Part A: Summary
The case study examines the process of formation of the Application Specific Integrated Circuit (ASIC) division of Motorola Inc. As it states the increase in demand of semi custom integrated circuits during early 1980’s had the company to consider that its facility at phoenix was not adequate enough to cater to the projected sales adequately so the company decided to create a new division to fully exploit the growing market.
The case study further examines the organisation of the division in detail; the division consists of product engineering department (deals with customer complaints and technical aspects of the manufacture, the development of software related to manufacture and carrying out feasibility study), production planning department (schedules customer orders), marketing department (identifies initial prospects, forecast sales and quote price), new product department (gives estimate of production cost and translates customer specifications into products), Quality assurance department (responsible for quality of the product, operate not as inspectors but work in liaison with other departments to identify the main problem due to which rejection occurred), Manufacturing department (involved with actual manufacturing processes).
The case study than goes on to analyse its market consider the markets’ salient features. The study defines the accounting system to be slow and responsible for taking up a lot of employee’s productive time. The manufacturing system is divided into 6 steps with each requiring extensive record keeping.
With the help of pictorial representation it represents the lay out chandler plant (The ASIC facility for production). It also examines the cause of large inventories and how the standard cost system operates and the reasons why it cannot be taken in to use to its maximum as well as the problems faced by the management to gather data of 29 cost centres organise them and represent them meaningfully with the help of standard costing. The ASIC division is planning to change its current operation to Just in Time (JIT) though according to a manager it would be far more difficult than previously assumed.
The 9 cells of the factory are defined starting from assembly preparation up to its storage in warehouse or when it is shipped out. It was noted that not all chips manufactured went through the same manufacturing process some chips did not under go the same procedure. The case study describes all the processes in detail and with the help of pictorial representations it demonstrates its U-shaped path and what type of chips undergoes a certain process.
Lastly it discusses the concern of controller regarding the role of the management control system about the systems capabilities and the method by which the new system of JIT should be incorporated.
What are the key success factors for Motorola's ASIC Division?
One of the most important key success factors, perhaps, was the divisions’ consumer focus approach. This was in place even before the formation of the division but the formation of the division made it easier with the specific new product development department in the ASIC division. The market which the division was targeting to serve was a rapidly changing one with each computer manufacturer trying to differentiate their product. So it was important for them to have Integrated circuits which complement their systems excellently and were unique to them so that it can differentiate their product giving them an edge over their competitors.
As discussed above, the market to which the division caters was a rapidly changing one. So it was extremely important that the products delivered were not only on time but also in the shortest time possible. This means that the time taken for a product to be delivered i.e. from the time marketing department collects product specifications to the time first production prototypes are delivered, should be as short as possible.
This is primarily because for customers quick development time is of immense importance due to rapid introduction of new products in their markets. Timely deliveries were also important as some customers like Hewlett-Packard were developing just-in-time systems and any problem with the delivery time would result in their production system to come to a stand still.
The customers demand high quality products as in customers’ business this was of paramount importance. The quality assurance department together with the whole organization, due to the method with which it carries out its work, ensures this so that all the products delivered are of standard quality whether it is in terms of electrical problems or visual/mechanical problems.
Does a traditional standard cost system address these key success factors?
Traditional standard cost system itself has many problems which creates a lot of difficulties in the simple production systems. Standard cost does not fully address the ASIC divisions’ structure with its complexities, rapidly changing product specifications and quick delivery times.
As stated Material, labour, and overhead standards were updated twice a year and these were often obsolete because of the dynamic environment and the steep learning curves. As discussed, short times to reach consumers from time query was done and quick delivery times is one of the key success factors but the standard cost system that changes twice a year will not be able to take account of this.
The products developed are unique to customers a lot of times that means a lot of learning issues will arise as a number of new products would have been manufactured around the year.
Thus, the overheads are allocated according to labour hours which itself is affected by learning, so with uncertainty around the basis in itself it would be unwise to allocate overhead in the competitive environment the ASIC division is operating. In addition, as estimated 8 to 12 percent of the labours productive time was spent on record keeping which was partly because standard cost system was being used, again raising the cost not only because of labour time being wasted but also due to method of overhead allocation.
Although the cost is not of primary importance for the customers still if there is more than acceptable difference in the prices because of standard cost than the customer might be forced to reconsider their decision. This also hinders the achievement of key success factor; shortening lead and delivery times as if this time taken in record keeping if spent in production, the lead time and the production time can possibly be lessened from what it already is.
What are good measures of these key success factors?
A good measure for innovations, that is, number of new products developed during a period, as per customer specifications, can be by comparing the number of new products developed during the year by the number of existing products. This can also be done as in comparison of previous years, that is, number of new products developed during current year as compared to number of products developed in previous years.
This measure might not be as helpful as it may trigger the quest for development of new products ignoring existing profitable products or the products that were developed and whose production commenced at the end of previous year. Such products have practically just been developed and would have been profitable but if this ratio is predominantly used, it should be used as its importance cannot be denied, than the important factors, as assessed, can be ignored. Innovations as compared to industry standards, if available, can also be useful. These can be expressed both in the form of ratio and as a percentage.
Another key success factor regarding delivery time, lead time and product development time can be easily measured in comparison with previous years. Previous consignments or products delivered to same customer can also be used as a scale. Industry standards or the time taken by competitors both locally and abroad, as the company deals international clients also can be used as well. These can be expressed both in the form of ratio and as a percentage.
The number of products rejected can be compared with total number of goods produced. This way the cost that is being incurred for products rejected can be calculated also it can be monitored that the cost I not exceptionally high as compared to overall production so as to lead to losses. The number of products rejected in the current period can also be compared to previous periods. This way we can examine the pattern so as to ensure that the number of goods rejected is not increasing over time or the number of rejections are not exceptionally high in a particular period so that its reasons can be identified.
How would you control the plant using these measures and the current structure of the plant?
With the current structure of the plant it would be better if the innovations are made with the software design as is currently being done and the innovations made are incorporated with in it, as is being done. The new system, however, might require some changes
The difference in the time to market can be easily calculated by observing the time taken from inflow of product in to the plant up to the time it reaches the warehouse this can than be used as a basis for comparison. Also from the time marketing department finds a prospect to the time it reaches the plant for manufacture can also be measured.
The rejections can be calculated at the rejection area as well as any rejections made during the manufacture can be counted and than the comparison carried out. If the rejections are at unacceptable levels the reason can be easily investigated. Also if comparison is made from previous periods and the ratio is more than the last periods than it can be dangerous and possible causes can be identified if it follows a pattern. A possible cause can be aging machinery which is causing the rejections to increase, possibly in each period; the machinery such a case should be replaced so that possible loses can be avoided.
Works Cited Page:
- Motorola Inc. The Nature of Management Control Systems