MANAGING INNOVATION AT
NYPRO, INC. (A)
MAY 14, 2014
BY – GROUP E1
Table of Contents
1. Executive Summary ... 2 2. Introduction ... 3 3. Case Analysis ... 3 3.1. Current Situation ... 3 3.2. Available Options ... 3 3.3. Assumptions ... 43.4. Evaluation of Available Options ... 4
4. Recommendation ... 6
2
1. Executive Summary
This report examines and provides analysis of the options available to Gordon Lankton, president and majority owner of Nypro Inc., for incorporating a new implementation process using the new NovoPlast machine.
The analysis takes into consideration a lot of factors such as the pros and cons of each option, the past experiences of implementing new technologies (MRP2), the organizational culture, and the way innovation is perceived and rewarded in the organization.
All the three options were analyzed carefully alongwith an option of not testing Novaplast at all and finally the recommendations are as follows – use a hybrid solution of options 2 and 3. The focus is on piloting the integration of the new technology successfully at a few plants – Clinton and approx 3-4 more plants so that the test is comprehensive and covers different markets. Thus, we would optimize the capital investment; ensure that the new technology is tested fairly well by competing teams and in different markets.
3
2. Introduction
Nypro Inc. started out as a small molder. Its new General Manager, Gordon Lankton changed its strategy in 1962 to target large-scale molding jobs with demanding and technologically progressive customers. Its customer count dropped from 700 to 50 large customers but per customer revenue jumped from $60000 to $4 million.
Its strategy was to operate close to customers, hence its decentralized location and maintain high quality and delivery timelines. Its production processes were designed to to efficiently produce high volume low variety jobs and low volume high variety jobs were contracted out to third parties.
Nypro was very Innovation Centric organization. It believed in ‘Innovation through Competition’ amongst its various plants. Nypro applies the 7Rs to influence and shape the innovation. Nypro locates the plants near the customers to avoid delays and reduce the lead time and cost. Nypro manages customer relationships by implementing integrated teams (Nypro engineers and engineers from the client company) known as the Development Team. To reconfigure the existing processes Nypro develops Continuous Improvement Teams and so on and so forth.
However, there was a feeling of gradual shift in competition at Nypro. Nypro’s marketer’s felt that they needed to reduce delivery time significantly to hold onto its market share as well as acquire new small players. This was a shift in their business strategy again – initially they were catering to large number of customers, then changed to few high-volume customers and presently they felt they needed to upgrade their production capabilities to capture the new market.
Lankton, on one of his annual trip, came across the machine Novaplast which could handle variety of molds in a very short time. Lankton perceived its utility in Nypro, and was considering how and where to disseminate the revolutionary molding machine, NovaPlast, across the company.
3. Case Analysis
3.1.
Current Situation
Nypro is a profit-making organisation (refer exhibit 1). Its business strategy is to product high-volume outputs for small number of customers. However, it is but felt the shift in market competition. To be able to capture new markets, it had to improve upon the delivery times drastically.
Lankton, wanted to test the new machine he had come across, Novaplast, in his plants. He wanted to understand if it was the answer to the market requirement of high variety low volume jobs and was analyzing various options for the same.
4 I. Build a new plant that would employ only Novaplast machines
II. Install two or three machines in each of Nypro’s plants
III. Do not roll Novaplast out across the company, but focus on making it successful at a single plant IV. Do not adapt Novaplast machine
3.3.
Assumptions
1. There was sufficient market demand for high-variety, low-volume goods in the market
2. There would be expertise built in Nypro for piloting the integration of the new machine with the plants
3. Nypro’s internal innovation wave would ensure that the new machine, if proven successful, is adopted in other plants and there was no push required from management to adopt the same 4. Different locations had differing customer requirements for parts and hence the new machine
had to be tested in more than one location for the test to be comprehensive
3.4.
Evaluation of Available Options
Comparison Attributes
Option I - Build a new plant for only Novaplast machines Option 2 - Install two/three machines in each of Nypro’s plants Option 3 - Focus on making the Novaplast
successful at a single plant Option 4 – Do nothing Against Decentralization policy Yes No No No
Focus on Customer No Yes Yes Yes
Production Yes Yes Yes No
Risk Multifold Multifold Limited NA
Initial Capital Very high Very high Less NA
Smooth Integration NA No Yes NA
Promoting internal
5
Detailed Analysis of the options:
I: Build a new plant that would employ only Novaplast machines
Pros
1. Most popular with senior management
2. Management can closely track the progress of the integration of the Novaplast machine in a single plant
3. Knowledge & Expertise around the machine & its integration can be concentrated in a single plant, hence learning curve is steep within the plant
Cons
1. Goes against the company’s decentralization policy of having plants closer to their customer 2. The segment, for which the machine is being targeted, is time sensitive and if Nova-plast
machine is installed in a single plant then the transportation cost and time would be too high. This would ultimately defeat the purpose of procuring the machine
3. Customer focus would be lost as the plant would not be closely situated with the customer
II: Install two or three machines in each of Nypro’s plants
Pros
1. Multiple teams would work competitively to integrate the Novaplast machine. This may lead to better utilization of the machine and faster integration of the machine
2. Closer to the customer and hence may help in acquiring new customers Cons
1. Initial capital investment would be high
2. All plants may not be willing to accept the technology at its face value. Hence, there may be an initial resistance in the company-wide acceptability of the new machine
3. Expertise on the machine needs to be replicated across all the plants
4. Risk is multi-fold. If the machines prove to be a failure then the capital cost invested for installing these machines would be a complete sunk cost
III: Do not roll Novaplast out across the company, but focus on making it successful at a single plant
Pros
1. Testing and proving the integration of machine at a single plant may instil confidence in the other plants to replicate the new technology
6 3. Expertise can be concentrated to a single plant initially, which can be replicated across all the
locations once the new machine is proven to be successfully integrated 4. Risk would be limited as the new machine would be tested in a single location
5. The company can spread awareness, about the improved and faster processes, among its customers. This would give it time to get customer orders whilst implementing the new machine in the other plants
Cons
1. There would be a delay in rolling out the technology at different locations if the new machine is proven to be successful
2. If the testing is unsuccessful at Clinton plant, then the entire implementation would be stopped without the machine’s integration being tested in other locations
IV: Do not roll-out Novaplast at all in Nypro
Pros
1. Nypro’s business strategy was to cater to high volume low variety requirements. It would need to shift its business strategy if it wanted to use this machine
Cons
1. The market demand was low volume high-variety parts. If Nypro did not adapt itself to the changing market, then it would lose its position as one of the market leaders
4. Recommendation
Our recommendation after doing an analysis of the various options is to use a combination of options 2 and 3. The focus is on piloting the integration of the new technology successfully at a few plants – Clinton and approx 3-4 more plants spread across geographies.
This hybrid approach brings the following benefits:
1. Rigorous Testing by multiple plants
2. Testing with customers from diverse geographies. Customers from different geographies have different needs
3. In this case, test failure at one plant does not impact its testing and implementations at other locations
4. Success at a few plants leads to testing and implementation at other plants too, leading to maximization of overall benefits.
7 If the new technology – Novaplast machine, emerges successful then the other plants will also be encouraged to use it because of the ingrained virtues of internal competition at Nypro. The fact is that “Nypro’s internal market had a great track record at spotting winning innovations”.
5. Exhibits
Exhibit 1 : Balance Sheet Year Ended
($ in 1000s) July 2 1994 July 3 1993 June27 1992 June 29 1991
Net Sales 165893 135829 119856 100201 COGS 126512 104810 93832 78215 Gross Profit 39381 31019 26024 21986 Expense Selling 7244 6826 5978 5546
General and admin 16807 11481 9972 8035
Research and development 2705 2415 1793 1005
Operating Profit 12625 10297 8281 7400 Other Income 1699 1001 1114 1616 Interest Expense -1502 -846 -978 -1216 Interest Income 450 260 417 515 Equity 605 464 202 -864 Minority Interest -77 -97 -13 152
Income before taxes 13890 11700 9508 7603
Net Income 10826 8506 6506 5153
Exhibit 2 : Relative Costs of Nestal and NovaPlast, Indexed at 100
Conventional Machine NovaPlast Capital Cost 100 50 Tooling 100 25-30 Set up time 100 <1 Run Time 100 50 Staffing 100 20