Team 1 Week 1 Operations Management Sat Co

Sat & Co.: Market Orientation Operations Management – week 1

Beatrice Pacuraru Mihaela Falamas Catalin Clemente Teo Baluta Valentin Moinescu Mircea Spinei

Sat & Co.: Market Orientation The company •

Machine tool: power-driven machine, not portable by hand when in operation, which worked metal by cutting, forming, physio-chemical machining or a combination of these techniques.

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Metal-cutting machines include lathes.

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Modern machine tools were controlled by computers and were referred to as CNC machine tools.

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Sat & Co. was producing small machine tools since the end of the 19th century

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Since 1966 Sat & Co. set-up the lathe machine tool division.

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In the early 1990s the company set-up the CNC division.

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Its products were continuousely improved and enhanced and the build quality was premium.

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The company was selling its products for over 100 years in over 100 countries.

Sat & Co.: Market Orientation The services •

The company was providing support and service to all its customers, irrespective of the geography.

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To ensure high quality service it held a significant number of spare parts in stock, ensuring that it dispatched over 90% of orders received before noon in the same working day.

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Furthermore, prior to selling a machine, the company's sales presonnel would evaluate the buyer's needs and even, if needed, offer financing packages.

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As a result of the product and service, the company acquired a good reputation for its quality of machines and services.

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It can be inferred that the company was market-oriented as it had market-led skills necessary to meet cutomer needs.

Sat & Co.: Market Orientation The present situation •

From 1996 onwards the company saw a constant drop in sales in both the lathe and CNC divisions.

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The chairman, Sat Cartland, believed that one reason was because the company was focusing too much on technology to improve productivity and efficiency of the machines, adding constantly features that made the machines more expensive and more complicate to use. Sometimes these features were not useful at all to customers.

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Furthermore, the lathe division was not upgraded at all, the machines being very basic and not atracting customers.

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In early 2006 the company posted a loss of 50% of sales. The two business lines were struggling to produce at 50% of capacity.

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The management's team belief was that the company's sales were so low because it lacked a market orientation strategy and poor management of resources.

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John McGuire was hired as marketing director in order to implement the concept of market orientation.

Sat & Co.: Market Orientation The present situation •

The company sold internationally, the market being split between the U.S. (35%), the U.K. (25%), the rest of Europe (25%) and the rest of the world (15%).

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The Chairman wanted to expand the Indian and Chinese markets, taking advantage of the 10% annual growth rates of these economies. While he was sure that the product quality will overcome the price advantage of Indian and Chinese products, he was aware that the local producers had access to technology and capital, enabling them to catch-up in terms of quality.

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The growth in demand of machine tools was of 5% in 2009, with developing countries like India, China, Malaysia providing the majority of the estimated growth. Eastern European countries that just joined the E.U. were also seen as countries of high investment in upgrading existing factories. The U.K. was a mature market, the machine tool markets being highly cyclical.

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McGuire's job was to identify the problems and come up with his recommendations in order to turn around both divisions.

Sat & Co.: Market Orientation McGuire's actions •

McGuire started by evaluating the sales records of the company and finding out that 65% of all engineering shops in the U.K. had at least one lathe machine manufactured by Sat & Co.

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He wanted to survey the end-users of the machines to find out if: • they had experienced any technical difficulties with the functioning of the machines • they would try new, efficient machines • they would like the existing machines to be modified

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For this, 3,500 questionnaires were mailed to these customers to establish specifications of the machines and information such as size, accuracy and number of hours worked per week on a machine.

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300 telephone interviews followed in order to establish potential users' preferences such as color, country of origin, after-sales requirements, methods of programming and sources of CNC controllers. Also they were asked to recommend modifications to the existing machines.

Sat & Co.: Market Orientation Survey results •

The survey showed that the company was regarded as a superior lathe supplier in the U.K. and abroad, that it had a reputation of good quality and value for many and, also, that the company's lathes were considered to offer good resale value in general.

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Face to face inverviews showed that the market was ready to try something new in the lathe machine field.

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The data also showed that the demand will be of at least 1,000 machines on an annual basis, while Sat & Co. had a production capacity of only 300 machines.

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On the CNC side, McGuire was conducting regular audits to determine if the key attributes of a machine were being utilized effectively. If not, the reasons were discovered and the unwanted attributes removed in the next production batch, prices being adjusted accordingly. McGuire was determined to achieve market orientation by developing low-cost simpler machines.

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What was also discovered through an audit was that the market demanded a Flexible Manufacturing System (FMS).

Sat & Co.: Market Orientation Survey results •

82% of the survery respondents said they needed only two-axis spindles instead of three-axis ones on the CNC machines.

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The R&D department found out it could reduce the size of CNC machines by 15%, being closer to the most sought-after specifications.

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The data also showed precise machine specifications and exact corresponding selling prices.

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McGuire had now to develop the product with the technical specifications and specified price for the market. Only by respecting these requirements the company could recover from the loss of sales in the previous years.

Sat & Co.: Market Orientation Market orientation survey •

500 customers who used the machines in the past three years were randomly selected.

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They were asked to give their impression of the market orientation of Sat & Co. by selecting a number on the 7-point Likert scale (1-strongly disagree, 7-strongly agree). 1 was equivalent to 0% agree and 7 to 100% agree.

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McGuire completed the same questionnaire himself.

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The comparison between the two results showed that there was a gap between the customers' expectation and the company's delivery.

Sat & Co.: Market Orientation The dilemma •

McGuire was wondering if the company should invest in his plant to equip it to produce FMS. From the audits, FMS seemed to be expected by the market and McGuire knew that Sat & Co. could design and manufacture the product.

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McGuire also needed to find out the reasons for which Sat & Co., once known for high-quality machines, was being perceived as a non-market-oriented company.

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On the above two points, McGuire had to develop a set of recommendations.

Sat & Co.: Market Orientation McGuire’s view before the market orientation survey Top 5 improvements needed: •

Alignment between market orientation and product orientation.

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Communication with clients / full product suite presented.

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Sales to be oriented towards finding the best solution for the client, even if it meant disagreeing with the client.

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Service quality could use some improvement.

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Customers should not be pressured into making a decision but guided through information.

Sat & Co.: Market Orientation Market orientation survey results

Items Sat & Co. reveals our needs through customers' research. Sat & Co. produces and offers products that are truly satisfying our needs. Sat & Co. commits resources in R&D to ensure the quality of the products to suit our needs. In practice, Sat & Co. avoids conflics between market orientation and product orientation. We are aware of how the entire business of Sat & Co. can contribute towards creating value for us. Sat & Co. keeps its promises on services after sales, and delivery on time. Sat & Co. is prepared to disagree with us in order to achieve a better decision for us. Sat & Co. tries to influence us by information rather than pressure. A Sat & Co. Representative normally meets us once a year to assess our needs. Representatives from the manufacturing department of Sat & Co. interact directly with us to assess how best to serve us. Sat & Co. frequently polls our end-users to assure the quality of its products and services. Sat & Co. is slow to detect fundamental shifts in the British machine tool industry; e.g., competition, technology regulations. Sat & Co. tends to ignore changes in the product or services our organization needs. Sat & Co. reviews its product development efforts to ensure that they are in line with our organizational needs. Sat & Co. normally takes corrective actions immediately for any complaints. Sat & Co. is a market-oriented company.

McGuire's independent evaluation of his company (in percentage)

End-users' evaluation of the company (in percentage)

McGuire Difference interpretation

Market interpretation

100%

62%

38% No issue here.

Improvement needed.

100%

90%

10% No issue here.

Could be improved.

100%

76%

24% No issue here.

Improvement needed.

58%

52%

A lot of improvement 6% needed.

58%

62%

A lot of improvement -4% needed.

72%

42%

58%

67%

Improvement needed. A lot of improvement 30% Improvement needed. needed. A lot of improvement Improvement needed. -9% needed.

72%

81%

-9% Improvement needed. Could be improved.

100%

86%

14% No issue here.

Could be improved.

100%

86%

14% No issue here.

Could be improved.

100%

43%

57% No issue here.

A lot of improvement needed.

15%

76%

-61% No issue here.

A lot of improvement needed.

100%

62%

A lot of improvement 38% needed.

100%

57%

43% No issue here.

71% 100%

42% 71%

A lot of improvement needed.

Improvement needed, but could be worse.

A lot of improvement needed. A lot of improvement 29% Improvement needed. needed. Improvement needed. 29% No issue here.

Sat & Co.: Market Orientation McGuire’s view after the market orientation survey Top 6 improvements needed: •

The company should be a lot faster in detecting changes in the market and reacting to them.

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Alignment between market orientation and product orientation.

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Service quality could use a lot of improvement.

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Customers should be polled regularly on product and service quality.

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Complaints should be solved instantly.

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Product development should be in line with the customers’ needs.

Sat & Co.: Market Orientation Recommendations •

Invest into FMS in order to align with the customers’ needs.

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Improve complaint handling, solve instantly.

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Post-sales support should become again high-quality.

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Improve client communication through polls and surveys.

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Align with customers in product development.