Strategic Manufacturing Management
MANF6860- Term 1-2020
Case Question: After reading the following case and the assignment guideline, discuss the options of Singleton Electric in the light of the relevant material covered in Units 1-6 (specifically, core competency, capacity strategy). You should precede your detailed analysis with a broad analysis of the overall business situation.
Singleton Electric: Singleton Electric is a private Australian company founded 28 years ago, which produces industrial batteries for two main applications: specialised electric wheelchairs and electric golf carts. The wheelchair market consists of one major customer (an Australian company) which sell wheelchairs to people with unusual disabilities and which are custom-built to patients' specifications on a local basis. Batteries produced for this market may need to be customised in terms of shape and size and power delivered, although approximately 75% of the wheelchairs produced are suitable for operation using one of four different types of standard battery. The ability to provide customised batteries with short delivery times has meant that Singleton has developed a special relationship with, and has hence had virtually a monopoly of business with this customer. It also supplies customised batteries in lower volume to a small number of other customers. The golf cart market consists of a small number of major manufacturers that specialise in the manufacture of golf carts. These include one manufacturer in North America where sales of golf carts tend to be relatively seasonal. Batteries for golf carts are of standard design and the entry of overseas competitors from Asia and Eastern Europe have increased the degree of price sensitivity of this market.
Sales of “standard” batteries (to both wheelchair and golf cart markets) and “customised” batteries (wheelchairs only) over the past 5 years are as follows:
The plant currently works two eight hour shifts per day, which give it a capacity of roughly 115,000 pumps per year. A third shift can be worked with casual employees to meet additional volume and absorb seasonality of sales to the N. American market. However, since standard and customised batteries are produced on the same facilities, when these facilities are stretched, the delivery time for customised batteries can suffer.
The production process involved the stamping of battery grids from lead sheets, the preparation of paste from a mixture of lead oxide powder, water, sulphuric acid, and certain other chemicals, the infusion of the paste into the lead grids, welding of leads and associated connectors, and subsequent insertion into the battery case, fitting of the lid, and sealing. Since many of the materials used represent major potential health hazards, there is a very stringent emphasis within the company on health, safety, emission control etc.
The battery cases, cell lids, containers, electrical hardware and fittings are all purchased from relatively small local suppliers. The supplier of cases and lids has a close relationship with Singleton and was chosen on the basis of their ability to produce customised versions at relatively short notice. The materials cost of lead sheeting and lead oxide for both standard and customised batteries is about $60, and since these are relatively fixed price commodities, they are usually ordered from whichever supplier can deliver fastest. The remaining chemical components (sulphuric acid etc.) cost about $20 for a standard battery and are all ordered from local suppliers. The cost of casing for a customised battery adds on average a further $20 to the materials cost because of the increased cost to the supplier of customising the casing and lid to the required shape.
The average selling price for a standard battery is $140, and that for a customised battery is $600.
The management team at Singleton consists of the Managing Director (also the major shareholder) aged in his mid fifties, who has been involved in lead based battery manufacture for most of his working life, the Engineering Manager aged late thirties, who joined Singleton two years ago from another battery manufacturer, the Marketing Manager aged mid fifties, who has been with Singleton for 15 years, the Chief Accountant/Finance Manager aged mid-thirties, who has been with Singleton for one year after having worked for a large accounting firm, and the Manufacturing Manager aged late fifties, who has been with Singleton since it was founded. There is a total of 14 technical and administrative staff, and the workforce comprises a total of 25 fulltime and 15 part time staff, the majority of whom have been with Singleton for many years. Singleton has a always concentrated on paying relatively good wages and fostering loyalty amongst its staff by providing a “family” atmosphere and relying on promotion from within. Thus although many employees may be regarded as highly skilled in their own particular jobs, few of them, even the technical staff, have any formal qualifications beyond High School level
The total annual wages and salaries costs incurred by Singleton is approximately $4m per year. Ongoing running costs (power, water, council rates, effluent disposal, plant maintenance etc.) are about $1.5m per year and the annual depreciation cost of plant and equipment is currently estimated at $2.8. However, the current plant is ageing and maintenance costs are increasing. It is generally felt that much of the current equipment will soon need replacing
Singleton have for a number of years relied on the superior design of their battery and their process which has in the past meant a 20% less requirement of lead than their main competitors. This has allowed them to keep their prices to a competitive level, even though their volume of manufacture is relatively small. However, they are now starting to lose business to competitors, particularly in the golf cart market, which is raising some concern.
Various new types of battery technology are expected to be commercialised in the near future by some of the larger battery manufacturers which could pose a major threat. Part of Singleton’s current overall strategic plan is to evaluate the possible introduction of new battery technologies, and in particular to consider the purchase of the license to manufacture batteries using a new form of composite lithium cell technology developed in the USA. Few companies have any experience of using this technology even in moderate volumes, but it appears the minimum plant size if they were to replace their existing lead technology with lithium technology, would be a plant that would turn out about 200,000 batteries per year. Certain properties of the lithium compounds involved result in them posing even greater potential health hazards than lead-based cells, so very high levels of conformance to process guidelines would be required. The lithium process is also one that would easily lend itself to automation in some of the stages, meaning that only about half the labour force would be required. Potential investors are willing to put up the money for the new plant (about $15m) provided they can be assured this would be a sensible change in manufacturing strategy for Singleton to adopt. The company who developed the technology has not stated explicitly their requirements to grant a license, but it is expected to be based on a fixed percentage of the profits of every battery sold.
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