Programmable Logic Controllers at Hypergol

1.) There are a number of ways to assess the success and potential for even greater achievement of Programmable Logic Controllers at Hypergol. One method that properly addresses key variables in this scenario is to utilize the “manufacturing audit framework” which is a synthesis of the work of such luminaries as Hill, Skinner, and Wheelright (Platts, K. & M. Gregory 1992, pp. 32-33). In this framework, the manufacturing system of choice is based upon key variable such as speed, cost, quality, flexibility, suppliers, and capacity among others. Each of these choices are contingent upon the amalgamated forces of “what the market wants”, “how the system performs” and balanced by the existent and potential opportunities and threats. Of all these factors, it is not possible to indicate one factor weighs more heavily than another; to do so would be to defeat the purpose of a contextual perspective of the a given firm in a specific market(s) desiring to achieve a certain outcome with specified inputs and tolerances. Despite these situationally defined criteria, there exists one common benchmark standard for success: firm profitability. With this in mind, the real outcome of the contest now becomes the ability of Hypergol to assess and meet the markets desire for product. Though the case presents only the barest of indications of “what the market wants”, by closely examining the data given for each for the PLC models, it seems a reasonable assumption that certain models are demanded more and also seem to be within the ability to the firm to produce and sell them without the expenditure of a disproportionate amount of resources. The table below illustrates this fact:

Model	%Revenue	Revenue (000 A£)	SysHours	% TotHrs	% Rev / % Hrs
P	3.2%	1970	29950	8.9%	35.66%
M	17.7%	11000	48125	14.3%	123.93%
C	21.1%	13090	84150	25.0%	84.34%
LC1000	5.3%	3270	65400	19.4%	27.11%
VF2000	52.8%	32850	109500	32.5%	162.65%
	100%	62180	337125	100%

Based on this rudimentary cost analysis, PLC model M and VF 2000 seem to be the ‘future of the firm’ in that each produces more revenue than the other products based upon the resources of the firm as measured by time (time is money). With this in mind, in order to maximize firm profitability, a number of recommendations emerge:

1. Determine if the ‘less profitable’ models are indeed the voice of the market or, perhaps they indicate an area of opportunity in which Hypergol is not getting their “fair share” of the total category revenue.
2. Shift sales and marketing efforts to these more profitable products using strategies such as reducing advertising/marketing funds to less to profitable models or perhaps by ‘upselling’ on value-added on enhanced features of the M or VF2000 models.
3. Rationalize the product line. For example, the two clearest cases of disproportionate time to revenue ratios is the P and LC1000 models. Perhaps there are ‘extraneous’ factors that influence these results such as a common part that was difficult to source or a common failure that resulted in rework. Also, these two models together accounted from only about 8% of the total PLC revenue yet demanded almost 30% of the firms resources to achieve this.

Regardless of the direction, the key element in strategy formation is that, whatever the decision, it should be purposeful and the reflection of the voice of how the firm chooses to compete in the marketplace. This maneuver could be deemed to seemed by a ‘shift’ in the operational imperatives at Hypergol or it could be defined along the lines of a “strategic” shift. While to many, using the word “strategy” is simply a bit of en vogue business jargon, the term actually represent the concerted and directed efforts of the firm towards a specific goal. Given this and given the nature of the assignment, it seems a reasonable assumption that Hypergol is not simply ‘shifting’ but wishes to fundamentally realign resources within the firm to meet it perception of anticipated market demand. To do this, conscious decision must be made that have both firm-wide consequences and employee-specific implications. 2.) The question of where to locate is perhaps the most difficult as there is less quantitative data to drive the decision. Despite this, as with any decision, a few criteria seem to emerge to at least evaluate the decision. In the case of Hypergol, the following factors should be considered:

1. Political climate
2. Availability of a skilled workforce
3. Precedence of a current operation
4. Proximity to major supplier or customers
5. Cost of labor

As Hypergol currently has three facilities, one each in Malaysia, South Africa and Poland, each with certain advantages. With this in mind, each of these, along with a US location should be evaluated based upon indicated criteria. Below is a table summarizing this analysis:

Factor	US	Malaysia	South Africa	Poland
Political climate	Best	Good	-	Good
Availability of a skilled workforce	Best	Good	Fair	Good
Precedence of a current operation	No	Yes	Yes	Yes
Proximity to major supplier or customers	Best	Good	Fair	Good
Cost of labor	-	Good	Best	Fair
Totals	27	30	27	27

For purpose of this analysis and to help increase the variance, each “best” was scored at 9 points, “good” as 6 points and “fair” as 3 points with “yes” scoring the equivalent of a “good” at 6 points. Using this system with the factors as indicated and weighted equally, the slight advantage goes to Malaysia. As the case indicates that current plant design in Malaysia is currently focused on production of these specific products, this plant would have the least retooling to do and would be best poised to take advantage of this shift in strategy. As the plant currently performs this type of operation, it is also a boon to the current HR systems and policies which would therefore not require adjustments. A final issue that merits addressing is that of the future implications to the firm if Malaysia operations were to be expanded significantly. Of particular concern to Hypergol is the possibility of creating a de facto drift of all operations to this site. Though this is a potential outcome, particularly if it is a desired outcome, it is also one that does not necessarily have to be the case. Though the operation for this particular line of products may shift, Hypergol is a firm that operates in a wide range of industries with a broad customer base. As such, particularly in a firm such as Hypergol, it is not essentially that they be located anywhere in particular so long as they are accessible to the end customer. 3.) From the information in the case, Hypergol’s strategy is not necessarily the entrance into a new market but a recognition of their own key competencies reconciled with a paying market. As such, it is recommended that they expand and realign human and physical resources of the firm to take advantage of their ability to command a profit on the relative ratio of inputs and outputs of their efforts. To implement this strategy, perhaps the very first step is a top-down recognition of this a the ‘new path’. From this point, resources should realigned to take maximum advantage of this. As success will be note in the playing field of the marketplace, the strategic direction of sales and marketing is key to getting orders. This should be simultaneously reconciled with procurement and manufacturing so that demand can be anticipated and customer service levels are increased. With regard to post-sale service, as PLC’s are not as specialized by the manufacturer (as are military or specialized avionic systems), support of customers should require minimal additional effort. This can be further aided by reductions in defect rates. According the data in the case, approximately 20% of the components time is spent in “testing dispatch”. This seems to be an extraordinarily high figure for which tremendous increases in ‘free’ profitability can be achieved. Even if no new direction is advanced upon, this area remain a source of tremendous waste. An additional boon to operations is the potential for improvements in lead time and in inventory reductions that would be incurred by the shifting of the firm’s efforts to just two products rather than ‘pushing’ five. Though all could be available, by forecasting the 75% of demand will come from just two products, variance in supply chain time, both coming and going, can be realized. 4.) Hypergol is a foreign manufacturer. The idea that Hypergol is expanding current operations to an place that it already is should not affect US relations. Though it is quite like that US government officials would dearly like to locate a Hypergol plant within their boundaries, such an action would likely have the end result of putting additional costs into product. From a purely market capitalist perspective, the cheaper that Hypergol is able to produce a certain product, the cheaper it will be to buy and this represents a better allocation of the limited resources that everyone has. This is the essence of the traditional “guns & butter” argument of economics in which the best producer for a given item, in essence, advances the frontiers of production for everyone. Though economics may indicate that a rational decision was made, sales and purchases decisions are not always made in the vacuum of logic. Specifically, if Hypergol does not place an operation on US soil, there is the potential for negative feedback in the largest potential market. With this in mind, the recommended strategy is to locate a dedicated sales or ‘sales & customer service’ office in one or two major US cities. One should be in close proximity to the nation’s capital and the other located in either Texas or California to provide both geographical dispersion and proximity to major US military bases. In addition, it should be clarified that Hypergol seems to have a unique marketing offering as indicated by their continuing success. Though, using Porter’s five forces, this would be an invitation for competition in the form of an attractive industry yielding above average returns, currently Hypergol appears to be lonely yet profitable position. The ‘relationship’ or ‘customer intimacy’ value proposition is a valid and wise decision and one that should be continually maintained, itself construing a simultaneously offensive and defensive maneuver. Works Consulted Hayes, R. & G. Pisano. (1994, Jan-Feb). “Beyond World-Class: The New Manufacturing Strategy”. Harvard Business Review, pp.77-86. Kaplan, R. & D. Norton. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press: Boston, Massachusetts, US. Platts, K., & M. Gregory. (1992). “A manufacturing audit approach to strategy formulation” in C. Voss (ed.). Manufacturing Strategy: Process and Content. Chapman & Hall: London, UK. Porter, M. (1980). Competitive Strategy: Techniques for analyzing industries and competitors. The Free Press: New York, New York. Skinner, W. (1992). “Missing the links in manufacturing strategy” in C. Voss (ed.). Manufacturing Strategy: Process and Content. Chapman & Hall: London, UK. Treacy, M., & F. Wiersema. (1995). The Discipline of Market Leaders. Penguin: New York, New York.

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