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SIGNAL-TEK CORPORATION Background Signal-Tek Cor...




SIGNAL-TEK CORPORATION Background Signal-Tek Corporation was founded in 1963. Following a series of new product developments, mergers, and acquisitions, the company evolved into an $82.5 million corporation with wholly owned subsidiaries operating in Colorado, Indiana, England, and Germany. The Denver division generates approximately $30 million in revenues, primarily from signal generators. These general-purpose test and measurement instrumentation products are used in a variety of industrial, laboratory, and defense applications. The Denver division had enjoyed several years of market leadership in these products based on innovative design, low cost, and high product quality. However, in recent years, Signal- Tek?s product brand recognition has begun to slip due to its inability to meet competition. Based on timelier introduction of newer, low-cost products, two larger instrument manufacturers have been taking some of the division?s market share. Signal-Tek has been unable to respond quickly enough to these competitive pressures and, as a result, has had to reduce its work force by almost 15 percent recently It has become clear that the division must regain its market position by refocusing on its goals of timely introduction of low-cost, solid-performance, high-reliability instruments. The Opportunity In late July 2002, the U.S. Army released a request for sealed bid quotes on a new low-cost signal generator that would eventually replace several thousand pieces of test equipment that the Army had in the field. The company with the lowest unit cost for the instrument would get the award. The division estimated that the design and testing requirements alone would cost between $1 and $1.2 million and, based on the Army?s request, had to be completed within one year after the release of the contract. The initial award included a first-year commitment of 900 units with a second- and third-year requirement of an additional 900 units each year. These additional requirements were to be awarded at a future date. Since the request also included an option to double the requirements in each of years two and three, the contract could be worth 4,500 units over the next three years with the potential of even more as the Army eventually replaced its entire field stock. In reviewing this request, the Denver division saw its opportunity to develop the most utility/cost-efficient signal generator that had been built to date. However, given the potential volume of product that was at stake, Signal-Tek also recognized that competition for the contract could be very heavy. Marketing inquiries confirmed that the two competitors that had recently been taking market share, plus one foreign competitor, were planning to bid the contract. The division felt that the price of the unit would have to be under $1,900 in order to have a real chance at winning the award. The bids were to be opened by the Army on August 25, 2002. Thus, the division had only enough time to make cost estimates based on current materials and labor standards used in similar products, rather than on a detailed analysis of the new product design. Typically, the cost of the division?s products was 50 percent materials and 50 percent labor and overhead. Costs, when compared with the estimated required selling price, left a very low margin on the product. However, the decision was made to proceed with the bid with the expectation that somehow it would be possible to reduce the unit cost during the design and development stages. The price for the first 3,600 units was established at $1,799 each, with a reduction in price made available for units in excess of 3,600. The Supply Management Environment The supply department at the Denver division consisted of a supply manager named Barry Etcher and a staff of five buyers?two senior buyers and three junior buyers. Although this staff had experience in buying electronic components, neither Barry nor any of his buyers had any formal engineering background. Therefore, the engineering staff rarely worked with the supply management group during the design and prototype stages of new products. Typically, the supply management group would become involved at the point just prior to the new product being turned over to manufacturing for preproduction runs. By this time the design had been fairly well completed, frequently requiring parts that were not currently used by the division. In addition, the engineers had already spent a considerable amount of time talking with suppliers about new products that were being developed by these potential suppliers and how these items might enhance the new design. After the Army reviewed the bids, Signal-Tek was awarded the contract. The division?s management now had to focus on the issues of limited design time and the necessary cost reduction programs. 1. How can early supply management involvement assist in low-cost and timely new product development? 2. How does supply management?s involvement enhance an early supplier involvement program? What are the potential benefits? 3. How can the division increase cooperation/communication between the engineering and supply departments? 4. How will standardization improve the new product development process? 5. How does more effective supply management involvement change engineering?s role? 6. What can the division do to help expand supply management?s contribution? Dana Collins and Christine Childers developed this case under the direction of Professor David N. Burt.


Paper#9150 | Written in 18-Jul-2015

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