Executive Summary
The Government of the Peoples Republic of China (PRC) in 1997 introduced a housing project with the intention of creating an opportunity for affordable housing in Hong Kong (HK). Hong Kong was recognized as having one of the most important ports in the country with a growing middle class. The project would cover a 90 block radius by 1998.
Unicon, given an opportunity to complete this project for the PRC, faced a big challenge. The capacity of the project was 90 blocs. The company has only been able to complete a 7 block per year radius. The total capacity of the industry itself was 20 blocks per year.
Demand for 2 of its 4 products - precast concrete facades & slabs, which are in current production, is in high demand for the Hong Kong market. These 2 products already represent close to 54% of the sales of Unicon.
The fact that the total capacity of the industry is 20 blocks per year clearly indicates that competition will be entering the Hong Kong market. Unicon, in fact, already expects a minimum of 5 new competitors to enter the HK market for construction suppliers. There are currently already 4 competitors in the HK market.
Unicon needs to move fast to be able to stay ahead of the competition entering the market. The opportunity for expansion is great.
Based on our evaluation, we recommend that Mr. Li:
• Work on the blanket approval with the HKHA to short cut the approval process;
• Re-organize the company structure by moving from “make to order” to “make to stock” between interior walls, facades and slabs to support the demand for these product;
• Implement changes in production - introduce a second shift to solve the problem of the 2.5 hours morning set up in order to support our strategic operational plan.
To implement these recommendations, we have considered an strategy of 0-6 months while our 5 year long-term implementation plan will provide Unicon with strategic positioning amongst its competitors to ensure it captures the “white space” in the market.
We are confident that we can deliver a strong operational strategy and partner with the People’s Republic of China and the Hong Kong Housing Authority to align our goals and objectives. ISSUE IDENTIFICATION

Short Term (Tactical Issues)

Capacity Shortage
The HKHA forecasted that 90 blocks would be tendered next year. This would require precast materials for construction. Unicon has currently the capacity to manufacture sets of facades and slabs for 7 blocks per year. Total current industry capacity was estimated at only 20 blocks per year. “The company operated a single shift that ran between 8:00am and 6:00pm with a 1-hour lunch break from noon until 1:00pm. The plant operated a regular production schedule from Monday to Saturday, plus overtime every other Sunday. Labour costs were 30% of the total revenue, while material costs were approximately 40%. The balance was for plant overhead and profit” (Source: Unicon Case Report, Pg. 7).
Pursuing a Blanket Approval with HKHA
There is an opportunity for a large reduction in costs and time by resubmitting approved technical submissions to HKHA. Unicon would have to invest some resources in establishing industry-wide standards and demonstrate the mutual advantages of the Blanket Approval. Unicon must consider the implications of this action, particularly in the long-term, as the marketplace adjusts to this new development.

Long Term (Systemic Issues)

Operational Strategy Direction

The main issue, in light of these significant market changes (1998 PRC firms permitted to supply facades and slabs for HKHA and Hong Kong’s ambitious program for new residential blocks), that Unicon faces is constructing the correct strategy and approach to remain highly profitable in the short-term and remain so in the long-term.

Highly Competitive Market
The current high level of demand for construction materials is attracting new entrants in the industry. We expect to see 5 new firms enter this highly successful market. “Currently regulations restricted the manufacture of facades and slabs for HKHA projects to production facilities located in Hong Kong. However, the regulations were being revised to permit firms in the PRC to supply these. This revision was expected to take place by 1998” (Source: Unicon Case Report, P.4) increasing the overall competition in the marketplace.

ROOT CAUSE ANALYSIS

Unicon has few major products but the products that we produce have a high volume (see Appendix 1). These products – stairs, facades/slabs and partitioning walls – are presently running at different stages in the life cycle. Within Unicon, facades and slabs are predicted to grow much faster than partitioning walls (see Appendix). We will review our positioning in greater detail throughout this report.
We have also considered the strengths, weaknesses, opportunities and threats that contribute to the qualitative and quantitative root cause and environmental analysis (See Appendix).

QUALITATIVE

People: Opportunity for a Re-Elected Government
There is heavy pressure to get the housing completed so that the people are confident in their Government. Working with the PRC and the HKHA will build a long-term partnership between Unicon, the Government and its people. The opportunity to proceed in mass construction will elevate Unicon’s competitive advantage as being the pioneer of mass construction in the Asian community.

Innovation in Technology
Unicon is looking into new technology and materials that can reduce the curing time to improve the cycle time of producing the product. Acquiring better quality materials and new machinery that will help reduce the production cycle, will give the company the competitive edge to manufacture the products for the blanket order in a timely fashion.

Process: Growth in Construction & the Need for Operational Standardization
It is inevitable, that with a growing middle-class throughout Asia and minimal competition in construction, the opportunity to expand outside of Hong Kong will present itself. The need to standardize the internal process between Unicon and HKHA is required due to the HKHA wanting to build higher housing density in a short timeframe so that people will stay and work in the city. The Hong Kong Housing Authority (HKHA) presently takes close to 2 month to approve facades and sales. Next year (1998) this time will be decreased to 28 days; This approval time, however, is still too long. The waiting period for approval can be very critical to a project as the facades and slabs have a standard sizes and are currently made to order. If the mentioned approval time changes and corrections have to be made by Unicon the period will extend making it very hard to meet demand or work at the pace needed by the block projects.
In mass production, although work is on a larger project scale, the cost to produce is always less. There is a strong need to ensure there are no bottlenecks in the operational process or this could add to the project cost. QUANTITATIVE
Capacity Restrictions
From the data provided in the case, one is led to believe that Unicon can produce more than 7 blocks per year:
• Current production of facades is 25 per day assuming 1/ mold.
• Slab production is 64-101 per day depending on building configuration; take an average of 82.5 slabs/day.
• 1120 facades and 3400 slabs are required for each housing block.
• Production is 6 days per week and every second Sunday.
• There are 14 stat. holidays per year.
Days available per year:
• 52 weeks x 6 days + 26 overtime days -14 stats = 324 days
Slab Production:
• 3400 per block/82.5 slabs/day = 41.2 per block of slab capacity =324/41.2 = 7.9 blocks foe slabs.
• Adding another Shift = 7.9 X2 = 15.8 blocks for slabs produce per year
Facade Production:
• 1120 / block / 25 per day = 44.8 days/block for façade capacity =324/44.8 = 7.2 blocks for façade.
• Adding another Shift = 7.2 X2 = 14.4 blocks for slabs produce per year

Please note we have decided to add a second shift so that we can double our capacity to come closer to industry capacity
The production process for the facades and slabs are identical. The plant capacity, however, is uneven. Unicon uses subcontractors to provide labour for this production. One subcontractor provides 2 teams of 4 for slab production, while another subcontractor provides 3 teams of 4 for slab production. The plant has 25 facade molds and 64 slab molds. Some slabs could be used to produce 2 slabs and daily production ranged from 64 to 101 slabs per day.
If we take a look at the Hong Kong industry, It is currently in a boom. Our largest customer makes up to 80 percent of our sales. The HKHA have announced forecasts of 179 blocks to be tendered in the next year alone. Unicon’s current capacity is for 7 blocks per year with the current industry capacity of 20 blocks per year.
The trend is moving towards pre-casting material. A blanket approval, if negotiated, would reduce the amount of additional costs dramatically for Unicon. This would allow Unicon to standardize their product and take full advantage of stocking concrete facades and slabs. Unicon would also be able to focus on the quality of their product and allocate resources toward those structures as the exact numbers would be known for each job. This could be savings upwards to HK $150,000 per block. ALTERNATIVES & OPTIONS
It is important to establish the Criteria to benchmark both short-term and long-term alternatives and recommendations. See Appendix to explain how the criteria are used to evaluate option selection and our recommendations. Our criteria are:
1. Optimize supply chain
2. Increase cost saving and improve profit margin
3. Improve level of customer service
Short-Term Alternatives
ST1: Buy a 5000 square meter facility to expand and increase capacity

• Pros: Increases the amount of output; Start-up can be used to modernize the facility and process;
• Cons: Increase cost; Adds to the process and timing which can cause delay in production;

ST2: Re-allocate space from other products like stair and interior walls

• Pros: Allows for better space allocation in warehouse that are a smaller part of the business;
• Cons: Time to develop an execution plan; Time to implement change; Low ROI with change; Resistance to change;

ST3: Open a blanket with HKHA to re-submit future projects and avoid waiting times for approval

• Pros: Reduces approval time; Reduces production cost of one size vs. multiple sizes; Creates volume mass production will can reduce cost; Reduces inaccuracies in production; Could increase competitive advantage by controlling the market in a dense housing market
• Cons: Reduces Unicon’s custom business opportunities; Reduces product and organizational differentiation which can affect competitive advantage in custom housing markets

Long-Term Alternatives

LT1: Investing in better quality of materials & equipment to reduce the curing time
• Pros: We are controlling most of the supply so if we are buying in volume it may not increase cost. Coming down to common sizes to 2-3 of most used sizes with the RPC we can use the standard blanket size and go with the RPC.
• Cons: May increase in cost;
LT2: Open a Plant in Mainland China so we can compete with Mainland firms

• Pros: Continue to employee locally, therefore investing in the economy; Build strong cultural connections; Build long-term relationship with PRC; Unicon “brand” recognition; Less pay but still within economies of scale; Local employees may show more commitment to perform the job for “their country”; Understand the local market and its needs; Reduce labour costs can allow Unicon to add a shift and possibly double capacity without absorbing additional costs to do so.
• Cons: Low-skilled; Communication barrier;

LT3: Expand into other Asian markets
• Pros: PRC can become a referral point to other countries; Unicon business growth;
• Cons: Local Asian markets may select their own local company; Legal restrictions;

RECOMMENDATIONS
Based on our evaluation, Mr. Li must work on the blanket approval with the HKHA. This will produce two optimal solutions:
1. The waiting time for approval will no longer be an issue
2. MOST importantly if Unicon is able to establish a blanket approval with the HKHA, the possibility of being granted extensive projects exists. This will bring a competitive advantage to the company over new and existing competition. (Who are not interested in the blanket approval)
Second, after receiving the blanket approval, Unicon should reorganize its production process as follows:
• Switch from make to order to make to stock between interior walls, facades and slabs.
The demand for these three products has significantly increased. We must, therefore, re-allocate plant space to support our strategic objectives.
On the same note, Mr. Li should:
• Reduce the production of interior walls from 40% to 20%, which will help support an increase in capacity.
• Eliminate stair production as it is only equivalent to 6% of the company’s total sales.
Lastly, and one of the most important changes in production will be the need to introduce a second shift to solve the problem of the 2.5 hours morning set up in order to support our strategic operational plan.

IMPLEMENTATION PLAN
Please see Appendix

MONITOR & CONTROL
Please see Appendix