Module 4: Operations and Process Management | | Lesson 11 Unicon Concrete Products (H. K. ) Ltd Case Report April 1, 2010 Executive Summary Unicon is a major player in the flourishing Hong Kong market for pre-cast concrete products and Mr. Li, the deputy managing director is pursuing the idea of “blanket” approval for Unicon’s custom design concrete products with one of it’s largest customers, the Hong Kong Housing Authority. This proposition could offer savings to both Unicon and the customer but this could adversely affect the relations with other customers and the manufacturing operations.
If Unicon is to stay competitive in the ever expanding market, management must have a plan to expand capacity. This will become necessary to fend off new competition from mainland China. Statement of issues The main issue faced by Unicon is that its operations strategy may not be able to keep up with the changes that are fore coming in the market. Unicon must stay competitive now more then ever and make plans to utilize it’s strengths as the markets change. Another issue is the implication of product base regulation. How will Mr. Li’s proposal affect the way Unicon and its competitors do business with HKHA?
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Criteria From the case there appears no reason not to seek a blanket approval with a more standardized product. There is potential for huge cost savings but only partially to Unicon. The case shows that the savings per project could be HK$150,000. Unicon was manufacturing pre-cast products for seven housing blocks per year which would be a total annual savings of over HS$1 million. Analysis From the data provided in the case, one is lead to believe that Unicon can produce more than 7 blocks per year. I base this on the following analysis; 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 -32/41. 2 = 7. 9 blocks foe slabs. Facade Production; 1120 / block / 25 per day = 44. 8 days/block for facade capacity =324/44. 8 = 7. blocks for facade. In the Hong Kong market facades and slabs are in the early stages of their product life-cycle, partitioning walls and stairs are more advanced stages. Partitioning walls were first produced in 1972 and unlike facades and slabs are produced in standard sizes using a module design. The old method of pour in place walls and floors are mature according to this case. Demand for precast is rapidly growing because of the Hong Kong construction market. As the markets grow we are expecting to see more modular designs and standard dimensions emerge.
Unicon has to be careful since competitors from mainland China are expected to enter the market next year when barriers fall. There are advantages and disadvantages of the blanket approval approach. Who will actually benefit from the cost reductions? It may not be Unicon since competitive pressures may force the pre-cast construction companies to pass on some of their savings. The Hong Kong Housing Authority (HKHA) might look for some sort of rebate from the general contractors, this will insure that the cost saving measure is includes in all projects.
Unicon has to come up with a procedure so HKHA don’t get all the savings. Unicon’s largest customer HKHA is the driving force behind their manufacturing strategy. Unicon has to be careful that this will not impact the other customers or the direction of the market as a whole. Unicon seems to be concentrating on one customer. Unicon should see that both marketing and manufacturing are aligned so all customers benefit. I guess the biggest advantage is less time and energy would be needed if product designs were needed and Unicon could respond to customer demands sooner.
Facades and slabs could be a stocked item which would allow for immediate delivery. The main disadvantage in a “blanket” approval is that if Unicon gets it then the competitors would also get it, this stands to reason. This standardization could lead to all customers and then customers could interchange one firm’s product for another. This relates to product life-cycle. If an organization can react to design changes and made to order would no longer be a barrier, facades and slabs would be a stock item and purchase decisions would be based on cost and availability. Exhibit 1) This would open the doors for the low cost competitors from mainland China to flood the Hong Kong market. If the blanket approval is not pursued then product standardization will most like still occur but will be much slower. With regards to the capacity issue, the data provided in the case shows that 80 new blocks would be available for tendering from Sept. 1997 to Aug. 1998. If Mr. Li’s data was correct, there was a big shortage of capacity. The case indicated that the HKHA was looking to new suppliers to pick up the shortfall.
Unicon’s capacity was only 7 blocks per year, which represents 9 percent of the demand. Unicon must expand rapidly or risk new competitors getting part of the action. What was Unicon to do? Should they expand in anticipation of new business or should they let the market conditions dictate the expansion. The case leads one to believe that Unicon adopted the market condition approach and is now trying to respond. It is this reason that I believe it is too late to add extra capacity in Hong Kong since the market is opening. Unicon could become a low-cost supplier and they may still be able to expand volumes.
If Unicon was to add a second shift then there is the issue of labor. The case states that Unicon used contracted labor for approximately 60 % of its sales. Level production scheduling of partitioning walls could allow Unicon to use its own employees rather than contract workers. The varying schedule of made to order production could accommodate contract workers. There could be lay offs between the production of facades and slabs and this would be an added cost since severance pay was high in Hong Kong; if company employed workers were used. I believe Mr.
Li estimated this could cost an additional 10 per cent. If contract workers were used then the same workers could be moved to other jobs in other industries. Plan of action Push for the blanket approval which will lead to higher volumes. Unicon could also attempt to establish other barriers such as product innovation, long term contracts or other regulatory barriers. Take advantage of the Registered Structural Engineer (RSE) for each project. These guys won’t want to loose money from reviewing and revising submissions; get them on your side. Exhibit 1 Implications for Operations Strategy Strategy | | Category | | | | | | | | | |Facades & Slabs |Partitioning Walls | | | | | | |Demand | |Varying |Stabilized | |Competition | |Lead time, design and cost |Lead time and cost | |Product design | |Customized |Standardized | |Inventory | |None |Little | |Labor | |Flexible & highly skilled-contracted |Unicon employees & less skill |