Executive Summary

Mr. Li has an opportunity with Unicon to direct it in a new, and focused direction. With its competitive advantage it has established with the Hong Kong Housing Authority (HKHA). I recommend pursuing the blanket approval process with HKHA. These efficiencies could prove beneficial for both parties as this will greatly reduce lead time and costs. Façade and slabs are the growing trends in the industry and will allow Unicon to take advantage of the cost savings that come with it. * No longer a need for engineered documents, saving on time and engineering costs. * Job security * Operational efficiencies * Holding inventory * Reduced lead times * Product standardization
The tradeoffs that are implied with this move is worth the risk of this approval process. There is potential for savings upwards to HK150,000 per block. An approximate saving of over 1 million based upon the 179 blocks per year projection from the HKHA.
Once this approval is agreed upon and the contracts awarded. I recommend a detail review of Unicon current product lines and completely outsourcing the stair production line. After a 6th month time, I recommend we review our production efficiencies and look into expanding our production facility as our three remaining products are now made-to-stock.

Issue Identification

Concrete Construction Market: • Precast Concrete Products sold to General Contractors in Hong Kong • 2 Options for building, Traditional Method or assembling precast concrete facades & slabs • Not enough market capacity to build all the required buildings 20 market max, 179 needed • Non standardization of precast products available

Unicon specific issues: • Specifications do not favor changes at the time of superstructure tender. Time is too short to have them approved. • Shortage of skilled labor • Architect creativity is stifled with prefab concrete • 4 product offerings • Process for facades and slab needs to be streamlined for better flow to add a second shift • Capacity to produce and capitalize on the market in the short term and long term
▪ Layout of plant vs. location of plant • Quality control with expansion • Labor rates for skilled workers

Environmental and Root Cause Analysis

The concrete construction market has only two types of construction processes, they are to pour the concrete onsite or to have the concrete trucked in as prefabricated units. There are distinct advantages to the prefabricated usage. There is a reduction of on-site work and less congestion. Prefabricated units all have a stable design and are not subject to weather and other traditional factors. Therefore they have a consistent and superior quality. Another advantage is that the staff required to do the work is lessened. The prefabricated pieces are created in the factory, in large quantities by a machine. The results of this are less skilled labour required, therefore making it less expensive, as well as labor and the supervision required would be proportionately less.

Some of the disadvantages of precast concrete is that it should be specified at the time of the design process up front or they must go through the lengthy approval process. Because of the “standard” pieces of prefabricated concrete, the entire process of using prefab hampers creativity & originality of the architect. There is also a dependence on expensive equipment (e.g. Tower crane).

The Hong Kong Housing Authority (HKHA) is the government agency which provides affordable housing for local residents. There are two types of blocks, rental blocks and HOS (home ownership scheme) blocks. Current HKHA regulations require the manufacture of prefabricated facades/slabs be restricted only to production facilities in Hong Kong.
The HKHA has an ambitious 4-year program for construction of new residential blocks. The plan is to have contracts for 179 blocks in the next year alone with 50% of these (approximately 90) would require precast materials. Each block requires 1120 facades and 3400 slabs. This poses a capacity problem for Unicon. Their current capacity is for 7 blocks per year but the industry current industry capacity is 20 blocks per year.

The approval process currently in place to have prefab used on a “non” prefab building requires both a registered architect and registered structural engineer to prepare and submit detailed design/calculations to the Government building department. The submission review to approve or reject the submission and review process takes approximately 2 months to complete. The current process requires that the superstructure be tendered and started in short order. This makes the current approval system a bottleneck and difficult to use.

Alternatives and Options

If Unicon wants to stay competitive in this booming industry, it will have to make some important decisions on the direction the company should take. The strategy in this move could prove very successful if they take a look at the pros and cons of each alternative. This decision has a lot to do with what tradeoffs Mr. Li is willing to take as well as the risks that come with it.
Option 1- Blanket Approval
Unicon could pursue the blanket approval. This would lock Unicon in with the HKHA and will guaranty steady work for the next 4-5 years. The cost reductions would be highly beneficial as they will not need to get engineering approval for each job. Once the standards are determined, Unicon will be able to focus on the quality of the product. This will prove beneficial for the HKHA as they will know that they are getting the quality they are expecting and a company that can meet the demand. Items could be made to stock rather than make to order and be more standardized. This will result in a reduction of lead times and costs.

Option 2 – Focus on Core Competencies
Unicon can focus only on their Core competency products. With this option and the growing trends towards precast products, Unicon can eliminate some of their product lines that are not giving the most returns. The stairs line which only does 6% of their business should be outsourced. More product room should be assigned to slabs and facades as this is where they will have growing demand and more than half their sales. Production of Partitioning walls should be reduced, but not eliminated as most residential building still use this type of structure.

Option 3 – Joint Venture with HKHA
This will allow the HKHA to focus their production facility to meet the needs of all structures. Efficiencies in standard products and approval would be beneficial cost savings to both parties. This will also allow stocking of premade facades and slabs as well as partitioning walls.

Option 4 – Rearrange Production Space
Partitioning walls account for 40% of the sales hence; closing that is not a pragmatic option. Unicon can divest from production of stairs as it accounted for only 6% of their sales in 1997. That space can then be utilization to counter the demand supply gap.
Looking at the flipside Unicon would be abandoning an existing product where they have some experience.

Recommendation and Implementation

I recommend pursuing the blanket approval with HKHA. There is already a strong relationship with the HKHA as they currently generate 80% of the Unicons business; this is an opportunity that should be capitalized on. This does not mean that HKHA will be Unicons only source of business, but their primary focus should be on delivering the appropriate product to suit the needs of their biggest client. These efficiencies could prove beneficial for both parties as this will greatly reduce lead time and costs. This is the growing trend in the industry and will allow Unicon to take advantage of much different cost savings that come with it. * No longer a need for engineered documents, saving on time and engineering costs. * Job security * Operational efficiencies * Holding inventory * Reduced lead times * Product standardization

This will also be a great opportunity for Unicon to take a look at their existing product lines and determine how to structure their operations to make this blanket approval as successful as possible. The focus now should be on the façade molds and slabs.
Partitioning walls and Stairs should now be classified as not a core product for Unicon. As stairs only make up a small portion of the sales, it should still be available for manufacturing but would be outsourced in order to free up space and resources. I recommend not moving forward with capacity expansion just yet. Once more contracts are awarded, specifically with the HKHA, Unicon will be able to properly asses there production schedule and manpower. With the blanket approval, the facade and slabs will no longer need to be made to order and the production process can begin immediately. A storage facility might become of better use for this reason. Additional molds may need to be purchased to meet demand.
In the short term, Mr. Li will need to contact the chief Architect at the HKHA to promote his idea of the blanket process. This is where Mr. Li will be able to utilize Unicon’s competitive position to display the mutual cost and time efficiencies with this approval. This negotiation and approval process could take upwards to 6 months.
Also in the short term, a review of the product lines to align scheduling and manpower efficiencies, moving more focus on facade and slabs, while eliminating and completely outsourcing stair production. 0- 6 months.
In the long term, Review the contracts awarded and based upon the results of the blanket approval process. Focus efforts toward capacity expansions. Invest in 20 more façade molds to even out production. 6- 12 months
Review manpower needs. Look into hiring 25 more full time employees and reducing subcontractors. These new employees will be trained toward dedicated production processes. Training and implementation 6- 12 months.

Monitor and Control
Mr. Li will need to announce the upcoming changes to the company. With a new change of focus on the product lines, the production workers will need to work with management to re-configure the floor space.
Assemble a cross-functional team to review the 3 remaining product lines. A detailed analysis is needed to review the current process flow to determine efficiencies. As the new product can now be built to stock, Unicon will need to align its processes and work crews as a production line. This will be a good opportunity to eliminate bottlenecks such as concrete production.
A quarterly review of production, Quality and upcoming contracts is needed. At this time an update is to be had with the HKHA to review contracts and issues. The success of this strategy is dependent on the the positive feedback from the HKHA.