The National Bicycle Industry Company - Essay Example

National Bicycle Industrial Company National Bicycle Industrial Company National Bicycle Industrial Company, Japan is a leading manufacturer of bicycles. It mass customizes bicycles, wherein it produces bicycles, which fit exactly to a customer’s weight and color preferences. Their key to success in this arena is through the use of computer-aided design and computer integrated manufacturing, along with the maintenance of a customer database. The company management had decided to use a revolutionary and innovative production system, which they named as the ‘Panasonic Order System’. This system made use of state-of-the art techniques in bicycle production through a combination of robots, computers and skilled workers. Thus, the system was an amazing blend of human skills and advanced technology. The Operation’s Mission The purpose of implementing mass-customization strategy was to increase the company’s production of high-value added products. The company wanted to give customers the opportunity of ordering a bicycle according to their specific requirements by giving these requirements, directly to the factory. They wanted to implement a system which set aside their Panasonic brand from other similar brands in the market The operational problems faced by the company in implementing mass-customization strategy The mass-customization strategy was first conceived by the company’s managing director. He felt that if women could custom order their clothes, why couldn’t bicycles be produced in the same way. This idea came at a time when the bicycle industry was seeing very sluggish sales, and the price that a customer was willing to pay for a bicycle was dropping. Even senior members of the company felt that implementing the idea would be a risk. Thus, this idea was brought out and implemented amidst a lot of skepticism of whether the idea would work in the first place. However, the company’s Managing Director went ahead with the idea of implementing the idea of mass-customization. This was because he wanted to increase the standard of high value added products manufactured by the company. In order to implement this, he wanted the company to produce bicycles which catered to the needs and likings of the customer. They were faced with the problem about the implementation of their strategy of mass-customization. If they wanted to put their idea of mass-customization into effect, the requirement was to have a very efficient system of production and delivery. This system should be in a manner to clearly differentiate their high-end Panasonic brand from other brands and serve the need of bringing out a variety in product range into the market. The mass-customization concept was initiated by the company’s director by grouping together senior members of the management team, a designer, few process engineers and some highly skilled and experienced line workers. After a few weeks, they started a pilot plant in their empty warehouse and by July 1987, they converted this plant into a fully running and operational plant. The new system they had installed to handle the task of mass-customization was the Panasonic Ordering System (POS). The main operational risk regarding the system is to make it work efficiently to capture the orders of the customers by catering to their ideas. The idea of the customer should be conveyed efficiently to the factory to produce a bicycle according to specifications of the customer. In order to do this they placed the ordering system in every Panasonic bicycle dealer showroom. Here, a customer would walk in to place the order and the dealer would use a unique measuring instrument to capture the physical measurements of the customer such as his or her frame size, length of the seat post, the position for the handle bar and the extension of the handle bar stem. Furthermore, the customer was allowed to select the color and model type of the bicycle and other features of the bicycle. The information collected was sent by fax to the control room of the company’s custom factory. The main operational risk involved here is the efficiency of the dealer to use the unique measuring instrument to take the measurements of the customer. The measurements taken by the dealer will be used by the workers in the factory to make the bicycle. They do not have direct contact with the customer. This situation can have the possibility of creating a gap between the customer specifications and workers or engineers understanding. To avoid this problem (though minute), a computer and web based system of simulation measurement system can be developed and can be placed in the showroom of the dealer. The customer can directly communicate with the company’s factory or the tool can act as a bridge between customers’ specifications and engineers understanding. The POS was supported by a very reliable manufacturing process. Their manufacturing process used machines which were developed specifically for the purpose of being used in the custom factory. The company’s own design and process engineer were the ones who created these machines. While the hardware used in the POS was purchased from outside vendors, the software used in the POS was developed by NBIC’s own software engineers so that they had complete control on how the system worked. Though the hardware used in the manufacturing the bicycles is very much understandable to the engineers, there is less chance for the workers or engineers to interact with the customer. If the customer is not satisfied with the facilities provided in the measuring tool, the dealer will not be in a position of satisfying him. In this situation, there should be a system of enabling the customer to interact with the factory. This interaction may delay the delivery of the bicycle, but if the customer is accepting the delay, the factory can review the customer’s request at an appropriate time. The CAD system located in the control room of the factory can start giving a blue print for the customer’s idea after the above mentioned interaction if any. Then the process of production can be made to begun with the CAD system located in the control room of the factory making a blue print of the bicycle’s frame and other structures. The information collected by the CAD system was sent to the raw material supplies area, in which bins were lit up based on the customer’s specifications. Materials in the lit bins were collected by the worker and then sent to the factory in which an automated process helped to make the customized bicycle. The customized bicycle was finally checked for quality by a three-dimensional automatic measuring machine. This machine checked the actual measurement of the assembled bicycle against customer specifications stored in the host computer’s memory bank. Variations, if any, were detected and displayed in the CRT terminal or plotted using the attached plotter. The whole process was completed in less than one minute. The entire time taken for manufacturing and delivering a single customer order was about 150 minutes. In the year 1989, the factory employed about 18 workers and was able to make 60 custom bicycles daily. It received orders for about 12,000 bicycle annually. A year after the use of the POS system, the company introduced the PICS or the Panasonic Individual Customer System. The purpose of the PICS system was to attract overseas customer in countries such as Australia, U.S and Germany. Such orders took about two to three weeks to deliver. The PICS system was very similar to the POS system only that it gave customers the choice of opting for much larger bicycle frame sizes owing to such requirements in these countries. Operation objectives that were required to achieve the mission In order for NBIC to achieve its mission of implementing mass strategy, it had to fulfill the operation objectives that were required to achieve the mission. There were faced with the problem of how to implement their strategy of mass-customization. The operational problems, if they are internal can be solved easily, but they are external also. The problems and threats faced by the competitors and assemblers need to be faced with ever changing strategies in designing and marketing. If they wanted to put their idea of mass-customization into effect, what was required was to have a very efficient system of production as they have already in place an efficient delivery system. This system should be in such a manner that it must be able to clearly differentiate their high-end Panasonic brand from other brands and serve the need to bring out a variety in product range into the market. This was done by the company as it was the internal issue as the other two brands are from the same company. There is a need for the strategy that differentiates the Panasonic brand from the other brands of the competitors. The Panasonic must be of superior quality to counter the efforts of the assemblers. This is possible by delivering light weight, ultra modern design and strong bicycles than the brands of the competitors. The material used by the company must be of good quality and which is not possible for the assemblers to use or imitate it with the less capital they use. SWOT analysis of NBIC NBIC is the second largest manufacturer of bicycles in Japan. In the year 1992, their sales went up to 20 billion Yen. The reason for their tremendous success is their decision to market their bicycles under three different brand names namely Panasonic, Hikari and National. Each of these brands covered the complete spectrum of the kind of bicycles sold in Japan. The bicycles which they put out into the market were high-quality; high-priced bicycles and they were designed to be sporty and fashionable. Most of the production and sales were devoted to the Hikari and National brand and the Panasonic brand which was on the higher end in terms of prices made up for 20% of the company’s sales. Their mass production and custom factory concept was put into effect by the construction of a factory in the city of Kashihara, when there was a huge demand for their products in the market. This took place in the year 1962. There were two factories constructed in this city with the custom factory (initially thought of as a pilot plant) gaining shape in the year 1987. Their location amidst part supplier gave them a competitive edge because the cost of getting parts to the factory was must lower than in the case of their competitors. In the year 1990, about 700,000 bicycles were produced in both these factories. While 90% of the bicycles produced in the mass production factories were shipped to the sale subsidiaries, the bicycles produced in the custom factories were delivered to individual customers. The POS implemented by the company gave them many advantages. First, the production of high value added products was doubled. Second, it gave customers the opportunity of giving their own bicycle orders, directly to the factory. Third, it clearly marked out the Panasonic brand from the rest of the bicycle brands in the market and this created an strong presence in the mind of the customer. Till then the Panasonic brand is the one which have the least sales out of three brands. Fourth the system enabled to make rapid changes to models (up to 80% in a year) and fulfill the growing need for product variety in the market. Lastly, it helped to increase NBIC’s market share by offering new models. The system not only helped the company to change the models, the ideas of the customers and their needs can be used in manufacturing the new models of the bicycles in other two brands of the company. Implemented in June 1987, POS drew world-wide attention for its achievements and the company also set up a new system Panasonic Individual Customer System (PICS) to cater to an overseas markets. Following this, NBICs high-end bicycle production improved and it became the second largest producer in Japan. Drawback of the mass-customization system In the year 1987, NBICs total production was 7%. In the year 1992, it increased to about 18%. But, the company was faced with drastic changes taking place in the domestic and international business environment. They faced stiff competition from Japanese assemblers who exploited the opportunity of manufacturing bicycles by using cheap parts purchased from South East Asia. The company also had to deal with the aggressive export strategies of firms in Taiwan and China and this affected NBICs exports. At this point of time the Yen was gaining strength against US dollar and this made NBICs bicycles expensive. The PCIS which was specially set up to face the demand from Europe and United States, was not very useful, as demand from these areas declined because of the high prices of the bicycles. Such changes affected the company’s overall growth and in 1992 and NBICs exports were down by 50%. The senior management examined all the remedial options they could take to reverse this and this included studying the feasibility of applying the POS to the mass-production factory. Since the NBIC’s managers were divided in their opinion on whether to maintain the niche high-end custom segment at high prices or to increase its size , they did not implement their mass-customization strategy into mass-production.. Thus, despite success in the implementation of the strategy of mass-customization NBICs senior management were still skeptical about it. Therefore it seems more logical for them to stick to their plant-within-plant strategy rather than go in for full mass-customization because they were not able to face the other associated problems coming with it implementation. Distinctive competence The reasons for the success of NBIC’s mass customisatin were; principles of customers service, appropriate pricing and extensive communications. Domestic customers could expect a delivery within two weeks and this time frame was chosen because the company wanted the customer to feel the effect of receiving something special. The higher price that was charged for custom made Panasonic bike of the company should make the company’s sales activities more profitable than before. This needs the operations involved in the mass customization of the bicycles as cost effective as the production of ordinary bicycles. This is possible when the production of the Panasonic bicycles increases to that extent. The price of a custom made Panasonic bike was just 20 – 30 percent higher than a similar bike produced at a mass production factory. The POS system gave the factory the opportunity to communicate directly with their customers. First the customer received a thank-you card from the system, when he or she had made an order though it. Three months later they would get an enquiry card, which asked them about how the bike was and finally they received bicycle birthday card commemorating their one year usage of the bicycle. The competitors tried to imitate NBIC’s success, but were not successful because they had plunged first into the concept of mass customization. They held a strong image in the customers mind such that if anyone were to ask for customized bicycle, the first thought would be NBIC. So, the only option for NBIC’s competitors to gain attention from customers was to increase their frame types and model sizes. NBIC also received considerable media attention because of its mass customization strategy, which further added to their brand value. They were featured in ‘Fortune”, ‘The New York Times’ and ‘The Washington Post’. Before they used he POS and PCIS system they were behind in sales over their competitors. After their implementation of the POS and the PCIS system, their sales increased dramatically and they over took their competitors. Operation policies that allowed to achievement of the objectives The operation policies which enables National Industrial Bicycle Company to become successful was its policy of developing a knowledge-based relationship with its customer by having a high level of involvement with their customers needs and requirement. It is this policy which led to the development and implementation of the POS system. Such learning relationships are fundamentally different from traditional CRM-style relationships, where the primary motivation of the firm is, to keep the customer for longer and to cross- or up-sell. When the company implemented the POS system, it firmly entrenched an imago of a company able to deliver custom products in the minds of it customers, something their competitor were never able to gain in this market segment. References Kotha, S. & Fried, A.  National Bicycle Industrial Company. Implementing a strategy of mass-customization strategy Kotha S, From Mass Production to Mass Customization: The Case of the National Industrial Bicycle Company of Japan Schroder, R. Operations Management, 6th edition. Irwin/McGraw-Hill 1999 In Strategic Management: An Integrated Approach by C. Hill & G. Jones, Fourth Edition, Houghton-Mifflin 1997. Mass customization, http://en.wikipedia.org/wiki/Mass_customization The Strategy Process: Concepts, Context, Cases (4th Edition) (Hardcover) by Henry Mintzberg, Joseph B. Lampel, James Brian Quinn, Sumantra Ghoshal Mass Customization: The New Frontier in Business Competition by B. Joseph Pine, II Review author[s]: Suresh Kotha Learn with your "Experience Experts" http://www.crm2day.com/editorial/50050.php Matsushita Electric (Panasonic) Introduces the Industrys First GPS-equipped Electric Bicycle http://panasonic.co.jp/corp/news/official.data/data.dir/en030617-1/en030617-1.html Knowledge Management http://www.co-i-l.com/coil/knowledge-garden/kd/whatiskm.shtml Strategic Management: An Integrated Approach by C. Hill & G. Jones, Fourth Edition, Houghton-Mifflin 1997. Also reprinted in Cases for Contemporary Strategy Analysis by Grant, R. E. & Neupert, Matsushita http://en.wikipedia.org/wiki/Matsushita Mass production http://en.wikipedia.org/wiki/Mass-production . Read More