Unicon Concrete Products – Case Report Module Four Operations and process Management Josh Smith March 30th, 2011 Lisa Rasmey Table of Contents Executive Summary3 Issue Identification4 Environmental and Root Cause5 Alternative and/or Options7 Recommendation and Implementation8 Monitor and Control10 Executive Summary Mr. Li has an opportunity with Unicon to direct it in a new 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. Facade and slabs is the growing trend in the industry and will allow Unicon to take advantage of the cost savings that come with it. * No need for engineered documents, saving on time and engineering costs. * Job security * Operational efficiencies * Holding inventory * Reduced lead times * Product standardization * Increased quality The tradeoffs that implied with this move is worth the risk of this approval process.
This could be 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
There are several issues that need to be addressed that will determine how Unicon will be successful moving forward. 1. Should Unicon decide to increase its current plant space to be better prepared for future business, or take full advantage of the current boom in Hong Kong and not miss out on the current opportunities in the industry? With Unicons current product lines, Facade, slabs, stairs and portioning walls. Increasing Plant space would be costly and could possibly jeopardize current opportunity for business.
However, this decision would solve a long term issue and would allow Unicon to be better prepared to grow as a company. 2. Would it be beneficial for Unicon to pursue a blanket approval process with their current number one customer, the Hong Kong Housing Authority (HKHA). With a recently announced four year construction program that will indict contracts for a total of 179 blocks, a blanket approval could prove very lucrative as it would save dramatically on costs and time. This could also allow Unicon to pursue industry-wide standards for the precast industry.
The HKHA does have the authority to approve this type of proposal if it was convinced of its benefits. This move would be putting a lot of focus on one customer, leaving many opportunities for the competition to acquire the other projects/customers. Unicon will not be able to devote full attention to all of its current product lines, and has limited space. 3. Currently Unicon has 4 main product lines. Facade, slabs, stairs and portioning walls. Unicon began its foundation with portioning walls, it is slowly becoming the legacy product as more and more operations are leading to precast structures.
Should Unicon proceed with all four product lines or focus on three or less products that are becoming more recognized. This would have short term implications as the resources saved could be better used in another product line. Environmental and Root Cause Mr. Li must take a look at the industry and where it is going to be in five, ten or even twenty years. What will Unicon need to do to stay competitive in the industry and be “one step ahead” of the competition? Lets first take a look at Unicons current products. Products| Pros| Cons| % of Sales|
Partitioning Walls| * Still used regularly * Can be made to stock * Good profit margins * | * Soon becoming a legacy product * Heavy reliance on skilled tradespeople * Mostly residential – smaller market * Require engineering certificates to demonstrate quality * Time consuming | 40 %| Facades| * machine dependant * high level of demand. * High profit margins| * Design not standardized * Made to order| 20 %| Slabs| * machine dependant * high level of demand. * High profit margins * | * Design not standardized * Made to order| 34 %| Stairs. * High profit margins * Standard product * No engineering documents required * | * Smallest of product lines * Less demand * | 6 %| Facades and slabs are becoming the growing trend. Together they make up 54% of Unicons sales. This is becoming the industry trend amongst general contractors. The stairs product line is still profitable; It is not a core product for Unicon. This uses up valuable production space and manpower. Partitioning walls are used, but slowly becoming a legacy product and the trend is toward precasting.
They require engineering documents that are expensive and time consuming. The production process for the facades and slabs are identical, however the plant capacity are 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 moulds and 64 slab moulds. 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.
With our largest customer who makes up 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 precasting material. If a blanket approval was negotiated. It would reduce the amount of additional costs drastically for Unicon. This would allow Unicon to standardize their product and take full advantage of stocking concrete facades and slabs.
This would allow Unicon to focus on the quality of their product and allocate resources toward those structures as you will know exactly how many you will need for each job. As mentioned, this could be savings upwards to HK150,000 per block. Alternative and/or Options If Unicon wants to stay competitive is this booming industry. It will have to make some decisions on the direction this company would like to take. The strategy in this move could prove very successful if we 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. . 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 you will not need to get engineering approval for each job. Once the standards are determined, Unicon will be able to focus on 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 maintain the demand. 2. Unicon needs to focus on their Core competency products. With the growing trends are towards precast products.
Unicon needs to eliminate some of their product line that are not giving the most return on investment. 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. Partitioning walls should be reduced by not eliminated as most residential building still uses this type of structure. 3. Unicon could pursue a complete joint venture with Joint venture with HKHA. This will allow the HKHA to focus the 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. 4. Increase production space based and focus on increasing each individual product line. Separate the staff into teams focused on each line and the customers that will be using them. Most of the structures need most of not all of the products. Focus on trying to get 100% of the business of a new structure. Recommendation and Implementation I recommend pursuing the blanket approval with HKHA.
There is already a strong relationship with the HKHA as they currently do 80 percent of the Unicons business; this is an opportunity that can’t be avoided. This does not mean to be exclusive to them, but focus on delivery the appropriate product to suit their needs. 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 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 currently 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 facade 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 to utilize Unicon’s competitive position to state 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 facade 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.