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How Product Lifecycle Management makes a difference in your industry: 
AEROSPACE
AUTOMOTIVE
CONSUMER
CONSUMER ELECTRONICS
DEFENSE
EDUCATION
INDUSTRIAL EQUIPMENT
HIGH-TECH ELECTRONICS
LIFE SCIENCES
PLASTICS
SHIPBUILDING
TELECOM
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Value Opportunity Nine: Improving Asset Utilization By Kevin P. Hopkins The back-from-the-brink experience of Taiwanese computer maker Acer demonstrates that improving asset utilization can speed up product development cycles, reduce product costs, and increase company profits. The personal computer industry has unquestionably become one of the most competitive of all technology sectors. As recently as two decades ago, untold fortunes were waiting to be made as more than one hundred firms vied for consumer and corporate technology dollars. What a far cry this techno-centric world was from that envisioned by Ken Olsen, founder and chairman of computer pioneer Digital Equipment Corporation, when he declared in 1977 that, "There is no reason anyone would want a computer in his home." Now, computer penetration into American homes and businesses rivals that of technologies of much longer standing. Indeed, most consumers now spend more money on computers than on any other home technology. But the PC industry's success has brought its own set of difficulties. Rampant price competition has fostered an accelerating trend toward commoditization, driving many PC makers to use the same internal components as their competitors. The public's almost single-minded focus on price has left most of the original band of computer manufacturers in the silicon dust, simultaneously forcing the remaining players to develop other ways of distinguishing value--while continuing to drive their prices as low as possible. A Difficult Decision Acer, Inc., the Taiwan-based computer maker, confronted this very challenge a decade ago, at a time when its role as a global computing leader was being seriously called into question. Founded in 1976, Acer had entered the 1990s as one of a handful of computer manufacturers balanced precariously on the cusp between continued profitability and demise. That Acer not only survived but prospered since then is testament to a powerful cost-control strategy that product development software maker PTC calls its ninth Value Opportunity, "Improving Asset Utilization." (As discussed in previous columns, PTC's Product First Roadmap defines paths and strategies that companies can take to create and capture value for their firms.) Acer's situation in the early 1990s hardly could have been more difficult. Within the space of only a few years, computer product lifecycles had fallen from as much as 24 months to as few as six. Prices also had begun to plummet, with personal computer market leader Compaq announcing a 30% across-the-board price reduction in 1992. Acer's profitability challenges had become so severe, in fact, that the company was faced with an urgent choice of either re-focusing its sales efforts solely on the OEM channel or withdraw from the U.S. market altogether. Ultimately, Acer vowed to remain in the U.S. market, but corporate chairman Stan Shih established some very tough requirements for the company's success. In particular, he insisted that Acer immediately cut product development and manufacturing costs, significantly shorten product development cycles, and reduce by half its current inventory levels of five months. Asset-Utilization Improvements Acer's response to this challenge was an aggressive, three-stage asset-utilization improvement campaign. Stage one involved a series of product development-driven initiatives, including: •The development of a new, more flexible class of motherboard capable of accepting different types of CPU chips, drastically reducing the company's inventory requirements for both chips and motherboards. •The development of a screwless assembly process so that an entire computer could be built by snapping components together, significantly reducing assembly time. In the second stage of the company's asset-utilization improvement effort, Acer integrated these processes into what it termed the "Uniload system." That system--designed to increase the responsiveness of the product development function and to allow for aspects of component assembly to be moved offshore--provided for standard configurations for all components, easy unpacking, assembly, and testing, and movement of assembly closer to the point of purchase. The final stage of the asset-utilization improvement effort involved moving product assembly as close to the end-customer as practical. Operating on what the company labeled the "fast food" business model, Acer air-shipped smaller, high-unit-cost components incorporating fast-changing technology (representing some 50% to 80% of total product costs) directly to the local assembly locations. The larger, less-volatile items (like cases, monitors, and power supplies) it shipped by sea. The result: Acer substantially reduced inventory levels and shipping costs, more than compensating for the marginal increases in local labor costs. A Spectacular Success Acer's asset-utilization improvement initiatives proved to be spectacularly successful. Within less than a year, inventory turnover had doubled. Carrying costs and component obsolescence rates were slashed. U.S. manufacturing and delivery times were cut by almost half, from approximately 80 days to an average of 45. And inventory levels were reduced by 45%. Most importantly, Acer in 1994 turned a profit on its U.S.-based operations following three consecutive years of losses. The lesson that Acer learned from this experience was a very powerful one: designing personal computers to improve asset utilization can pay very large dividends in terms of faster product development cycles, lower product costs, and increased profits. That's a key premise of PTC's Product First strategy, and one of the main reasons why, a quarter century after its founding, Acer remains one of the world's top ten branded PC vendors. This is the ninth Value Opportunity highlighted in PTC's Product First Roadmap, which outlines product development strategies that companies can follow to create value through growth and/or profits. We hope that you have found the series of articles helpful in evaluating and planning your company's strategies and initiatives. |
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Copyright 2003, by The McGraw-Hill Companies, Inc. |
