Case Analysis - Managing Innovation at Nypro - Group E

MANAGING INNOVATION AT NYPRO, INC. (A)

MAY 14, 2014 BY – GROUP E

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 ...................................................................................................................................... 4

3.4.

Evaluation of Available Options ........................................................................................................ 4

4.

Recommendation.................................................................................................................................. 6

5.

Exhibits .................................................................................................................................................. 7

1

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.

2

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.

3.2.

Available Options

3

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 competition

No

Yes

Yes

NA

4

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 2. Initial capital investments would not be high 5

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.

6

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

39381

31019

26024

21986

7244

6826

5978

5546

16807

11481

9972

8035

2705

2415

1793

1005

12625

10297

8281

7400

1699

1001

1114

1616

-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

Gross Profit Expense Selling General and admin Research and development Operating Profit Other Income Interest Expense

Exhibit 2 : Relative Costs of Nestal and NovaPlast, Indexed at 100 Conventional Machine Capital Cost

NovaPlast 100

50

Tooling Set up time

100

25-30

100