reassess the market and its future direction from that point as that would put them in a position to adjust capacity for realistic levels of demand instead of basing the expansion on a rare outlying event. Short-term objectives are to be accomplished between 1-9 months while the long-term objectives are to be accomplished within 1-5 years. These initiatives will put Unicon in an advantageous competitive advantage in the market place allowing them to become a leader in the pre-fabrication sector and result in a cost savings of $150,000HKD and we are reinvesting part of that savings back in to the company by purchasing 3 additional molds for slabs and facades, allowing Unicon to secure its required unique patents. This will result in an estimated 25% growth in revenue and leave us with $85,000 in cost savings.

PART 2: IMMEDIATE ISSUES
 HKHA has estimated that 179 residential blocks are needed within the next two calendar years to meet the forecasted demand. It is anticipated that 50% of these blocks shall be of pre-cast design and construction.
 The total industry in Hong Kong is only able to support the construction of 20 blocks per year.
 Unicon only has capacity to manufacture sets of facades and slabs for seven blocks per year due to long approval times, lack of space and workforce availability
 Unicon must stay competitive and make process changes to reduce lead times and eliminate unnecessary costs
 Since the demand is already growing for precast materials (facades and slabs), Unicon is concerned with the risk of loss of sales due to the impact of operational changes as well as how these changes will affect their competitive position.

PART 3: SYSTEMIC ISSUES
1. Authority over Hong Kong has reverted to PRC recently: Under the terms of Hong Kong reverting back to PRC authority a moratorium from PRC companies bidding on HKHA project ends in 1998.
2. The Design of Construction dictates the method of fabrication: Due to the Hong Kong Building Code and the process for change control the method of construction is dictated by the originating Architect and Structural Engineer.

3. Manufacturing Capacity: Unicom’s production capacity is able to support seven HRKA Residential Block projects a year.

4. Product Lines Supported by Unicon: Unicon provides a complete product line to the construction industry, which can place a hindrance on actual product capability.

5. Unicon has four different product lines that have different margins. An issue is whether or not some need to be discontinued in order to focus on higher margin resources and competitive advantage.

6. Tenders are not accepted earlier on in the construction process for superstructure construction even though the designs are approved before construction starts. Bids are accepted and approved shortly before the construction of substructure is completed. This puts pressure on companies like Unicon who rely on subcontractors for the production of precast materials. They have to ensure that the subcontractor is able to provide extra staff and/or shifts. This also adds to labor costs in terms of overtime.
7. Slabs and Facades cannot be stocked items because designs are not standardized amongst the four HK manufacturers. To make these stocked items, commitment for both products in terms of volume and design needs to be made G.C’s
8. Smog / Air pollution: Visibility is less than 8km for 30% of the year. Cases of asthma and bronchial infections have soared in recent years due to reduced air quality.

9. Aging workforce: 68% of the population are over the age of 40, 40% are aged over 50, and 13% are aged under 30. Young and fresh talent is difficult to find

10. Densely Populated: The country is the 4th most densely populated places in the world. Besides delays at the ports, transportation by road will also be time consuming

PART 4: ENVIRONMENTAL & ROOT CAUSES
Internal Environment: 80% of company’s sales come from HKHA.
Political: HKHA is a government agency responsible for providing affordable housing for rent and ownership. They recently announced that they are going to build a large number of new blocks, and it is expected that 179 blocks will be tendered next year alone. This is a peak of construction industry which will probably never repeat itself. Regulations were being revised to permit firms outside Hong Kong to supply facades and slabs, which means increased competition.
Social: Hong Kong is heavily overpopulated. Affordable housing is one of the most critical problems facing the Hong Kong government. Purchase of units is much more expensive than rent. Housing in Hong Kong is among the most expensive in the world.
Technological: precast materials are favourable option (although cost is 3%-4% higher than traditional pouring because they reduce overall construction costs, assembly time is shorter, site construction is simplified and site congestion is reduced.
External Environment: Honk Kong is an important centre of economic activity. 60% of all China’s exports passed through Hong Kong and that number is expected to grow. That growth will support the growing economy of Hong Kong
Economic: The economy of Hong Kong is rapidly growing. The construction market is expanding. 80% of the market is controlled by 12 largest construction companies. Unicon had historically worked with all of them.
Labor Demand: Precast material decreases the reliance on skilled reliance which is in short supply in Hong Kong. The skilled labour as a result is very costly. Reduction in on-site workers reduces this cost considerably.
PART 5: QUALITATIVE ANALYSIS
 Approval for Superstructures and substructure drawings prepared by registered Architect and structural engineers takes 2 months.
 space, is an issue, must decide whether money should be invested in a new facility or reorganize the space they have. The decision will affect capacity and margins
 80% of Unicon sales are supported by the HKHA
 The process of signing documents is time and cost ineffective. Unicon should consider whether there are benefits to signing on blanket approval. Typing up resources would be beneficial for the project but may have too much focus on the customer. It can also leave them unable to compete at higher margin projects.
 Precast materials were generally more expensive but provided other benefits such as overall reduction in building price, building assembly time could be shortened, site construction simplified and site congestion reduced.
 If the superstructure was not designed initially keeping the precast material in mind, and had to resubmit revised designs for approval, this could result in substantial delays in the process because the precast has to be a standard dimension to be economically viable. Due to this factor, some general contractors preferred traditional pouring on-site methods. Traditonal method gives them flexibility to make last minute design changes.
 Use of precast superstructure warrants less reliance on skilled labor and increased dependence on equipment such as tower cranes etc. General contractors need to be able to support the method of precast superstructure construction and have access to heavy machinery.
 If blanket approval on design is obtained by HKHA, this would also result in cost savings for HKHA. They would be “bulk buying” same specifications precast materials and can negotiate a better price point with Unicon. From Unicon’s perspective, they can start manufacturing as early as possible and stock. There will be lowered risk of any design changes because HKHA would be committed to the design.

PART 5: QUANTITATIVE ANALYSIS • Potential to produce more than 7 blocks per year

• Tradespeople got paid - $1,500/day but during busy seasons could be getting paid double that.
• Savings achieved through reduction of onsite personnel and administration (we should calculate based on assumptions).

• Should the blanket approval process is pursued with HKHA, this could result in savings of HK $150,000 per block. At 90 blocks this will equate to HK$13.5MM

• Additonal savings can be realized due to the reduction of lead times by one month. Because the production will get a head start, overtime on Sunday can be avoided. There are 52 Sundays and overtime is permitted every other Sunday. Hourly rate is about $278. Overtime on Sunday for 20 workers (slab=12, façade=8) is $5000*26= $150K savings

• 179 blocks total. 50% of those blocks will be for prefabrication jobs only = 89 blocks. The entire industry can only produce 20 blocks per year and Unicon itself does 7 blocks per year. Therefore rapid current expansion is possible due to high 2 year prospects of industry demand and doubling capacity is a fairly safe bet.

• 20 employees required for the production of slabs and facades. 14 are taken from partition production and the assumption of 6 from the production of stairs. If the plant was re-worked this would double the capacity of the production of slabs and facades as all 40 employees would be working on the same two products.

• Re-invest in business from savings from eliminating Sunday overtime by Patenting 3 designs each for facades and slabs and purchase 3 moulds for facades and 3 moulds for slabs at HK$10,000 = HK$60,000. Patent cost is HK$5000. Net savings = 150K-$65= HK$85,000

• By purchasing 3 moulds for slabs and facades each we’ve doubled our production capacity. Our daily capacity increase from 25 facades to 50 facades and from 82 slabs to 165 slabs per day. Thereby, increasing our revenue by 25%

PART 6: ALTERNATIVES
Alternative #1:
Short Term
 Obtain Manufacturing Patents and Design Pre-approvals with overall blanket approvals and focus on pre-cast buildings only. Purchasing 3 new molds for both Slabs and Facades.
 Re-allocate plant space and outsource stairs and partition walls to PRC competitors and discontinue Manufacturing of these products since they are low margin industry standard designs.
 Increase Production of Slabs and Facades at current Factory utilizing current shift of workers
Long Term
 Develop Strategic Partnerships with Architectural and Structural Engineering Firms in Hong Kong and PRC
 Continue patents renewing after 3 years for a maximum of 20 years
 Expand facility as future prospects and current profits dictate after the 2 year boom.
 Emphasize in sales and advertising the overall total cost savings and benefits of the pre-fabrication method.
 Create a cross functional team to research improved concrete technology. (e.g. roman concrete)

Pros Cons
Keeps competitive edge and going forward in to the future Potential loss of customers who need “one stop shopping”
Closer relationship with designers and engineers Standard approved designs could drop the profit margin of the specific design of Slabs and Facades after 20 years when the patent is no longer valid.
Free up capacity focusing on more profitable products Since the project will only focus on HKHA, other tenders that may come out in the future will not be able to be bid on as capacity is extended to HKHA
Meet market demand without expanding the facility without knowing the future status of the industry high short term negotiation costs
Can accommodate a temporary increase in capacity
Ability to revert back to one shift when necessary
Keeps quality and customer responsiveness consistent
Drastic lead time reduction of 2 months
Building safety standards would improve for Hong Kong as they would be set.
Time and cost associated with each approval greatly reduced
Once standardized products are agreed upon focus can shift to product quality

Alternative #2:
Short Term
 Immediate expansion of production facilities adding 5000 square meters to the facility
 Continue to offer current line of products and add a second shift of workers to increase production of both the Facades and Slabs to try to meet market demand.
Long Term
 Continue Expansion of the facility to meet market demand and grow industry capacity to 50+ blocks per year.

Pros Cons
Future possibility of re-entering the partition and stairs market Does not provide company with a competitive advantage
Covers immediate and possible future demand Risk in reduction of quality and customer responsiveness from new employees
Still provides the “one stop shop option for customers” Hiring of more staff and layoffs during slow periods
Current industry only meets 11% of total demand so expansion should be safe. Need to obtain Hong Kong Municipal authority for operating on a two shift bases
Each individual corporation is able to keep their designs separate allowing for high profit margins from avoiding industry standards for facades and slabs. Long lead times still remain unaddressed Personnel change and training costs Low margins in the stairs and partition wall products

PART 7: RECOMMENDATIONS & ACTION PLAN
It is recommended that Unicon proceed with the short term and long terms goals of alternative number 1. The detailed benefits of this path are outlined below:

Short-term Goal
To take advantage of maximum benefit of the market boom by having Unicon meet the current market demand as much as possible, while starting a strategy that will give them a competitive advantage.

Short-Term
Unicon shall discontinue manufacturing pre-cast stairs and partition walls and lease out the patent to other companies in China discontinuing the manufacturing of those products at the current factory. The main focus of Unicon will be to do precast work only (save time, money to the construction companies based on the savings outlined above and in text page 3).

Unicon will then transform all production and move 14 employees from partition production and 6 from stair production towards the fabrication of slabs and facades to take advantage of the current rise in demand. Patents will be created for 2 - 3 designs incorporating the strongest and most reliable designs wanted by the HKHA and the 12 other general contractors in the industry, taking in to account a Feng Shui positive design pattern in order to have the most effective designs to sell to an Asian market. (Figure 2.0)

Patents will be filed for every single design that will be approved by the HKHA and made standard in the industry. The Hong Kong intellectual properties department allows standard patents that are renewable after 3 years up to a maximum of 20 years. Allowing for a 20 year competitive advantage over all standardized design and giving Unicon the additional benefit of a short lead time through blanket approvals from HKHA. The short lead time will lead to favoritism towards Unicon from the leading 12 General contractors in the industry since they can deliver on extremely tight schedules.

Long-term Goal
To become the leader in the market of pre-fabricated concrete products and control the expansion of the company based on the anticipated rise and fall of the industry, utilizing research, patents and strong business relationships to gain a competitive edge.

Long-Term

It is recommended that Unicon develops partnerships with other pre-fabricated concrete companies in mainland China to focus on precast only and work together with them on contracts with HKHA and other general contractors. Depending on the depth of the relationship this could also open up the opportunity for Unicon to outsource production of the Slabs and Facades to these companies as well in order to meet demand while at the same time protecting themselves with the patents. To strengthen their position in the market, Unicon shall continue to work with the HKHA and the civil authorities to obtain patents and pre-approval certificates for the slabs and facades. The promotion of the cost effectiveness and time saving aspects associated with the pre-fabrication method should also be done in this phase as well. At the same time Unicon will create a cross functional team focused on researching better materials and construction methods to keep the company as an industry leader. The incorporation of ‘Roman Concrete’ in to their pre-fabricated products would be an industry game changer as the mixture allows for the structure to last over 2000 years while using simple materials and procedures to create. Figure 1.0 shows an example of the components and structure.

Unicon should then focus on facility expansion after the 2 year boom and completely reassess the market and its future direction from that point as that would put them in a position to adjust capacity for realistic levels of demand instead of basing the expansion on a rare outlying event.

These initiatives will put Unicon in an advantageous competitive advantage in the market place allowing them to become a leader in the pre-fabrication sector and result in a cost savings of $150,000HKD and we are reinvesting part of that savings back in to the company by purchasing 3 additional molds for slabs and facades, allowing Unicon to secure its required unique patents. This will result in an estimated 25% growth in revenue and leave us with $85,000 in cost savings. All while protecting themselves from competitive threats and strengthening their relationship with key industry partners assisting in overall growth of the company.
Action Plan:
 Continue to work with HKHA and firms to obtain patents and pre-approvals for all pre-cast construction products
 Immediately notify workforce of the decisions that were made. Success depends on having full support from employees
 Need for change management as deletion of product lines can cause job anxiety
 Provide incentives to employees
 Involve employees in the changes, for example front line staffs are the most familiar with the facilities and should be consulted.

PART 8: RECOMMENDATIONS IMPLEMENTATION PLAN
Implementation responsibility, dates and status of the actions are captured in the table below.

Element Time Implementation Date
# Description Type Horizon Responsibility Start Ends
1 Notify employees of decisions made/obtain employee support Tactical Immediate
Mr. Li November 1, 1997 Nov 4, 1997
2 Change management Tactical Immediate Change management team November 1, 1997 January 1, 1998
3 Develop and execute an employee incentive program Tactical Immediate Mr. Li with HR November 1, 1997 December 1, 1997
4 Plant machinery re-purposing and
Re-positioning existing employees Tactical Immediate Front line managers November 1, 1997 December 1, 1997
5 Increase production of slabs and facades (purchase additional molds) Tactical Short Term Workforce November 15, 1997 December 1, 1997
6 Outsource stairs and partition walls Tactical Short term Mr Li November 1, 1997 January 1, 1998
7 Research and create 3 new designs for slabs and facades Strategic Short term Cross functional Engineering team January 1, 1998 April 1, 1998
8 Obtain patents and pre-approvals Strategic Short term Mr Li April 2, 1998 Aug 1, 1998
9 develop Strategic Partnerships with Architectural and Structural Engineering Firms in Hong Kong Strategic Long Term Unicon executive relations team November 1, 1997 Ongoing
10 Create a cross functional team to research improved concrete technology Strategic Long Term Mr Li and executive management Sept 1, 1998 Ongoing
11 Renew patents every 3 years Tactical Long Term Mr Li Aug 1, 2001 Every 3 years

PART 9: MONITORS AND CONTROLS

The table below contains the key performance indicators of each element used to evaluate the success or failure of the implementation recommendation.

Element Evaluation
Description Measure Success Failure
Daily production quantity of facades and slabs 50 facades/day > 98 %