INJECTION MOULDING

Injection moulded parts can be produced with; ribs, varying thickness and good surface finishes using all thermoplastic materials.  The orientation of molecules and reinforcement occurs during the process.  High pressure, nonuniform polymer shrinkage and orientation can lead to warpage and shrinkage over ribs and bosses.  Warpage is most apparent with crystalline materials and with large, flat parts.  Methods of controlling these effects are described below.

Plastic granules are softened during injection moulding and forced under pressure into a cold mould through small orifices or gates.  Pressure is maintained on the material after injection is complete so as to reduce shrinkage of the ribs and bosses as the material cools.  Pressure is higher at the gates because it will not transfer effectively through the compressible and rapidly cooling melt.  The additional packing pressure leads to a higher density of material near the gates and causes internal stresses.  These stresses tend to be partially relieved when the part is removed from the tool, resulting in warpage.

The plastic melt must flow from the gates, through the narrow gap between cooled mould surfaces, to the edge of the tool.  The gap becomes narrower as the material flows because some of the melt solidifies at the mould surface.  The pressure, flow rate and distance between the mould faces must be great enough, and the material viscosity low enough, to fill the mould before the solidifying material closes off the flow path. For each material and part thickness, there is a maximum practical flow length from a gate.

High pressures and narrow flow paths increase the orientation, which becomes greater as the gap freezes off.  Therefore, the orientation at the centre of the part wall is much higher than at the surface.  For the same reason, orientation is highest near the gates.  The gates should not be areas that are likely to suffer impact or other stresses, such as chemical attack.

The maximum practical thickness of the part is about four millimetres.  Above this thickness, cooling time becomes excessive.  The minimum normal thickness for injection moulding is about one millimetre.  Below this level, the party cools before the tool is filled and orientation is excessive.

The largest readily available injection moulding machines have a 3000 tonf clamping force, which restricts part size to about one cubic metre or less, for more difficult and filled materials. The flow length of the plastics from any one gate is limited to about 500mm with a 3mm wall thickness.    Therefore, multiple gates must be used for large parts. Gate design and position are very important for reducing part warpage and add to the complexity of the orientation effects.

The surface finish of injected moulded parts replicates the mould surface as it cools in contact with the surface, except over ribs and bosses.  Part design must be aimed at keeping ribs and bosses away form the back side of visible surfaces, reducing material in the rib root.  With filled or reinforced materials, the surface tends to be dull shows flow marks.

Cycle times vary from less than a minute to five minutes.  Injection moulding is the most useful thermoplastic processing method.  However, there are size limitations and a tendency towards warpage in flat parts.  Shrinkage over ribs can be designed around.

INJECTION COMPRESSION MOULDING

Injection compression moulding is sometimes known as coining.  The plastic melt is injected into the tool, which is held to a slightly greater opening than the ultimately desired part thickness.  As the amount of injected material approaches the desired part weight, the tool is closed to compress the material and to fill out the tool.

It is important for surface quality that the tool closure starts before injection stops and that the injection be completed before the tool is fully closed. This ensures that the material flow front does not stop.

Pressure requirements and orientation effects are less because material flows into the tool with the tool surfaces further apart than normal.  The rate of injection can be higher because the flow path is more open.

As the tool is closed down to the final part thickness, the melt is squeezed to the edges of the tool.  Orientation is less, because the final melt is not being forced through a narrow channel by high pressure from the gate.  Packing around the gate is eliminated as the injection is stopped before the tool is full.  Flash is reduced because their is no sudden pressure break, such as occurs in normal injection moulding when the tool fill is completed.

Long glass fibre, up to fifty per cent of fifty millimetre long, can be handled if properly formulated, because the lower injection pressures and larger gates allow the fibres to pass through more easily.  With lower built in stresses and less orientation, parts tend to exhibit much lower warpage when removed from the tool and less distortion and stress cracking in service.

Injection compression moulding is most useful for large area parts up to 1.5 square metres and for reinforced components requiring minimum warpage.  Sinkage over ribs is bad, or worse than with conventional injection moulding, because packing additional melt into ribs and bosses is not practical. However, the ability to add reinforcement could overcome the need to use ribs.

Although it is not widely used, injection compression moulding does offer the opportunity to overcome some of the size, orientation and reinforcement limitations of normal injection moulding. Injection compression moulding avoids the pressure peak obtained during normal injection. This allows larger parts to be made on the same tonnage machines as smaller parts. Internal stresses are lower because of a more even pressure distribution.

Flash is minimised, but a vertical flash tool is necessary.  This would normally have only one large, centrally located gate. Orientation is nearly eliminated. The need to use a vertical flash tool for this process limits its ability to be used for many parts, because of part shape.

HOLLOW INJECTION MOULDING

Hollow injection moulding is a relatively recent development.  High pressure gas is injected into the polymer melt flow at the nozzle of the machine or at the gates of a hot manifold system. The gas flows through the areas of lowest viscosity at the hotter centre of the melt.  Polymer injection is stopped before the part is full and this allows the gas to fill out the molten areas.  Final filling of the part is by gas pressure.

The molten areas must be designed to form a continuous path from the gate and along the ribs for the gas pressure to be effective to the extremities of the part.  Ribs must normally be widened at the root to allow for air passage.

Rib shrinkage is reduced, or eliminated, by this process.  Internal stresses and flashing are reduced, because the pressure peak is also eliminated, and this reduces warpage and finishing costs.  Pressure on the mould is also reduced.  Therefore, much lower machine clamping tonnage is necessary and the production of longer parts should be possible.

Surface finish is similar to that found in normal injection moulding, with the added advantage of reduced rib shrinkage. The process appears able to handle similar materials to normal injection moulding.  Limitations on reinforcement are similar to those of normal injection moulding.

Hollow injection moulding may require heavier wall sections than normal injection moulding and the process can be considered as being between normal injection moulding and foam injection moulding, with an improved surface.  Various alternative processes, using the melt stream injection of liquid or solid blowing agents, have been considered.

FOAM INJECTION MOULDING

Foam thermoplastic parts can be produced by adding a heat­activated blowing agent to the plastic granules or by injecting gas into the polymer melt in the injection moulding machine.  Foaming does not occur while the melt, containing the gas, is under high pressure in the injection machine barrel.  When the melt is injected into the mould, the trapped gas can expand to produce a foam.

To achieve foaming, the part thickness must be at least four millimetres and, for low densities, a minimum thickness of six millimetres is necessary to achieve a reasonable foam structure.

Cycle times are much longer than with other processes because of the greater part thickness.  This is sometimes balanced by feeding more than one tool from each injection unit.

Typical foam parts have a surface made up of collapsed cells, giving a swirl pattern similar to wood.  A major advantage of the process is that the foaming action completely fills large ribs and bosses, leaving a flat surface.  This is an excellent system for articles requiring a massive internal rib and boss system for stiffness, provided a high gloss finish is not required.

SANDWICH MOULDING

Sandwich moulding is used to produce parts with a skin of one material an a core of a different material. The skin material is normally unfilled and is chosen for its good surface characteristics, while the core material is usually foamed to eliminate sinkage or reinforced to increase stiffness.

The basic process relies on tow injection units connected, through a switchable valve, to the gate system of a tool in a single clamp unit.  The skin material is injected and this is immediately followed by injection of the core material. The core material pushes the skin material to the extremities of the mould, laying down a solidifying layer of skin on the cooled mouls surface as it passes.

With a reinforced core, the total thickness must be about one millimetre thicker than for normal injection moulding.  Size limitations are similar to those found in normal injection moulding, but multiple gating is difficult because the flow fronts always consist of skin material.

COMPRESSION MOULDING

Compression moulding is one of the few thermoplastic processing methods that allows the use of very long, or continuous, reinforcement.  Flow moulding and stamping are two forms of compression moulding.

Flow moulding involves heated plastic, moving in three dimensions, under the pressure exerted by the cold mould to fill the mould, carrying any reinforcements with it.  Ribs and bosses are filled with plastic and reinforcement, but little true control of reinforcement orientation can be achieved, even though oriented continuous fibre is used in the starting material.

Stamping is the deformation of a heated sheet of plastic under the pressure of a cold mould with minimal flow of material or change in reinforcement orientation.  Only single thickness parts are possible.

THERMOFORMING

Thermoforming is the forming of heated plastic sheet by the application of air pressure (pressure forming) or a vacuum between the heated sheet and the tool. The atmospheric pressure forces the sheet onto the tool, where it cools and retains the tool shape (vacuum forming).

It is impractical to form a reinforced sheet because of the low pressure involved and the tendency of the sheet to tear. Orientation and crystallisation effects can be used to strengthen or modify the physical properties of the plastic material, but such techniques are of interest only for low-cost food containers and similar items.

CONVENTIONAL BLOW MOULDING

Conventional blow moulding cannot handle reinforcement.  The only effect on the physical properties of the material caused by the processing is the tendency to orientate the molecules in the direction of the extrusion head. This can ultimately lead to failure of the product due too splitting in the direction of flow when subjected to impact or stress corrosion.

INJECTION BLOW MOULDING

For injection blow moulding, an injection moulded preform is used instead of an extruded parison.  The technique is particularly useful as a precursor for stretch blow moulding, in which blowing is carried out at lower temperatures with mechanical means or preform shapes to ensure that biaxial orientation takes place. Stiffness and strength are significantly increased by this process, as are other properties, such as resistance to the transfer of gases.  Most carbonated beverage containers make use of this biaxial effect.

ROTATION MOULDING

A plastic paste or powder is placed in a hollow metal mould, which is then heated and rotated so that the plastic melt coats the inside of the mould.  The mould is then cooled while still rotating. Parts produced in this way are difficult to reinforce because the fibres tend to separate from the plastics. Internal stresses are very low, but there is a risk of polymer degradation due to exposure to air. The process is used for decorative, nonstructural parts or as an alternative to blow moulding.

I originally wrote this article, “Venture opportunity screening” in November 2003.

An opportunity has been screened for the export of handcrafted goods from Singapore and the venture appears attractive. New technology and new business processes are used by the venture to provide small retailers of antiques clocks, gifts, handicrafts and home décor with handcrafted goods from Asia by 15 Kg air parcels, delivered in 7 days. The average value of each consignment is S$800 and credit card payment, with order, gives UK retailers 4 weeks to 7 weeks credit with the card company, whilst the venture is assured payment by VISA and Mastercard monthly. Direct mail and telemarketing are used to create and penetrate the market and bilingual staff are close to Asian suppliers and possess superior customer service skills.

A quick screening of the new venture identifies the potential market of small UK retailers and the gross margin is estimated to be 50%. The competitive advantages identified are identified as low fixed costs, control over costs, location and people advantages. The value created is 10% profit after tax and an IPO exit mechanism is foreseen after 3 years.

The opportunity concept takes advantage of the recent halving of prices for Transpacific freight and international call costs in the last couple of years and new techniques for receiving assured payment from international customers. The new venture strategy is to penetrate 10% of the market of UK retailers who sell antiques, clocks, gifts, handicrafts and home décor.

The market profile is of reachable customers who seek product variety. The competition is fragmented and market sizes are estimated as S$20M, S$80M and S$100M in the UK, US and Europe, respectively. The venture economics profile is of low capital requirements and favourable free cash flow characteristics. The time to break even is 15 months. The IPO exit mechanism is estimated to harvest S$2M for the founder in three years. The venture provides a good fit with the goals of the founder and a bilingual team will be created within the first 2 years of operation. Strategic differentiation from the competition is by superior customer service, use of technology, pricing and product quality. The market entry strategy is to create customer awareness that it is now possible to quickly receive quality Asian goods in small quantities at a competitive price from the newly formed company.

The reasons for making the company believe that the idea is an opportunity are concerned with the main components of customer need, premium pricing, underlying value creation proposition, market niche and product mix. Small UK retailers need a variety of high value products to differentiate themselves from the larger UK retailers and to compensate for their lower lever of sales activity. They are required to purchase goods in modest volumes from wholesalers and UK manufacturers to realize wholesale discounts and are prepared to pay a premium to reduce their investment in inventory. The new venture has an underlying value creation proposition of supplying UK retailers direct in more frequent, smaller volumes to reduce inventory and to take advantage of lower freight costs and international telemarketing call costs. The marker niche of UK retailers selling antiques, clocks, gifts, handicrafts and home décor is chosen to avoid dealing with the end-user consumer, whose average order value would be unlikely to exceed S$100, unacceptably increasing the administration costs. The product mix is carefully chosen to include only those items whose sales price to weight ratio is high, to ensure low air parcel distribution costs (as a percentage of the selling price). There are currently no substitutes for the marketing mix of premium priced products promoted by direct sales and telemarketing from Singapore.

The new venture seeks to improve upon the existing value chain by eliminating the warehouses of UK wholesalers. This is achieved by employing the ‘just in time' distribution technique that has been successfully used within manufacturing industries for the last 20 years to reduce inventory costs. The product strengths are the uniqueness of Asian designs, handcrafted features, unfamiliar materials, unusual colours, peculiar symbology and aesthetics. The product weaknesses are unproven demand, freight costs, fumigation certification for wooden items, humidity control requirements and the non-uniformity of designs. Existing competitors in the industry have been assessed. Direct mail costs are estimated to be S$1,000 per thousand contacts, telemarketing IDD call costs are S$10 per hour and the web-host charges 1½% per transaction and S$70 per month. The distribution costs have been estimated and are 22% of sales. Value chain physical, margin and information flows have been mapped and they reveal that the suppliers benefit from high percentage margins, which are moderate in absolute dollar terms.

It's estimated that the new venture will capture ¼, 1, 2 and 5% of the market in years 1, 2, 3 and 4 of the venture. The business goal is 10 % of the market, with sales of S$2M, in 5 years. The product cost represents 36% of the sales price, gross margin is 36% of the sales price, fixed costs are 16% of the sales price and profit before tax is 12% of the sales price. Resource needs to launch the company are modest. The cash flow conversion cycle has been forecasted and a preliminary cash flow analysis has been created. The break-even chart shows that the venture needs to ship three consignments every couple of days (or 28 consignments per month) to break even.

Capital will be raised for the business in two stages, at launch and after three years of operation by way of an IPO. The launch capital of S$100,000 is to be invested by the company owner. The market capitalization for the IPO, after 3 years, is estimated to be S$2M. This is based upon forecasted earnings (net profit after tax) of S$0.1M for 2007 and S$0.2M for 2008, giving a P/E ratio of between 10 and 20. The IPO opportunity will attract investors from Singapore government agencies, institutions and individuals. The company owner intends to harvest the venture by means of selling the company via the IPO. This is estimated to occur in three years time, in January 2007. The harvest prospects are good if the forecasted growth and required margins can be achieved. The company would be source of strategic value to exporters of other products based in Singapore, or to importers based in the UK. As there are no other firms currently delivering this product and service mix, a company contemplating entry may be a logical buyer. The business asset requirements are low and, if the owner decided to exit, it would cost less than S$20,000 in lost lease deposits and depreciated fixtures, fittings, equipment and other venture launch expenditures. This amount seems reasonable, with respect to the venture's potential and risk. Expenditure after launch can be adjusted to match the level of sales activity witnessed, so as not to run out of cash before securing enough profitable customers to sustain a positive cash flow.

The strategic analysis of the competitive landscape estimates that the four competitor categories are large UK importers with warehousing, specialist UK manufacturers, UK manufacturer's brokers and internet hobbyists with no marketing who have market shares of 50%, 25%, 20% and 5%, respectively. Marketing tactics for each competitor vary. Profiles of the competition in year 2003, for price/quality and market share/profitability have been created. The main manufacture of the handcrafted products, by definition, is not subject to technological change. However, the required quality assurance, fumigation and humidity control processes involve technology that will take six months to two years to develop, implement, install and maintain. The new venture has the competitive advantage of being in close proximity to the suppliers of the goods and an additional advantage can be gained by hiring staff who speak Mandarin and Indonesia Bahasa. The new venture is also able to work with its suppliers to assure quality and meet fumigation and humidity control requirements. The new venture can be price competitive if the advantages of low fixed costs, zero/low inventory costs, low supplier costs and higher customer value (through increasing their inventory turnover) more than compensate for the new venture’s higher distribution costs of delivery by air parcel. The new venture’s marketing positioning, relative to the competition, has been chosen. UK specialist manufacturers and manufacturer's brokers are vulnerable to competitors, like the new venture, being able to offer good quality substitute handcrafted product designs from Asia. Once penetrated, this section of the market will always remain vulnerable to the new venture’s competitors and they will lose market share if the quality of the new venture’s products can be maintained. Another vulnerability of the new venture’s competitors is in the creation of awareness in UK retailers that handcrafted Asian goods can be procured direct from the new venture.

The founder's vision is to change the way many goods are exported from Singapore, by offering superior customer service and good quality products, using staff skilled in CRM and by using new business processes. The company aims to inspire its staff through leading by example, on the job training and by continual employee attendance at CRM business management training seminars and courses. The founder has many years of international business management experience with a large MNC throughout America, Asia and Europe and many years of experience in project management and engineering in Europe with various companies. He is very knowledgeable about logistics, procurement and sales and possesses the skills required for the venture's success. Additional bilingual personnel are required in Mandarin, Bahasa and English. These new staff members will be attracted to the venture after the first six months of launching the company. The founder has previously managed procurement and export of industrial products from America, Asia and Europe.

Significant assumptions are made in the screening of the new venture. It’s assumed that the sales projections are realistic and that customers will purchase the goods without first being able to touch and see them, apart from the photographs and specifications in the new venture’s catalogue. The ability to recruit local staff with good customer service skills and understanding of UK dialects, names and customs is assumed. It’s also assumed that the implementation of supplier quality assurance will be successful and that customers accept the new venture’s terms of payment. The downside consequences of invalidity to these assumptions are lost growth opportunities if sales projections prove to be unrealistic and the company could be forced to cease trading if it is found not to be possible to recruit local staff with good customer service skills and UK knowledge. If product quality cannot be controlled then customer returns and lost trade could cost several tens of thousands of dollars in refunds to the credit card companies, who demand 100% customer refund guarantees. The maximum cost of liquidation, to the founder, is less than S$80,000 and is tolerable. Bankruptcy is not tolerable by the founder for participation in this venture.

The risk of the venture is rated as medium as it is managed by financial bootstrapping and with the use of milestones. Before the IPO in three years time, the business is initially funded by the founder. The founder's investment is moderate and break even is estimated to occur in the 15^th month of trading. Bootstrapping is used between break even and the IPO listing to minimize the company's exposure to financial risk. Borrowing could be used to promote growth, but this would increase the risk. Milestones are placed along the venture's path to the IPO, as checkpoints, before further resource commitments are made. The first milestone is placed after the first six months of operations. This marks the transition of the company into leased premises with a shop front and a commitment to engage two staff before the end of the first year. The precondition for passing this milestone is that the direct mail and telemarketing campaign have generated more than one hundred positive responses or enquiries and that the receipt of the first few purchase orders is imminent. Similar milestones are placed every six months to match additional resource commitments with previous, current and future sales activities. A schedule for week-by-week action steps, during the first six months, has been created.

The value proposition can be enhanced by communicating to retailers the true cost, to them, of their currently low inventory turnovers and how the new venture company could assist them to increase their inventory turnovers, thereby reducing the amount of their capital tied up in stock. The new venture could improve their value proposition by appointing agents or distributors in the UK to penetrate the 90% of the target market that they don't envisage infiltrating by direct mail and telemarketing alone. The sequence of customer database generation, direct mailing and telemarketing batch sizes could be changed to improve the fit by focusing on a pilot study. The sequence could be changed so that 500 targeted customers are contacted four months ahead of the plan to statistically infer the likely response from 5000. Staff could be added earlier than planned to divide the tasks of CRM database creation, direct mail and telemarketing between staff and the founder. The fit could also be improved by eliminating the need for premises with a shop front for local sales. Local sales are expected to be low, so more economic business premises could be used in an out of town industrial area. The free cash flow characteristics are at their optimum with advanced payment commitment and retarded payment for logistics and resources. However, the value chain could be extended to manufacture the products ourselves. The major risk, after venture launch costs, is that the initial marketing investment of S$10,000 does not create customer awareness, enquiries and orders at the magnitude planned by the new venture. The risk/reward balance could be adjusted by increasing or decreasing the marketing investment.

I originally wrote this article, “Small enterprises” in October 2003

CASE STUDY : BURT’S BEES

An opportunity is defined as consisting of an idea and other components. The following enterprise case study allows comparison with other companies in the industry and shows little investment, small market share, low wages and low productivity for Burt’s Bees. It is explained that the company's success is due to it's uniqueness, Roxanne's qualities, her family, marketing and resource management. The company should keep to it's plan of producing in North Carolina to allow the value of the company to continue to grow, prior to harvesting. According to Timmons and Spinelli (2003:106):

“Roxanne Quimby sat in the president's office of Burt's Bees newly relocated manufacturing facility in Raleigh, North Carolina. She was surrounded by unpacked boxes and silence from the unmoving machines with no one there to operate them. Quimby looked around and asked herself, "Why did I do this?" She felt lonely and missed Maine, Burt's Bees' previous home. Quimby had founded and built Burt's Bees, a manufacturer of beeswax-based personal care products and handmade crafts, in central Maine and wasn’t convinced she shouldn't move it back there. She explained:

“When we got to North Carolina, we were totally alone. I realized how much of the business existed in the minds of the Maine employees. There, everyone had their mark on the process. That was all lost when we left Maine in 1994. I just kept thinking 'Why did I move Burt's Bees?' I thought I would pick the company up and move it and everything would be the same. Nothing was the same except that I was still working 20-hour days.”

Quimby had profound doubts about this move to North Carolina and was seriously considering moving back to Maine. She needed to make a decision quickly because Burt's Bees was in the process of hiring new employees and purchasing a great deal of manufacturing equipment. If she pulled out now, losses could be minimized and she could hire back each of the 44 employees she had left back in Maine, since none of them had found new jobs yet. On the other hand, it would be hard to ignore all the reasons she had decided to leave Maine in the first place. If she moved Burt's Bees back, she would face the same problems that inspired this move. In Maine, Burt's Bees would probably never grow over $3 million in sales, and Quimby felt it had potential for much more.”

The difference between an idea and an opportunity

An opportunity consists of a market, timing, resources, networks and an idea. An idea is a component, or part, of an opportunity. An idea is of academic interest only when, judged in isolation and is inert, until combined with the other factors to create an opportunity.

Idea creation is the entrepreneur’s first step to realizing a favourable opportunity. An idea needn't be owned by the entrepreneur and could be regarded as a tool. It could be licensed from another company or establishment. An idea must interact with other components to create an opportunity, but many ideas need to assessed till the right one is chosen to become part of an opportunity. It might be a great innovation or may simply be a more effective way of doing something. Insight or exploration may generate an idea or it may be accidentally stumbled upon.

Opportunity construction is the next step in the entrepreneurial process where the idea is positioned in the real world. The idea is combined with marketing and economic factors to form the opportunity and to determine the likelihood that a gap between market needs and wants can be filled. A real need in the market must be satisfied or created and the timing should be right. An opportunity should add value for the buyer and both profit and growth potentials should be high for the entrepreneur.

It could be argued that opportunities, the real world viability of ideas, are more important than the ideas themselves.

What can be learned from the case study?

Five facts can be learned from the case study, in comparing Burt's Bees with other companies in the same industry. Investment, market share, sales per employee, value added and wages are all very different between Burt's Bees and the industry average.

Investment by Burt's Bees is significantly lower than the industry average of $13,898 per production worker. This is evident in the company's description of un-automated processes.

Market share for Burt's Bees is only 0.015% of the total toilet preparation industry. This should not attract the major market player's attention to compete.

Sales per employee for Burt's Bees’ 44 workers is only 21% of the industry average.

Value added per Burt's Bees' production workers is significantly less than the industry average of $377,541 per production worker due to no investment in automation and an unproductive, unskilled workforce - as described in the case study.

Wages for Burt's Bees' production workers are less than half the $10.93 per hour average for the industry.

Other information could be derived from the case study, but not with certainty. Assets cannot be compared because it's not known if Burt's Bees leases or has bought, for example, vehicles for the sales representatives. Additionally, the ratio of production to non-production workers can't be compared as the number of sales representatives for Burt’s Bees is not stated in the case study. It's anticipated that there are proportionately less non-production workers at Burt's Bees than the average for the industry.

Why has the company succeed so far?

The company success is due to the company's uniqueness, Roxanne's qualities, her family, marketing and resource management.

The facts given within the case study show that Burt's Bees is very different from other companies within the industry. The company's financial strategy creates a competitive advantage against similar sized companies.

Roxanne brings many desirable qualities to the company, acquired through her unforgiving background and because of her character. Roxanne worked hard throughout her childhood in small independent ventures to raise money for college and afterwards, prior to forming Burt's Bees. According to Roxanne, "I liked buying and selling things well, adding value. Loved [the] freedom of starting a business, of not knowing how it would turn out.”

The interaction between the family, Roxanne and Burt, and Burt's Bees is favourable to the company. The family's need for liquidity is low and profits have been retained within the company. There is no conflict between the family and the business, and Burt's readiness in agreeing with Roxanne to relocate from Maine to North Carolina demonstrates an ability to adapt to the changing requirements of the business and shows that the couple share the same perspectives. Roxanne says about Burt that, "he's my main sounding board and [he] gives me a lot of moral and psychological support ... there's never been a conflict between us."

Burt's Bees' marketing of the product contributes to the success of the company. Being first in the market and positioning the new product in an un-served market niche helps. Roxanne knows her customers and that there are consumers living in urban areas who have "an unconscious desire for more simplicity and our products speak to that need." The product line was expanded to include other hand made crafts and beeswax products like lip balm to appeal to the same market niche.

Resources are carefully controlled by the company. A bootstrapping approach is used to finance the company from retained profits. This means that the company has no debts and actually refuses to sell products to retailers who don't pay their bills within thirty days. The resources of the North Carolina Commerce Department were used to identify new premises on favourable terms. During the growth of Burt's Bees, the minimal amount of resources is used at each stage. New employees are hired only when sales increase. Household kitchen appliances are used to manufacture the product and, without a telephone, messages were received from a local health food store. Roxanne's willingness to sleep in the back of a truck at trade shows, the rental of the derelict school house as a factory and low production worker wages are further examples of the efficient use of resources. According to Roxanne, "Since the beginning of Burt's Bees, the company had never once dipped into the red, had always turned in a profit and it's profits had always increased.”

What should Roxanne and Burt do now?

Roxanne and Burt have three options. They can sell the business, return to Maine or remain in North Carolina. They should remain in North Carolina, as explained below.

Sell the business
Roxanne does not want to be at Burt's Bees forever and has other ambitions to fulfil, like living in India. Burt's Bees will be sold by Roxanne and Burt at some time in its business cycle. Now would not be the best time because the company continues to grow rapidly and it's foreseeable that revenues could be more than ten times their current levels if the business is allowed to grow. The company has no tangible assets and the only asset is intangible 'goodwill'. The company could be currently sold to a willing buyer for, say, a few million dollars. However, with the company's continued growth, it could be sold for several tens of millions of dollars within a few years. It is not advisable to harvest the business at this moment in time.

Return to Maine
The production workers at Maine have a good attitude. Yet, they are unskilled and this, combined with no automation, creates the low productivity in comparison to the industry average. Roxanne spent most of her time alongside the production workers to give supervision and to supplement the workforce. This left no time for Roxanne to focus on broad management issues. New management could not be attracted to the Maine environment. The production facility could hardly meet current demand and sales were determined by the limited production capacity. The Maine facility incurs high transportation and payroll taxes. It is not wise to retum to Maine, where company growth would be difficult and Roxanne would be frustrated.

Remain in North Carolina
Burt's Bees remaining in North Carolina is the only alternative that allows the company to grow, realize its full potential and become ready for harvesting for a price which is fair to Roxanne and Burt. Transportation costs and payroll taxes are lower in North Carolina than in Maine. The location is more attractive to hire a management team to support Roxanne. This would release her to consider broad management issues, rather than involve herself in direct supervision of the production workers. Operations in North Carolina require a change in production methods from manual to automated manufacture. This is necessary to control labour costs and to ensure that future revenue is not limited by the means of production, as it was in Maine. A large percentage of the country's population lives within a twelve hour drive from the North Carolina plant and this places Burt's Bees closer to the majority of its customer base. Additionally, there is a greater supply of labour in North Carolina that is skilled. Although more expensive on a wages per hour basis, it is expected that productivity gains, by using skilled workers, will more than offset the higher hourly wages.

NEW ASIAN VENTURE BRIEF

A new venture is proposed for the sale of Asian artefacts through conventional high street retailing and export to Australia, North America and Europe. Typical products include hand carved furniture and ornaments from Indonesia and pottery from China. A market is already established and the new venture has a competitive advantage by using targeted marketing and a low rental outlet. There are competitive, technical and financial risks involved and strategies are required to be developed to reduce the impact of these risks. Supplier relationships need to be developed and a shop layout is required. A business plan needs to be created with monthly and quarterly budgets.

Market assessment

There is a market of Caucasian customers who purchase Asian artefacts whilst on vacation, or residing, in the South East Asia region. The Singapore market is currently served by very small souvenir shops or medium sized retailers located in prime, but expensive, shopping locations. Passing trade accounts for most of the business. A majority of the medium sized businesses have ceased trading and have closed in the previous two years. This is a result of lower revenues caused by less travellers to the region recently and the migration of expatriates to their home countries during the recession. Continually high shop rental prices accelerated closure of the medium sized businesses. The new venture will be located outside of expensive shopping areas and will compensate for lower passing trade by attracting customers to the outlet through specialized marketing at tourist hotels events and expatriate residential areas. The economic and highly available Singapore transport system is an attribute. Additionally, export of goods via the Internet, using international courier, will complement over-the-counter shop sales. The local market will expand over the next three years of the economic cycle from it's current trough.

Risk determination

The competitive risks of the new venture are that medium sized retailers will return to the market in prime shopping locations and now use Internet technology for export of their goods.

The technical risks involve the compromise between high shop rental and passing trade, import/export procedures, inventory range/value, web site structure/maintenance and payment mechanisms.

The financial risks are commitments to fixed rental payments for a period, inventory investment, supplier reliability, customer receivables and assured revenues.

Production planning

Agreements need to be signed with up to six suppliers in ASEAN countries. The contracts are to cover logistics, product ranges, import/export procedures, scheduling, payment, cancellations, defaults, quality, agreement enforcement and contract termination.

The new venture shop layout and telecommunication methodology need to be defined to support both the local and international aspects of the business. A register of non-current assets needs to be created to help cost estimation.

Advice and guidance need to be sought from acquaintances in non-competing, but similar, existing businesses.

Cost estimation

A business plan needs be created to provide a good estimate of initial costs, expenses and projected revenues for the new enterprise. The anticipated fixed costs are shop rental, fixtures, fittings, utilities, minimum inventory, minimum staff, telecommunications, computer hardware and software. Variable costs are expected to be turned-over inventory, shipping, marketing and additional staff. Monthly budgets need to be created for the first twelve months, followed by quarterly budgets for the next two years.

Feasibility evaluation

Finally, the above mentioned risks to the success of the new venture are required to be analyzed to determine how they could be managed and controlled. Strategies to reduce the impact of competitive, technical and financial risks to the business need to be formulated. An opportunity screening task is required to be done for the proposed business before the decision is made whether or not to proceed with the venture.

References

Timmons, J.A. Spinelli, S. 2003, New Venture Creation, Mc Graw Hill 2003

I originally wrote this article, “Strategic management” in April 2004.

SUMMARY

A business strategy is to be implemented for Élan Boats using an implementation framework. My prior work identified the strengths, weaknesses, opportunities and threats facing Élan. These analyses were previously summarized to enable strategic options to be considered for the implementation of the chosen business strategy.

Three strategies were previously identified for Élan using the BCG growth-share matrix, KSF, Porter's five forces, driving force analysis, SWOT analysis, value chain and industry evolution approaches and the firm is identified as falling into one of three strategic groups. The three strategic options of divestiture, the original strategy and a growth strategy are evaluated and a growth strategy is formulated to have 6 sustainable competitive advantages in addition to the strategic asset of the American Skier model. The long-term and short-term objectives of the firm are identified and converted into functional strategies for implementation. Detailed tasks are constructed to implement the strategy and six performance measures are assigned measurements for evaluating the success of Élan's implementation of the growth strategy. Incentives for the successful future growth of Élan are presented and potential barriers to implementation are identified.

Summarizing the conclusions and recommendations for Élan, using the growth strategy:

(1) Change company funding from debt-finance to equity-finance and remove liquidity concerns, plus provide working capital for growth.

(2) Increase annual revenue growth forecast from 20% to 60% to aim for market leadership within a decade.

(3) Implement customer relationship management and focus growth strategy at 2^nd and 3^rd largest customer base in the U.S., i.e. California and Florida.

(4) Match (or even better) constant innovation record of market leaders with release of innovative product designs in 2003, 2006 and 2009.

(5) Increase manufacturing cost efficiency through value engineering, alternative material sources and changes to direct labour compensation package to increase gross margin from 29.6 to 40%.

(6) Reduce overheads (office and management payroll, sales consulting, advertising, marketing, professional fees) to increase net profit from 1 - 5% to 10%) and exploit market leaders' high overhead weakness in mature market.

STRATEGY FORMULATION

Important drivers were previously identified for use in formulating a strategy for Élan Boats. The firm is within one of three strategic groups within the industry and three business strategies are considered for Élan.

Divestiture strategy
This strategy would involve the owners in selling the business to a competitor or new entrant and is supported by the BCG growth-share matrix approach, KSF approach and Porter's five forces approach. The BCG model places the firm in the low-growth and low share quadrant of the matrix. It identifies Élan as a cash trap, because it will be perpetually absorbing cash, and a candidate for divestiture. The KSF approach shows that Élan lacks most of the key success factors for the industry and which are possessed by the market leaders, i.e. economies of scale, constant innovation record, large dealership network and customer loyalty. Porter's five forces model illustrates the industry as having a low profitability potential for Élan. Buyers have high bargaining power with a choice of 14 boat builders. The best engine maker is locked into the market leaders, whose three firms dominate two-thirds of the oligopoly market.

Current strategy
The current strategy is not supported by SWOT analysis, value chain or industry evolution approaches. The SWOT analysis shows that Élan has the critical weaknesses of projected low profitability/liquidity/market share and major threats of customer loyalty to the market leaders and a mature inboard runabout boat market. The value chain analysis reveals that the primary activities of operations, outbound logistics and marketing in Élan's current strategy are not those of a potential market leader. The industry evolution approach places the inboard runabout boat industry at the mature stage of its life cycle and Élan's high variable costs and large product range are not supported by this approach.

Growth strategy
A growth strategy removes the conflicts between the objectives within the firm's current strategy. The modified objectives support Élan's current mission statement. The current strategy does not support Ben Favret' s goal to be the "true market leader in profitability, quality, manufacturing cost efficiency and eventually sales", as quoted by Nairn and Strickland (2003:179). Élan's current business plan, using 20% revenue growth, would place the firm only mid-position in the 14 inboard runabout boat manufacturer's market share league table in a decade's time. A growth strategy places Élan as a market leader in a decade. The fixed and variable costs within the business plan for the firm's current strategy also do not support Ben Favret's vision. A growth strategy, incorporating changes to the current strategy's profitability and cost efficiencies, closes the gaps and re-aligns the firm’s objectives to support the mission statement or vision.

CORPORATE STRATEGY, SCA

There are three strategic groups in the inboard runabout boat industry, i.e. market leaders, U.S. National Championships qualified towboat manufacturers, and the remaining nine firms. Élan and Infinity form the strategic group of being U.S. National Championships qualified towboat manufacturers but not being a market leader. Under the firm's current strategy, its only competitive advantage that is substantial, sustainable and supported is that it is a qualified towboat manufacturer for the U.S. National Championships. The growth strategy removes many of the firm's weaknesses, reduces competitor strengths and exploits competitor weaknesses. The growth strategy increases the number of sustainable competitive advantages to support Élan's vision, which may be expressed as,

To supply inboard runabout boats directly to water sports enthusiasts primarily in the Gulf Coast region, bypassing boat retailers. Élan will eventually be the market leader, through business efficiencies and superior customer support.

The growth strategy supplements,

SCA 1 U.S. National Championships qualified boat manufacturer (current strategy)

with,

SCA 2 Market leadership position
SCA 3 High product quality, performance and superior customer service
SCA 4 Constant innovation
SCA 5 Financial stability of the company
SCA 6 High manufacturing cost efficiency
SCA 7 Low overheads

LONG-TERM OBJECTIVES

Of the six new SCAs associated with the growth strategy, three are long-term and three are short-term.

SCA 2 Market leadership position
Market leadership provides many benefits such as; price setting (as opposed to price taking), economies of scale, greater customer awareness and preferential supplier terms. Ben Favret's vision is to be market leader … eventually. Élan's current business plan shows a 20% annual revenue growth rate, inferring a market leadership position (with sales equal to MasterCraft and Malibu) about 25 years in the future. Although achievable, this growth exposes Élan to the penalties of being a minor player in the industry for a quarter-century. The growth strategy reduces this exposure to a decade by using a 60% annual revenue growth model. By this method, Élan have sales comparable to MasterCraft and Malibu in 2011. This assumes that the mature market size remains as that detailed in exhibit 10 of Nairn and Strickland (2003:171).

SCA 3 High product quality, performance and superior customer service
"Price and quality are the most important factors in brand selection", according to Nairn and Strickland (2003:160) and Ben Favret states that inboard runabout boat customers are currently dissatisfied with overpriced boats that under perform from competitors who do a poor job of servicing customers. “American Performance Marine had been building its American Skier models “to the highest possible standards" since 1975, earning a reputation for high quality, exceptional product performance, and cutting edge innovation", notes Nairn and Strickland (2003:178). A reputation for high product quality is a component of the growth strategy but Ben Favret changed the company name to Élan in 2000 and can no longer rely upon the past good quality reputation of American Performance Marine. Reputations take years to obtain, but only weeks to destroy. This long-term objective involves Élan implementing a company quality assurance programme from marketing, sales, procurement, testing, delivery and customer service. Of particular importance are every point in the chain where there is a customer contact e.g. boat show marketing, factory tour, demonstration, warranty work, customer complaint. The customer must be delighted with the service they receive from Élan for the firm to earn a reputation for high product and service quality.

SCA 4 Constant innovation
To become a market leader, Élan needs to match (and even better) the innovative reputations of the current market leaders, who use innovation to differentiate their products, in response to customer needs, e.g. swim platform (1972), triple fins (1984), EFl engines (1990) and specialty wakeboard boat (1997). The long-term objective is for Élan to introduce substantial product innovations every 3 years.

SHORT-TERM OBJECTIVES

SCA 5 Financial stability of the company
The growth strategy relies upon Élan being financially secure in the immediate future. The current business plan causes immediate liquidity concerns from the start up of the company because the inventory on hand cannot be converted into cash quickly. The current strategy would have allowed the company's liquid assets to be insufficient to cover the current liabilities, which are predominantly an operating loan and trade creditors. The growth strategy needs Élan to change from being a debt-financed business to being equity financed. This could be through employee/owner stock ownership or stock ownership by an outside institution. The market capitalization needs to be enough to provide sufficient working capital to fund the 60% annual revenue expansion of the growth strategy.

SCA 6 High manufacturing cost efficiency
A high efficiency in the cost of manufacturing is a key objective in the growth strategy and is an integral part of Ben Favret's vision to be the "true market leader in profitability, quality, manufacturing cost efficiency...", as stated earlier. The manufacturing efficiency in the current strategy would lead to gross margins of 29.6%, as shown in Nairn and Strickland's (2003:181) income statement for the firm. The growth strategy requires Élan to align with Ben's vision of high manufacturing cost efficiency by increasing the gross margin to 40%. A value engineering analysis will prioritize where material costs can be reduced and labour efficiency increased with greatest impact on manufacturing efficiency.

SCA 7 Low overheads
Ben Favret assesses the market leader as having very high overheads due to it's large production facility. Élan's growth strategy exploits this competitor's disadvantage, in a mature market, especially when sales momentarily decline - effectively increasing the fixed cost component in the market leader's total boat cost. However, Élan's current fixed costs are a weakness and give rise to a meagre 1% to 5% net profit. The growth strategy requires this to be 10% through reductions in; office and management payroll, sales consulting, advertising, marketing, professional fees and miscellaneous expenses.

FUNCTIONAL STRATEGIES

The six additional SCAs, discussed above, fall into the three functional areas of Customer, Finance, and Internal.

Customer
Acquiring and retaining customers, to build strong relationships with, is difficult in the inboard runabout boat industry for a new entrant like Élan. Porter's five forces model identifies the customer as having loyalty to the market leaders and a high bargaining power because of the 14 competing firms in a mature market. The rivalry amongst existing firms is intense because the market leaders aggressively compete to attract customers to maintain their economies of scale. Élan's vision, through the growth strategy, is to supply inboard runabout boats directly to water sports enthusiasts primarily in the Gulf Coast region, bypassing boat retailers and providing superior customer support. This customer functional strategy may, at first glance, appear incorrect as it does not incorporate the distribution and marketing key success factors of the market leaders and raises the issues of regional marketing, direct sales and customer support. Nairn and Strickland (2003:155) identify California and Florida as having the 2^nd and 3^rd largest concentration of registered boats in the U.S., inferring that a marketing campaign in this region alone has the highest potential to realize the greatest return on marketing expenditure. Nairn and Strickland (2003:160) also identify that less than 5% of boat sales are initiated by dealerships, whereas almost 60% of sales are from boat shows. Finally, a regionally based marketing initiative ensures close proximity of customers, who increase the potential for superior customer service in this regional market segment

Finance
The success of Élan hinges on the firm achieving a market leadership position within a definite time period of (say) a decade. A substantial amount of working capital is required to finance this growth because increased expenditures are incurred ahead of increased revenues. The firm's assets are tied up in illiquid WIP and inventory (until a sale is realized), yet Élan's current strategy would rely upon debt financing, which gives rise to very liquid liabilities. For this reason, the finance functional strategy (to support growth) requires Ben Favret and any other investors to relinquish a share of their ownership in return for equity financing to give liquidity to the firm. Alternatively, Ben Favret could match his enthusiasm for Élan's success with a greater investment, thus avoiding dilution of his equity in the company.

Internal
The internal functional strategy can be subdivided into strategies for the sub-functions of administration, customer service, engineering and production.

Administrative expenses, according to the current business plan, erode the net income to 1 or 5%. This provides no significant buffer to prevent Élan from operating at a loss and gives no retained earnings for re-investment. Management payroll, sales consulting, advertising, marketing, professional fees and miscellaneous expenses are potential items for savings to be realized and to enable a net income of 10% to be achieved.

Customer service is an area where Ben Favret says that Élan's competitors are failing. A customer relationship management (CRM) programme would enhance the firm's opportunity to provide superior service by creating customer profiles and ensuring that every customer experience with Élan is a good one.

Value engineering and activity based cost analysis of the American Skier model will identify those materials and design features that can be changed to improve manufacturing efficiency. Additionally, product innovation is an ongoing process that should result in substantially new and innovative design features being brought to market every three years.

Production at Élan gives rise to a gross margin of 29.6%. This margin doesn't give a sufficient contribution to fixed costs and production techniques, labour efficiency, compensation levels need to be changed to raise the gross margin to 40%.

TASKS / ACTIVITIES

The most important part of the growth strategy is it's implementation. Whist the strategy may be expertly formulated, it may fail if not correctly implemented. Having formulated the growth strategy, set long-term and short-term objectives and grouped them into manageable functional strategies, the strategy is actually executed at the task/activity level.

PERFORMANCE MEASURES

Measurement of how well the firm manages to implement the growth strategy can drive the behaviour of Élan's team. Six key performance indicators are derived to measure the success of Élan in sustaining their competitive advantages.

Balanced scorecard position of key performance indicators
Market leadership position - 60% annual sales growth
High product quality - 1% warranty work as a percentage of sales
Constant innovation - 3 years between new product release
Financial stability - liquidity ratio of 1.0
Manufacturing efficiency - 40% gross profit margin
Low overheads - 10% net profit margin

The above scorecard is shown with the KPls in a balanced position. However, many relationships exist between the 6 SCAs and Élan need to be careful that improvements in one performance are not at the expense of another performance. Lower overheads can be obtained by decreased advertising, which may jeopardize the market leadership goal. Superlative quality may be achieved by increased direct labour hours, which would reduce manufacturing efficiency. There are many relationships between the 6 sustainable competitive advantages.

REWARDS / INCENTIVES

A common choice faced by all new businesses is whether to grow the company or not to grow the company. The basic problem with Élan's original strategy is a conflict between the owner's enthusiasm/vision for growth and the bare facts contained in the business plan, SWOT analysis, competitive forces analysis, etc. The business plan shows insufficient working capital for real growth and substantial operating expenses. The only way for a new business to be allowed to substantially grow is for the owners to accept growth in the market value of the business at the expense of immediate personal payroll withdrawals and for the company to be financed through equity shares. The employees of Élan may be offered alternative compensation packages, with lower payroll amounts compensated by stock options. "One characteristic that distinguished Malibu from it's competitors was its employee stock ownership programme", states Nairn and Strickland (2003:176).

POTENTIAL BARRIERS TO IMPLEMENTATION

There are two major potential barriers to implementation of the growth strategy and these are concerned with financing the business and manufacturing efficiency.

Financing the business
As previously discussed, the success of the growth strategy relies upon being able to change the way that Élan is funded, from being debt financed to being equity financed. To allow this to happen, and to make market leadership a possibility, the current owners have to relinquish a large proportion their share in the company to private individual stockholders or to a funding institution to raise the market capitalization required. The growth strategy is only executable if the owners are agreeable to this action. Additionally, the working capital required to meet the market leadership goal is substantial and the growth strategy is only viable if sufficient shareholders provide enough total shareholder capital.

Manufacturing efficiency
Nairn and Strickland (2003:178) state that American Performance Marine was poorly managed and had high manufacturing costs. The firm had been manufacturing the American Skier model for 25 years, since 1975, and obviously had much know-how and the firm had travelled a long way along the experience curve. It's assumed that the original workforce is retained by Élan in the company purchase and, therefore, its difficult for labour efficiency to be increased, unless fundamentally different ways of boat manufacture can be adopted, before the economies of scale are realized. This leaves Élan with the problem of developing new manufacturing techniques, reducing compensation or reducing material costs. Compared with the market leaders, Élan's material purchases are very small and further discounts would be difficult to obtain. Difficulty in increasing manufacturing efficiency is a major potential barrier to implementation of the growth strategy.

REFERENCES

Nairn, F. & Strikland, A.J. 2003, 'Élan and the competition ski boat industry', in Thompson & Strickland (Eds) Strategic Management Concepts and Cases, 13th edn., New York: McGraw-Hill pp. C-153 - C-183.

I originally wrote this article, “SWOT analysis” in February 2004.

SUMMARY

A case study by Nairn and Strickland (2003) of the Élan Boat Company is used to identify the strengths and weaknesses of the company and the opportunities and threats within the external environment of the company. According to Nairn and Strickland,

“Ben Favret, professional water-skier, World Champion, V.S. Champion, and Pro-Tour champion, was resting on the dock after a slalom training run one afternoon when a call came through on his cell phone. Jay Blossman, his high school tennis partner and now politician, was on the other end. Out of the blue, Jay announced to Ben that he was buying American Skier, the competition ski boat company owned by financially troubled American Performance Marine. Ben instantly knew that Jay had found himself a great boat and suspected that he was getting a great deal in buying the company, but he also realized that while Jay was an excellent tennis player, Jay lacked the necessary insider knowledge about building, marketing, and selling ski boats. Excited and eager to be involved in this rare opportunity, Ben was on the next flight to New Orleans to meet Jay and look into the situation.

As Ben took the tour of the American Performance Marine plant in Kentwood, Louisiana, he learned that the company had recently filed for bankruptcy. Ben concluded that with his firsthand knowledge of the waterskiing industry and the boatbuilding capabilities that lay before him in the Kentwood plant, he and Jay ought to be able to resurrect the ailing company. With all the enthusiasm and high hopes of an entrepreneur entering the industry of a sport he loves, Ben Favret dove headfirst into building ski boats. In keeping with this excitement and attitude, Ben renamed the company Élan Boats. The word Élan means ‘vigorous spirit and enthusiasm‘.”

The purpose of this report is to identify the firm's key capabilities and trends within the macro environment to develop a clear strategy for the Élan Boat Company.

The Basic Design School Model is the strategic framework for the analysis. External and internal appraisals are carried out. Key success factors within the external environment and the distinctive competencies of Élan are identified.

Opportunities exist for Élan if water sports receive greater publicity and because the profitability and customer service of the market leaders is unsatisfactory. . The success of the company is threatened by a declining market (which is highly cyclical), the competition's established dealer networks, a poor powered watercraft safety record and suppliers locked into the industry leaders.

Élan's strengths are it's brand names of 'American Skier' and 'Ben Favret'. The company's weaknesses are its projected profitability and liquidity.

The seven conclusions and recommendations of this report are:

(1) Consider changing the position of the new plant, in 2004, from Covington to a location within the Great Lakes area, where demand is highest.

(2) Investigate rationalization of the company's product range with a view to reducing the product line from eight to one, two or three variants.

(3) Raise manufacturing efficiency and lower overhead costs to increase gross margins from 30% to 40% and net profit from between 1% and 5% to 10%.

(4) Increase the liquidity of the company to allow for depressed sales until an economic upturn in the U.S. economy.

(5) Reconsider the company's distribution channel philosophy of selling directly to customers without a dealer network.

(6) Develop a close supplier relationship with a top engine manufacturer who has both good performance and customer service records.

(7) Continue to associate Élan with safety, and actively promote activities which improve the safety of Élan's customers.

STRATEGIC FRAMEWORK

There are many schools of strategic management thought and they can be grouped as being either Prescriptive or Descriptive. Within the Prescriptive Group are the Design School, Planning School and Positioning School. Mintzberg (1990:112) illustrates the Design School Model, and (applied to Élan Boats) it can be described as having eleven
components, and these are briefly described below.

External appraisal
An examination of the external elements will influence Élan's strategy options. This involves investigating customers, competitors, market and the environment. Where the environment is political, economic, society, technology and ecology considerations.

Threats and opportunities in the environment
The external appraisal will reveal the opportunities that Élan can exploit and the threats it faces. Opportunities can be regarded as positive trends and threats are negative trends.

Key success factors
Key success factors are competitive assets or competences that Élan need to compete successfully in the power boat industry. An absence of strategic necessities would be a
weakness and possession of strategic strengths will give advantage to Élan.

Internal appraisal
An examination of Élan's employees' skills, resources, innovations and financial position will disclose how the company may be constrained by it's capabilities and resources.

Strengths and weaknesses of the organization
Any activities that Élan does well will be identified as strengths from the internal appraisal. Any lack of resources or activities that Élan does not do well will be identified as weaknesses.

Distinctive competencies or assets
Distinctive competencies are the activities that Élan does exceptionally well. It's strategic assets are brand names or customer base that is strong, relative to Élan's competitors.

Social responsibility
Social responsibility is Élan's obligation, beyond that required by the law and economics, to pursue long-term goals that are good for society.

Managerial values
These describe how the company's managers establish, promote and practice Élan's values. The building of team spirit, influencing marketing efforts, shaping of employee behaviour and guidance for managerial decisions and actions are examples of the main purposes of managerial values.

Creation of strategy
Strategic alternative strategies need to be developed for Élan Boat Company for evaluation. These strategies should take advantage of environmental opportunities and exploit the company's strengths.

Evaluation and choice of strategy
Some of the criteria used for selection of a strategy from alternatives are scenario consideration, sustainable competitive advantage pursuit, organizational vision and objectives consistency, feasibility and their relationship to the other strategies of Élan.

Implementation of strategy
For Élan to succeed, the chosen strategy must be implemented and this involves
converting strategic alternatives into an operating plan.

KEY ISSUES

Current strategy
According to Nairn and Strickland (2003: 178), Favret and Blossman have the following mission statement for the new company, Élan:

"The mission of Élan Boats is to be hyper efficient in the manufacturing and marketing of Inboard Runabout Boats for recreational and competitive water sports enthusiasts. Élan Boats is dedicated to building long-term relationships with customers through superior training and customer support. We will do business consistent with the definition of the company's name. Élan - vigorous spirit of enthusiasm. Synonyms: Style, Confidence, Flair, Elegance, Flamboyance."

Additionally, Ben believes that an offensive attack on the major competitors is the best option and that Élan was "gunning for, and will take down MasterCraft, Correct Craft and Malibu". Nairn and Strickland (2003:179) quote Ben as wanting Élan to be the "true market leader in profitability, quality, manufacturing cost efficiency and, eventually sales."

Identification of Key Success Factors
A cost advantage, through cost efficiency, would be a strategic strength to any power boat manufacturer and Nairn and Strickland (2003:179) state that none of the industry leaders were particularly cost-efficient. A boat builder who was superior at servicing their customers would also have a strategic strength. A strategic necessity is effective promotion.

Current performance assessment
Nairn and Strickland (2003:180) report that, as of 2000, Élan Boats had 30 clients. According to the FAQ page of Élan's website, the company has spent thousands of hours and dollars reconditioning their moulds, updating their facility and equipment. The FAQ page also quotes Ben Favret as saying, "getting boats built for factory demos and dealer sales was our first problem. We had to fully hire, train and manage an entirely new production team. That combined with dealing with vendors who were sceptical slowed us down this year. Our production was backed up through August and now we have caught up. That hurt because we could not make a strong sales effort this summer. Our Team Élan members have been very helpful in working with us to do demos and let other people experience our boats."

Financial review
Naim and Strickland (2003:179) quote Ben Favret as saying that he wanted Élan to be "the true market leader in profitability and manufacturing cost efficiency". Élan needs gross margins and net margins (after tax) in excess of 40 percent and 10 percent respectively, to achieve this. Acceptable liquidity is also required.

Industry stage and trends
The current stage of the power boat industry in it's half-century history and current trends amongst the 17 manufacturers will influence Élan's chances of success.

Market trends and segmentation
If the market is expanding and demand within Élan's targeted segment is buoyant then this would be favourable to the company.

Customer preferences
Élan and some of it's competitors have boat model features that are designed to cater for customer preferences for wake form and control. However, customer preferences are
not fixed and change over time.

Value chain
Nairn and Strickland (2003:179) report that "Élan planned to bypass boat retailers and sell directly to the end user". However, this strategy appears to have changed as the FAQ page of Élan's website, states that Élan are making their first run at setting up their dealer network now and completing the few remaining Team Élan openings.

HCA (Human Capital Assessment)
Ben Favret did not purchase American Performance Marine as a going concern and, therefore, did not acquire any human capital with the purchase. Nairn and Strickland (2003:178) note Ben’s thoughts that, because of his own connections in the industry, [he had] the ability to recruit top talent in manufacturing, sales, and marketing". This he subsequently did and the FAQ page states that he recruited; a general manager with 22 years expertise (Mary Travis), a sales and development manager with 17 years experience (Darren Landry), and a top fibreglass consultant (Rick Delone).

Distinctive competencies
Élan's distinctive competencies are mainly strategic assets as, when the case study was
written, the company had only been trading for 10 months. These strategic assets include the 'American Skier' and 'Ben Favret' brand names.

Competitor analysis
An analysis of competitors such as Mastercraft, Classic Craft, Malibu and Infinity will reveal their strengths and weaknesses.

ANALYSIS

A situation analysis is made using the external and internal analyses of Mintzberg's Design School Model. Condensed opportunities, threats, strengths and weaknesses are described.

Opportunities

Customer
(a) World Games include waterskiing and wakeboarding.
(b) ESPN X-Games and the Gravity Games include wakeboarding.
(c) Gravity Games drew 370,000 spectators and high TV ratings.
(d) New Cable Parks are a way to introduce potential new boat buyers.
(e) Gulf Coast customers targeted in Texas, Louisiana, Mississippi, Alabama.
(f) Better service, delivery, sales force efficiency with regional advertising.
(g) Élan plans to sell directly to the end user, bypassing boat retailers.
(h) Under marketed competition ski boat segment to be targeted.
(i) "Free week of ski school" to be offered to water skiers and wakeboarders.
(j) Élan had 30 customers in 2000 and projected 50, 60, 72 in '01, '02 '03.

Competitors
(a) MasterCraft has high overheads due to large facility, marketing, etc.
(b) Correct Craft sales fell 17.2% in 2000 due to poor marketing, competition.
(c) None of the industry leaders are particularly cost efficient.
(d) Leaders vulnerable to unhappy buyers, sliding profits, excess capacity.
(e) Ben wants Élan as market leader in profitability, quality, cost and sales.
(f) Élan will achieve cost advantage by revamping it's activity cost chain.
(g) Élan aim to offer a better boat than the competition at a lower price.
(h) Competitive offensive aimed at rivals who service customers poorly.
(i) Objective to win disenchanted customers with service oriented company.

Market
(a) U. S. is largest boating I water skiing nation in the world.
(b) Estimated that waterskiing interest will double if it becomes Olympic event.
(c) Boating industry held approximately 200 boat shows annually across U.S.

Environment
(a) International Water Ski Federation lobbying IOC hard.
(b) Cruise control and driver videotaping have allayed IOC's concerns.
(c) Waterskiing came very close to being included in the 2004 Athens Games.
(d) IWSF is now focusing it's sights on the 2008 Games in Beijing.
(e) Ben anticipates investing in a new facility in Covington Industrial Park.
(f) Team Élan launched to get qualification for Regional and National events.

Threats

Customer
(a) A 2001 sales decline would mean fewer people trading up in 2002 to 2005.
(b) Excessive customer dissatisfaction with overpriced/underperforming boats.

Competitors
(a) Technology and innovation accelerate in economic downturns.
(b) MasterCraft has exclusive Gravity Games towboat provider 3 yr. contract.
(c) Indmar has exclusive customization program with MasterCraft and Malibu.
(d) Indmar has private label with MasterCraft for electronic fuel ignition.
(e) Indmar has considerable name recognition and brand awareness.
(f) Indmar is visble at grassroots waterskiing competitions.
(g) Customer loyalty to MasterCraft, Malibu and Correct Craft is entry barrier.
(h) Three industry leaders have large dealer networks and scale economies.
(i) Three industry leaders have greater supplier bargaining power.

Market
(a) Waterskiing participation fell 18°J'o from 7.2 M in 1998 to 5.9 M in 2000.
(b) Motor boating and waterskiing are ranked 13th and 40th for participation.
(c) Boating industry suffers during periods of economic decline.
(d) Decline in recreational boater numbers accelerated in 2001.
(e) PWC sales fell 54°J'o from 200,000 in 1995 to 92,000 in 2001.

Environment
(a) Spare money is not used for boat-related expenses during recessions.
(b) Income restrained households will depress prices if opting out of boating.
(c) Waterskiing as an Olympic sport has been delayed over driver concerns.
(d) PWCs had a bad reputation with boaters & law enforcers from rowdiness.
(e) There were 83 fatalities associated with PWCs in 1997.
(f) There were 506 deaths and more than 11,000 injured in the last decade.
(g) PWC injuries are six times greater than motor boat injuries.
(h) Blunt trauma is the leading cause of PWC related deaths.
(i) Many new regulations are imposed on PWC use because of bad record.

Strengths

Brand/firm association
(a) Ben knew Jay had found a great boat and a great deal in buying company.
(b) Company had been building to highest possible standards since 1975.
(c) Company had earned a reputation for quality, product perf. and innovation.

Relative cost
(a) Company purchased at low price, giving low overheads and no debts.
(b) Élan Boat company was started with a low capital expenditure.
(c) Inherited R&D, shaping and mold design can cost in excess of $400,000.

Innovation
(a) American Skier is over 600 Ibs. lighter than any other boat on the water.

Management capability
(a) Ben Favret is excited and eager to be involved in this rare opportunity.
(b) Ben Favret has first hand knowledge of the waterskiing industry.
(c) The Kentwood plant is already constructed with boatbuilding facilities.
(d) Ben has entrepreneur enthusiasm entering industry of the sport he loves.
(e) Ben renamed the company Élan, meaning vigorous spirit and enthusiasm.
(f) Ben is a professional water skier and World, US, and Pro-Tour Champion.
(g) Jay Blossman is a politician and high school tennis partner of Ben Favret.
(h) Ben has the ability to recruit top talent in manufacturing, sales, marketing.
(i) Ben will make history as the first professional skier to buy a boat company.
(j) Élan's facility in Kentwood had capacity for 150 units a year.

Weaknesses

Profitability
(a) Projected 1 % I 5°k after tax net income contradicts Élan's profitability goal.
(b) Projected 29.5% gross margin conflicts with Élan's profitability goal.
(c) Projected current ratios of 1.5, 1.7,2.1 give liquidity concerns.
(d) Projected acid test ratios of 0.6/ 0.66 for 2002/2003 cause for concern.
(e) Diminishing cash flow from operations too low to cover current liabilities.

Brand/firm association
(a) American Marine had been unfocused, poorly managed, undercapitalized.
(b) American Skier plant closed it's doors in Jan '01 and filed for bankruptcy.
(c) American Skier had high debt, high production costs, poor management.
(d) Élan prevented from strong sales effort because of backlog of work.

Management capability
(a) Jay Blossman lacks necessary insider knowledge about ski boat industry.
(b) Ben Favret fully hired, trained and managed entirely new production team.

Critical issues
The critical issues for the Élan Boat Company are:
(1) Long-term demand for personal watercraft is declining.
(2) American Skier and Ben Favret brand names are Élan's strategic assets.
(3) Élan's profitability and liquidity are cause for concern.
(4) The personal watercraft industry performance is highly cyclical.
(5) Competitors have established dealer networks.
(6) Suppliers have exclusive agreements with competitors.
(7) Poor safety and a bad user reputation influence PWC demand.

CONCLUSIONS AND RECOMMENDATIONS

Élan Boat Company is operating in the U.S. PWC market that has been contracting since 1996. The Kentwood plant is not located within the highest demand area of this market. If the plant is to be relocated in 2004, as stated by Nairn and Strickland (2003:180), then a location within the Great Lakes area should be considered.

'American Skier' is the brand name that end-users recognize. It is doubtful as to whether Élan Boat Company benefits from having three varieties of this model and five more boat varieties in the Volante and Eagle ranges. The design, tooling, set-up and material costs for these eight product variations should be analyzed. This may reveal that Élan's product line should be reduced to between one, two or three product varieties.

Élan's profitability is at variance with it's mission statement and Ben's goal to be the "true market leader in profitability…” is not reflected in projected gross margins of 29.5% and net margins (after tax) of 1 % to 5%. These figures need to be a minimum of 40% and 10% respectively. This could be achieved by increasing manufacturing efficiency and reducing overheads. Élan's projected assets may cause liquidity problems as most are in the form of inventory and the cash flow from operations does not cover current liabilities. Inventory levels and the amount of working capital should be investigated.

The demand for personal water crafts, as luxury goods, is reduced when the U.S. economy is on the downside of the economic cycle. This means that Élan should have sufficient financial reserves to support the company until the economic upturn, and they should look at the sensitivity of Élan's finances to reduced sales during this period.

Nairn and Strickland (2003:179) state that "Élan planned to bypass boat retailers and sell directly to the end user." This would be done through advertising. Dealers are used to sell personal watercrafts because it is the type of product that potential customers prefer to see in reality so that they can touch it, sit in it and walk around it. It is recommended that Élan should re-appraise their distribution channel strategy.

Indmar is the most popular engine and this supplier, naturally, has created close relationships with the market leaders. As Élan had less than ¹/₆% of the competition ski boat market in the second quarter of 2001, according to Nairn and Strickland (2003:171), it is possible that the market leaders may not regard Élan as a serious threat and a supplier relationship between Élan and Indmar may be possible.

The poor historical safety associated with personal watercraft use influences sales. Élan promote safety on their main web page and offer ski schools. This is a good strategy and it is recommended that this should be built upon.

REFERENCES

'Frequently asked questions', Élan Boat Company. Retrieved: from http://www.elanboats .com/elanfaq.htm.

Mintzberg, H. 1990, ‘Strategy Formation - Schools of Thought', in J.W. Frederickson (ed) Perspectives on Strategic Management, Harper Business, New York.

Nairn, F. & Strickland, A.J. 2003, 'Élan and the competition ski boat industry', in Thompson & Strickland (Eds) Strategic Management Concepts and Cases, 13th edn, New York: McGraw-Hill pp. C-153 - C-183.

I originally wrote this article, “Managerial control” in July 2003.

A group of my friends have what you believe to be the opportunity of a lifetime.

They graduate this year and the father of one of my friends has asked two of them if they would like to buy the air-conditioning business he founded and operated for thirty years. It has been a very lucrative business for him; today he is a millionaire several times over. They are aware his firm is the leader in its field in their area and they see the possibility of expanding because many new homes are being built locally.

My friend's father will finance the buyout through a loan, to be paid off over the next ten years. Both of my friends have some degree of expertise in the heating and air-conditioning field since they have both worked for my friend’s father during university vacation times. My friend’s father has also agreed to be a consultant to the two of them for the first year or so if they need his advice.

The business has almost 60 well-qualified employees, a large inventory, 40 service trucks in excellent condition and a well established list of clients. At the same time the return on investment has been lower than average for the past three years, labour costs are very high, and the company has attracted only a few new clients during the past two years. In addition they have some indication that the firm is not carrying the most up-to-date heating or air conditioning equipment and the four large structures used to house showrooms and service centres are in need of refurbishment.

My friends are discussing the possibility of buying the firm. In considering the situation I reviewed the control forms and processes that I would use to ensure effective control over the operation.

I outlined the control issues and potential problems that I considered relevant to this case. I recommended control processes to be put into place to ensure the continued success of the business. Using my knowledge of the concepts and classification of controls, I applied these concepts of control to their particular situation.

The proposed purchase, by my friends, of the air-conditioning business raises many issues that are discussed. I've identified ten potential problems with the acquisition. Half of the potential problems are controllable and I propose four control process models to reduce the risk of business failure.

Issues

Organizational control of the air-conditioning business is required if my friends are to be successful in this venture. Daft (2003, p. 654) defines organizational control as the 'systematic process through which managers regulate organizational activities to make them consistent with expectations established in plans, targets and standards of performance.' The importance of control is evidenced by the fact that it is one of the four basic management functions - planning, organizing, leading, controlling, as explained by Robbins, Bergman, Stagg and Coulter (2003). Controlling is required throughout the depth of the organization (strategic, tactical and operational) and the breadth of the organization (financial, operations, information and people).

As part of the control process, they need systems to measure and compare actual performance. This will allow them to take corrective action if performance deviations are found. They should only control processes which will contribute to the success of their business. One method of selecting these particular processes is by resource-dependency, as described by Bartol (1997). The standards of the existing air-conditioning business need to be reviewed, amended and supplemented, where necessary.

Having established which of the business process performances are to be measured, my friends need to determine if measurement is to be through observation or reporting, i.e. statistical, oral or written. If they find deviations in performance against their standards then they may; take action to change the performance, alter the standard or they may choose to take no action. Depending on the business process, they should use feedback, feed-forward, concurrent control or a combination to match the application. Additionally, the results may be simply mechanically processed or may require subjective judgment.

Up to four managerial approaches to implementing controls are described by various authors. All sources include bureaucratic and clan (decentralized) control. Robbins, Bergman, Stagg and Coulter (2003, p. 558) add a third approach, described as 'market control', which uses external market mechanisms to establish standards in the system. Mullins (2002, p. 774) further identifies a fourth approach which he labels personal centralized control. This approach is found in small owner-managed organizations where decision-making and initiative are centralized around a leadership figure.

My friends need to study the managerial control style used by my friend's father. They should determine if this style is most appropriate to the operations and to the new leadership. Existing control systems and new control systems should be assessed to ensure that they have the right qualities. They also need to consider how the control systems could be misused, manipulated or be negatively viewed.

Ten potential problems

I’ve identified ten potential problems with the management of the air-conditioning business. The first five problems do not lend themselves readily to the application of control processes and they are; their inexperience, business purchase price evaluation, role of the current owner, financial loan terms and nepotism. The remaining five potential problems may be monitored through control processes and they are; inventory turnover, asset turnover, return on investment, profit margin and sales growth.

My friends have some experience in the heating and air-conditioning field, since they both worked for my friend's father during university vacation times. Whilst there are advantages of an early entry strategy into the business, Hodgetts and Kuratko (2001, p. 61) identify a disadvantage that normal mistakes tend to be viewed as incompetence in the successor. The problem centres around the ability of them to gain credibility with the firm's sixty existing employees. This is in contrast to a delayed entry strategy which would involve my friends in gaining experience outside of the business, prior to takeover. This would have the advantages of; self-confidence development outside the firm, credibility and acceptance through outside successes and a broader business perspective.

Establishing a mutually agreeable and fair purchase price with my friend's father for the air conditioning business is a potential problem. Assuming that all of the current personnel will remain, the major concerns are the inventory condition, state of other assets and quantifying the contribution of goodwill. The inventory is large and I have noticed that the firm is not carrying the most up-to-date heating or air-conditioning equipment. Storage costs for this equipment need to be considered and if the products are obsolete then they contribute minimal or no value in the inventory portion of the purchase price. The four large structures used to house showrooms and service centres are in need of refurbishment. The condition of these assets attracts significant maintenance expenditure, required within the immediate future of operating the new business, and this cost needs to be factored into the price. Quantifying the goodwill contribution to the purchase price is complicated by the fact that the company has attracted only a few new clients during the past two years.

My friend's father has agreed to be a consultant to my friends for the first year or so, if they need his advice. Despite the obvious advantages of such an arrangement, there are potential problems. Although my friends will be the owners of the new business, the presence of my friend's father could lead to management conflicts when the sixty existing employees naturally still see him as still being in control of the business. This situation could be further complicated if my friend's father previously used a personal centralized control technique. As company founder, with thirty years of experience, it would not be possible for my friends to emulate his previous style.

The terms of the financial loan need to be thoroughly investigated. Whilst the interest rate could be readily agreed upon, there are other factors of great importance to be formalized. The payment frequency, principal and interest apportioning, payment default definition, contractual terms and security all need to be negotiated.

Nepotism between my friends and my friend’s father is a delicate issue and a potential problem one friend.

As stated previously, the firm has a large amount of stock, due to low inventory turnover, and is not carrying the most up-to-date heating or air-conditioning equipment. The obsolete inventory is a burden, incurring storage costs, and reflects badly in the financial ratios of the business - if it is not already written off. They may inherit this stock if my friend's father insists on compensation for it within the business purchase price.

The four large structures used to house showrooms and service centres are in need of refurbishment. It's possible that this is a result of poor building maintenance planning. Alternatively, short-term cost savings may have been sought by avoiding building maintenance.

Return on investment for the business has been lower than average for the past three years. Labour costs are very high and the firm uses forty service trucks.

The final two potential problems are associated with the fact that the company has attracted only a few new clients during the past two years. If sales revenues are flat or declining then the ability to retain the sixty well-qualified employees, who incur very high labour costs, is in question if the profit margin on sales is to be an acceptable value. Additionally, a certain level of sales are required to achieve total asset turnover to compensate for the forty service trucks and the four large structures used to house showrooms and service centres.

Four control processes

Four processes should be implemented to control the latter five potential problems. The first two processes have the objective of testing the operations and they control inventory turnover and total asset turnover. The remaining two processes have the objective of monitoring profitability and they are profit margin and return on investment. The model of Robbins, Bergman, Stagg and Coulter (2003, p.567) is used to explain the four control processes.

Inventory turnover control process

The inventory turnover control process model is designed to make sure that all warehoused inventory is saleable. This is accomplished by setting an acceptable standard average time period, measured monthly, for all inventory. The average time assumes a standard deviation and may be adjusted so that all inventory remains within their technically and commercially useful life. Price reductions, writing off and scrapping are possible courses of action for obsolete items. The acceptance criteria may be increased if newer models are slower to reach the market and if shelf life permits.

Total asset turnover control process

Robbins, Bergman, Stagg and Coulter (2003, p. 623) identify that 'the fewer assets used to achieve a given level of sales, the more efficiently management is using the organization's total assets'. The main assets of the air-conditioning business are the four large structures used to house showrooms, service centres and the forty service trucks in excellent condition. If the total asset turnover ratio falls below an acceptance criteria then asset re-financing or disposal should be carried out.

Profit margin on sales control process

I initially estimate that the overall gross profit for the air conditioning business should be 40 percent and that the net profit margin should be 7 percent. If the profit margin on sales ratio falls below this standard then they should attempt to increase sales through increased promotion and advertising. Additionally, they may reduce business costs for either labour, materials or overheads.

Return on investment control process

I noticed that the return on investment for my friend's father's business has been lower than average for the past three years. They need to establish the cause for this and to remedy the situation. I propose that they set a standard for their return on investment, identify the cause for any under performance and take action to correct the performance. The control process model shows that they should reduce labour, material or overhead costs if the acceptance criteria is not met for the month. Additionally, the total asset costs should be reduced through re-financing or disposal.

List of references

Bartol, K.M., Martin, D.C., Tein, M. & Matthews, G. 1997, Management: A Pacific Rim Focus, 2nd edn, Sydney: McGraw-HiII pp.6SS-6S8

Daft, R.L. 2003, Management, South-Western, Mason, Ohio, U.S.

Hodgetts, R.M. & Kuratko, D.F. 2001, Effective Small Business Management, Harcourt College Publishers, Orlando, Florida, U.S.

Mullins, L.J. 2002, Management and Organizational Behaviour, Pearson, U.K.

Robbins, S.P., Bergman, R., Stagg, I. & Coulter, M. 2003, Management, Pearson, Australia.

I originally wrote this article, “Virtual team working” in June 2003.

Robbins et al (2003, p.4) define an organisation as being "a deliberate arrangement of people to accomplish some specific purpose." If the people working together within the organisation are separated by distance and/or time then the organisation type can be described as being 'virtual’. It is uncommon to find a fully virtual organisation. Virtual teams however, operating within an organisation, are commonplace and their growth in numbers raises many management issues.

Organisation

The virtual workplace has the potential to allow team members to be more effective by matching work times to when people are likely to be at their best. Greater efficiency can be realized by removing time wasted commuting to, and from, a traditional workplace.

Mintzberg's interpersonal, informational and decisional management roles within the virtual workplace may be very different to that of a traditional organisation. Anderson and Shane (2002) report that some virtual teams use shared leadership. They also suggest that having only one team leader can slow decision making. Knowledge management, as an informational role, is a key component of management in virtual organisations according to Witzel (2002).

When evaluating the technical, interpersonal and conceptual skills required for a successful virtual team, Adres (2002) quotes various researchers as stating that interpersonal skills are most important. This is because the lack of physical proximity between team members reduces the number of communication channels available and can lead to an increase in 'noise'.

It could be argued that contributions from Peters (1992) could be considered as worthy of being added to the works of recognized general administrative theorists like Henri Fayol and Max Weber in predicting that "information networks will be decisive to relative future competitiveness”. However, no, universally accepted approach is yet available for the management of the virtual workplace.

Taylor (2001) describes the challenges faced by labour unions in coping with fragmented labour markets in virtual workplaces and introduces the concept of 'e-picketing' by virtual workers as a new form of protest.

Globalisation is seen by Hagen (1999) and many other authors as being a major force in the rise of numbers of virtual workplaces. Workforce diversity is created by the employment of minorities and mobility-impaired people who may otherwise experience difficulties in being accepted by certain traditional organisations. Additional diversity is provided by the fact that people of different countries, nationalities, religion or culture may be part of the same virtual team.

There are certain dimensions of the successful virtual organisational culture that have common characteristics. High team orientation, low aggressiveness and high innovation and risk taking are important. Conner (2003) suggests that organisations will no doubt have to foster proactive employee behaviour in terms of selection, socialization and policies that encourage individual initiative.

External and internal environments

The interface between the external environment and a virtual organisation can be quite different from that of a traditional organisation. Many virtual organisations extensively utilize outsourcing, strategic alliances and similar partnerships to realize their goals, according to Fitzpatrick and Burke (2001). Walters and Buchanan (2001) believe that more cooperation among competitors, suppliers and customers makes it harder to determine where one company ends and another begins.

The proportion of U.S. workers employed in manufacturing has halved in the last thirty years and Konrad and Deckop (2001) attribute this decline to globalization. Virtual teams are a natural choice for geocentric organisations that break down the barriers of time, distance and national borders to execute projects.

Social responsibility and ethics

The classical view that management's only social responsibility is to maximize profits is exemplified by the virtual organisation, according to Conner (2003), who states that [virtual] "organisations are cutting cost and streamlining operations by reducing or eliminating the need for facilities, levels of management and work sites. This contrasts with the socioeconomic view of Businessline (2002), which argues that virtual organisations offer flexible working practices to mobility-impaired talent, women and minorities.

A consideration of ethics within the virtual workplace raises the issues of collective bargaining, communication, security and trust.

Williams (2002) claims that outsourcing of workers affects wage bargaining and quotes Young as stating that, 'in outsourced businesses, the most important flexibility is that of employees in accepting lower wages and intensified work.' However, Taylor (2001) has an interesting notion that the web enables unions to communicate directly with workers in their homes, thus bypassing the employer.

A lack of courtesy may be experienced within the virtual workplace due to the use of e-mail over face-to-face communication. This may lead to assertive and hostile language as reported by Andres (2002) from research carried out by Siegel. Although e-mail has the convenience and casualness of conversation, it is a written record and the contents of some messages can be regretted at a later date.

The dispersed team members within the virtual workplace rely upon internet, satellite and telephone networks for communication and this gives rise to potential security problems. 'In the Net economy, organisations are forced to strike a delicate balance between accelerating their transformation to e-Business while still securing their networks and data. This balance is driving the rapid adoption of security services, a market which analyst firm IDC expects to reach US$21 billion by 2005', according to M2 Presswire (2001).

Staples (2001) has tested four hypotheses dealing with the role of trust in remote work. He suggests that trust between the manager and employee is an important factor for making remote work effective. His research found that four hypotheses
relating to trust were supported, and these were that higher levels of trust between the manager and employee will be associated with:

• more positive perceptions of self-performance
• higher levels of job satisfaction
• more frequent communication
• lower levels of job stress

Additionally, Anderson and Shane (2002) recognize that trust among the virtual team members is very important and they need to be confident in each other’s competency.

Decision making

Two aspects of the managerial decision making process have prominence within the virtual workplace. They are the availability of information and the empowerment of individual virtual team members.

Koch (2000) describes a decision support environment known as the 'management cockpit', which is an advanced information system. It's a special meeting room with walls covered with screens displaying data on internal and external processes. The vision is to control an entire organisation with one hand and this concept is already being used by companies such as ISS Europe, Citibank, Groupe Oburg and La Suisse Assurance. This type of organisational hub is also described by Fitzpatrick and Burke (2001), who state that it performs all the functions needed to maintain their core competitive competencies and coordinate the work process as it flows or is transmitted from one subcontractor to another within the virtual organisation.

The sharing of relevant information from management amongst virtual team members will become increasingly expected. Decentralised, and a higher degree of discretion in, decision-making will be sought by virtual staff members, according to Businessline (2002).

Experience

I worked for seven years as a Project Manager for Rolls-Royce plc leading virtual teams from 1996 to 2002 in Asia, Europe and the US on three separate projects.

The first project was a joint venture between the jet engine design bureau of Sukhoi and Rolls-Royce plc. The joint venture was created to utilise the energy systems experience of Rolls-Royce to modify Sukhoi jet engines to be used for generating electricity and to pump gas from Siberia to Europe. It was a two year project from 1996 to 1998. A virtual team was created with members in Liverpool, Moscow and Ohio. The team consisted of British engineers and drafters, American stress analysts and designers and Russian designers and production engineers.

The time difference was between three and eight hours for team members and English wasn't readily understood by the Russian designers and engineers. Knowledge was difficult to manage as much of the Rolls-Royce information was proprietary and all of the Sukhoi information was military and only available in the Russian language. Engineering design, equipment and materials were to American, British, Russian, military standards and imperial and metric sizes. I reduced the language barrier by ensuring that all designs, specifications, drawings and daily correspondence was produced in two languages using several interpreters.

The second project was the reconstruction of two, twenty year-old, Rolls-Royce gas turbines for the Oil and Natural Gas Corporation of India. The turbines were past their useful life but the oil rig, where they were located, was a hub and production time could not be lost for the installation of new turbines. Lasting for two years, the project ran from 1999 to 2001. The oil rig was in the Arabian Sea; parts and manpower came from the UK, US, Singapore and Bombay. I was based at hotels in Bombay and Singapore and visited the oil rig by helicopter. The virtual team consisted of designers, drafters, schedulers, technical authors and shippers in the US and the UK. Oil production engineers and construction workers were based in Bombay.

The time difference was between five and nine hours for team members. Communication networks are a problem in Bombay. The infrastructure is not designed for the level of internet traffic and drop-out is frequent during facsimile and e-mail transmissions. Additionally, the monsoon period from May to September creates periods of several days when communication is not possible, due to waterlogged communication hubs and distribution centres. Further, for security reasons, communication between the oil rigs and the outside world is severely restricted to public payphones only. Digital communication with ONGC's oil rigs, by third parties, is not allowed. Whilst onshore in Bombay, I utilised my Nokia 6150 mobile phone for most of the voice calls and was able to transmit and receive e-mails and facsimiles to the UK and the US via the infrared port, using a laptop computer.

My final project with Rolls-Royce plc was remote machinery diagnostics for seven gas turbines owned by bp Indonesia, Conoco and Shell Philippines. These three companies had signed multi-million dollar asset management agreements with Rolls-Royce to manage the maintenance of the machines and to remotely monitor their condition for a period of ten years. The seven turbines were all located offshore in the South China Sea. The virtual team consisted of members in Birmingham, Indianapolis, Jakarta, Manila, Melbourne, Ohio and Singapore. Monthly invoice payments to RolIs-Royce were performance related and penalties were to be applied if machinery efficiency fell below 98.5 percent.

I hired a team of five engineers to be based in the Singapore office of Rolls-Royce and installed several dedicated broadband internet lines for each customer. Using Microsoft SQL and Oracle databases, virtual team members throughout the global company were able to view 300 turbine parameters almost real-time, with only a delay of approximately three seconds. By this method, quality experts in Indianapolis liaised with field technicians from Melbourne and production operators in Jakarta to resolve problems during teleconference calls whilst simultaneously viewing real-time performance data via the internet. Based in Singapore, I was the customer's single point-of-contact for all technical and commercial issues. The global network of Rolls-Royce plc was used, via intranet, to obtain answers to questions beyond my capabilities and a customer response time of same-day or 24 hours was usually achieved. Monthly customer meetings in Jakarta and Manila enhanced the virtual teamwork.

List of references

Anderson, F.F. & Shane,H.M. 2002, 'The impact of netcentricity on virtual teams: The new performance challenge‘, Team Performance Management, 2002.

Andres, H. P. 2002, 'A comparison of face-te-face and virtual software development teams', Team Performance Management, 2002.

Conner, D.S. 2003, 'Social comparison in virtual work environments: An examination of contemporary referent selection', Journal of Occupational and Organizational Psychology, March 2003.

Fitzpatrick, W.M. & Burke, D.R. 2001 ,'Virtual venturing and entry barriers: Redefining the strategic landscape', S.A. M. Advanced Management Journal, Autumn 2001.

Hagen, M.R. 1999, 'Teams expand into cyberspace', Quality Progress, June 1999.

Koch, C. 2000, 'Collective influence on information technology in virtual organisations-emancipatory management of technology?', Technology Analysis & Strategic Management, September 2000.

Konrad, A.M. & Deckop, J. 2001, 'Human resource management trends in the USA Challenges in the midst of prosperity', International Journal of Manpower, 2001.

'NOVELL: Novell delivers iChain web security software - the gatekeeper to network and application resources', M2 Presswire, 18 October 2001.

Peters, T. 2003, Liberation Management, Macmillan, London

Robbins, S.P., Bergman, R., Stagg, I. & Coulter, M. 2003, Management, Prentice
Hall, Australia.

Staples, D.S. 2001, 'A study of remote workers and their differences from non-remote workers', Journal of End User Computing, April-June 2001.

'Surfing the virtual workplace', Businessline, 22 July 2002.

Taylor, R. 2001, 'Workers unite on the internet: TRADE UNIONS: They were as workplace relics quietly fading away. But information technology may offer labour organisations a new lease of life', Financial Times, 11 May 2001 .

'Technology: Substitute or complement?', Businessline, 2 September 2002.

Waiters, D. & Buchanan, J. 2001, 'The new economy, new opportunities and new structures', Management Decision, 2001

Williams, G. 2002, 'Virtual organisations? Union survival in the outsourced workplace', Management Research News, 2002

Witzel, M. 2002, 'lack of tangibles can be an asset MANAGEMENT A-Z: VIRTUAL ORGANISATION:', Financial Times, 29 August 2002.

I originally wrote this article, “Customer relationship management” in November 2003.  A systematic process is used to prepare a comprehensive proposal to a sponsor for approval to implement a Customer Relationship Management (CRM) System in an organisation.  The proposed system introduces a new information system and improves organisational productivity.  The sponsor is a financial institution.  The information system supports the strategic goals of the organisation where it will be implemented.  A systematic approach was followed to identify the opportunity and the choice of proposed system is justified.  A feasibility study for the system is proposed, including system investigation and the preparation of functional specifications for the intended system (from a managerial viewpoint) and a system implementation plan is given.

Summary

An investment is proposed for the implementation of a customer relationship management (CRM) system within the client company over a six month period. It is the optimum solution to the client’s problem of how to achieve their sales revenue growth requirement for the next five years.

The proposed system has a good fit with the six strategic goals of their business. In particular, it meets the need to secure lifelong customers who buy the most profitable products using the client’s unique service.

The  problem of achieving sales revenue growth is solved using a systems approach. First, we established that the problem has the four components of; creating customer awareness, encouraging sales, maintaining repeat custom and deciding upon the marketing mix.

Six alternative solutions to the problem are appraised. Mass marketing, CRM, local distributors, local sales representatives, advertising and the internet are considered. These possible solutions are evaluated against the defined problem, cost, time and the degree of fit in supporting the business goals.

The optimum solution is a CRM system to focus the marketing and sales efforts in the right direction. It is envisaged that the system will help to attract, retain and get customers to spend more with the company. Using a relational database, the system will be used to co-ordinate the direct mail and telemarketing campaigns.

A feasibility study is required during the systems analysis and conceptual design phase to ensure that it meets the requirements for data; warehousing, extraction, management, mining, analysis and query. Implementation of the project will proceed only upon a favourable outcome from the feasibility study.

Project implementation is in nine stages. The critical stage is that of training staff in system adoption, data mining, use of technology and in how to get system support.

Introduction

The client company is a new business venture formed to utilize an opportunity to satisfy a UK demand for Asian products exported from Singapore by air parcel. The target market is small British retailers who already sell antiques, clocks, gifts, handicrafts and home decor. They compete by having product variety, and very few currently sell handcrafted goods from Asia. Their present offerings are either locally made expensively machined products or poor quality imports from wholesale warehouses. The client company offers good quality, high value, low weight, hand-made Asian products by 7 day delivery air parcel for payment by credit card.

Strategic goals of the organization

The client company has six strategic goals, and they are:

• Annual export sales of S$2M in 5 years and 10% net profit after tax - The client company will acquire 500 lifelong European retail outlet customers. The average order value is S$800 per consignment and the client company will receive bi-monthly or quarterly orders from each customer. Gross margin for the cost of goods sold is 50% and the cost of doing business is such that net profit after tax is 10%.

• The client company’s customers have high inventory turnover - The order quantity requirements are smaller than that of the client company’s competitors and reduce the amount of cash tied up in the customer's inventory. The customer's higher inventory turnover enables them to place smaller orders which are delivered more often. Their risk of holding low demand products is reduced.

• The client company’s value chain is shorter than that of their competitors - The value chain is shorter than that of the competitors because UK wholesale warehouses are eliminated. The client company’s customer is the retailer, not the wholesaler, and deliveries are door-to-door from Singapore to Britain by air parcel - not container ship.

• The client company’s goods have a money-back guarantee - Credit is not offered to customers and all order payments are made through Visa and Mastercard credit card companies. However, the credit card companies give 4 to 7 weeks free credit to customers and the client company is paid monthly by the credit card companies, who dictate the money-back guarantee.

• The system of competing is unique, integrated and not easily imitated - The client company only sells products to the target market that fits their particular business model. The minimum order value is S$750 and each consignment weighs less than 15Kg. Goods within each consignment are high value, have a high price to weight ratio and are only sold to the target market of small UK retailers who sell antiques, clocks, gifts, handicrafts and home decor.

• Competition with the small British retailer is not promoted - The Asian product mix is not readily available in Britain and there are very few competitive outlets already in existence which specialize in similar products. Administration costs are minimized by having a minimum order value of S$750 and, by this mechanism, not selling direct to British end-users. Additionally, substantial discounts are not offered for larger order quantities because this leads to lower retail prices and a perceived lowering of product quality.

Systems approach to solving the problem

An approach is used, as described by O'Brien (1999:p.80), to systematically solve the problem in 5 steps:

• Recognize and define the problem using systems thinking
• Develop and evaluate alternative system solutions
• Select the system solution that best meets the requirements
• Design the selected system solution
• Implement and evaluate the success of the designed system

Problem definition

The problem of acquiring 500 lifelong customers is identified as having the four key components of; creating customer awareness, encouraging sales, maintaining repeat custom and having the right marketing mix.

• Customer awareness - How does the client company make UK retailers aware that their company and marketing mix exist? The client company has just recently created their new business venture and, until they can reach their customers, nobody knows who they are, what we sell, where they are located and why they should do business with them.

• Encourage sales - If the client company manages to reach their target market then what can they do to encourage customers to place orders with their company? Customers may be aware that their company exists but inertia, tradition or apprehension may influence their buying decision process and divert custom away from their company.

• Maintain repeat custom - Having secured their first order from a customer, how do they achieve 'lock-on' and create a lifelong customer? If a customer doesn't enjoy a good experience with the company during the first transaction then the relationship may end after one sale.

• Marketing mix - How does the client company know that the product mix is priced correctly through the right distribution channel and that the promotion tactics work? Is there a market demand for the initial offering? Is the end-user willing to pay the retailer the recommended price? Is the marketing campaign investment giving the required return? Are small UK retailers the best distribution channel?

Evaluation of alternative systems

Six alternative solutions have been developed to solve the problem:

• Mass marketing
• Customer Relations Management system
• Local UK distributors
• Local UK sales representatives
• Advertising
• Internet site only

The six alternatives solutions have been evaluated as to how they fit in supporting the business goals and solving the problem:

Problem	Mass marketing	CRM system	Local UK distributors	Local UK sales representatives	Advertising	Internet site only
Customer awareness	Very low response rate	Low response rate	Low incentive to promote client’s products	High cost and time to establish contacts	Very high cost and very low response rate	Low cost but no response
Ecourage sales	Very low probability of obtaining orders	Moderate probability of obtaining	Moderate probability of obtaining orders	High probability of obtaining orders	Low probability of obtaining orders	Very low probability of obtaining orders
Maintain repeat custom	No relationship building	High relationship building	Moderate relationship building	Very high relationship building	No relationship building	Very low relationship building
Marketing mix	Very low customer feedback	High customer feedback	Moderate customer feedback	High customer feedback	No customer feedback	Low customer feedback
Cost	Moderate	Moderate	High	Very high	High	Very low
Time	Quick	Moderate	Slow	Slow	Quick	Quick
Degree of fit in supporting business goals	Low - not target market and could promote competition to small retailer	High - meets all business goals	Low - extra stage in value chain and not unique selling system	Moderate - reduced profit	Low - not target market and could promote competition to small retailer	Low - not target market and sales goal not possible

Our development and evaluation of the six alternatives gives the optimum solution to our problem of acquiring 500 lifelong customers profitably as being to implement a customer relationship management system.

Proposed system

The proposed customer relationship management system has the benefit of facilitating the business goals at a reasonable cost. This represents a saving on the appointment of UK sales representatives to achieve comparative results.

The CRM system will focus the client company’s marketing and sales efforts in the right direction, allow statistical analyses of the marketing campaigns and fit the business goals.

The client company’s revenues will not be enhanced by selling more core items but by increasing the amount of spending customers do with the client company. The system will enable the client company to monitor and enhance the longevity, depth, breadth and diversity of spending by their customers. It will identify customers with opportunities, as well as customers at risk. The system will allow the client company to understand the differences among customers, particularly the nature and intensity of the relationship they currently have with the client company, so the depth, breadth and the length of their relationship can be improved. By developing a multidimensional customer typology (segmentation scheme), the client company will select segmentation variables which show customer's preferences for products and the intensity (magnitude and frequency) of their relationship with the client company. It can be determined what the most profitable customers look like, who the high-risk customers are and describe customers who have a high propensity to buy certain products.

A proprietary relational database will be populated by client company staff with 10,000 to 30,000 small UK retailers who already sell antiques, clocks, gifts, handicrafts and home decor. Basic information for the target market is available from UK regional Chambers of Commerce, trade directories, Yellow Pages, etc. Commercially available data bases are avoided because they are notoriously unreliable and very expensive. Weekly regional direct mail campaigns will target London, followed by Birmingham, Leeds, Sheffield, Bradford, Liverpool and Manchester. Each batch of direct mail is to be followed by telemarketing calls from the single point-of-contact staff at the client company’s call centre.

The business goals of the client company will be supported by the CRM system. Their sales and profit goal will be made possible by getting direct mail I telemarketing response rates better than the 2 to 3% achievable by direct mail alone. This will assist the client company to get a critical mass of customers locked on and will create a platform from which to stretch their product range into the many areas of their end-users' lives. The customer benefits of a high inventory turnover, money-back guarantee and 'small retailer only' target market will be explained by the client company’s telemarketers to potential customers and their responses will be recorded into their database for analysis. High value to weight products, for low shipping costs, will be selected to match the particular requirements of individual groups of customers, from their database response records, to further focus on market niches.

Feasibility study

A feasibility study is required within the systems analysis and conceptual design phase of the client company’s implementation plan. The implementation of CRM within their company is a major undertaking and they need to make sure that they have sufficient resources and are able to integrate this system with their other management information systems. This will involve the development of many processes within their business model. Hardware, software and resource costs and the time taken to implement the CRM system need evaluating to verify that the project is feasible.  The implementation plan will proceed only if the results of the feasibility study are positive, thus enabling the project to be completed.

It needs to be determined if, within the business constraints, it is viable to implement -

• Data warehouse information - customers calling the client company, their purchases, transaction history, complaint history, data archaeology, contact, customer business, group, history, promotion, product purchases, survey and customer response data, customer interaction data.

• Data extraction and cleansing

• Data management and storage - logical stores of information

• OLAP or data mining applications

• Data analysis and query tools - sliced and diced system reports

These are the main features required of the CRM if implementation is to proceed and the project is practical.

Implementation

Implementation of the CRM system is in the eight stages of strategic planning, research, system analysis and conceptual design, design, construction, implementation, maintenance and documentation, adaptation.

• Strategic planning - complete business process analysis, identification of   customer interaction points and decision support requirements.

• Research - assessment of market conditions, business resources and possible technological means of meeting business needs.

• System analysis and conceptual design - user interaction, software and hardware vendor assessment, data design, scalability and feasibility study.

• Design - detailed specification, selection of specific software packages and core technologies.

• Construction - execution of design plan

• Implementation - training program for staff in; system adoption, support     seeking, technology, data mining techniques.

• Maintenance and documentation - system performance evaluation, data quality, data quantity, confirmation of meeting DSS needs.

• Adaptation - modifications to the system to match changes in the market and business.

A phased roll-out is planned, commencing with a pilot program.

Conclusions

The client company’s first strategic business goal of annual export sales of S$2M in 5 years is achievable with the proper management tools. The proposed CRM system is one of those tools. It’s not pretended that use of this technology will solve all of the problems. It is the people within the company, using this technology, that will determine the success of the venture.

List of references

Q'Brien, J.A. 1999, Management information systems: managing information technology in the inter-worked enterprise, 4th ed., Boston, Irwin McGraw Hill.

I originally wrote this article, “Enterprise Resource Planning” in October 2003 when I analysed the Fast Food Industry’s business models using the competitive forces and value chain analysis models.  I explained that an Enterprise Resource Planning System would provide a good solution to McDonald’s challenges.  The critical success factors driving technological were identified and reasons for the failure of information systems, within the fast food industry, were given.  The managerial, organisational and technology factors that caused these problems were explained.  The role and impact of alternative information systems development projects were evaluated in terms of the future strategic directions to be taken by McDonald’s and Burger King.  The undertaking of risk evaluations are recommended with each project.  Finally, I recommended an approach to prevent the negative impact of technology upon the people concerned, including the financial performance of the stock.

BUSINESS MODEL ANALYSIS

Competitive forces model

The competitive forces within the fast food Industry can be analyzed using Michael Porter's competitive forces model, described by O'Brien (2003:p.42). These forces are the bargaining powers of customers and suppliers, competitor rivalry, new entrant threats and the threat of substitutes.

Customer bargaining power is high and created by fast food outlets being located in close proximity to each other. Prices are readily displayed, giving the customer a real choice of which outlet to buy from.

Supplier bargaining power is low because of the concentration of suppliers and the availability of substitute suppliers.

Competitor rivalry is high because it is difficult for fast food companies to distinguish themselves from their competitors, so the challenge has intensified.

The threat of new entrants is caused by the relatively low entry barriers into the fast food business. MOS Burger and Wendy's are examples of new entrants.

The threat of substitute fast food products is affected by trends, such as increased health consciousness, and cost changes.

Using Michael Porter's above model; competitive strategies of cost leadership, differentiation, innovation, growth, alliances and other tactics are used in the fast food industry to counter the actions of the above competitive forces.

A cost leadership strategy used by fast food companies requires efficient facilities, cost reduction programs and tight cost control by a structured organization with defined responsibilities.

An example of a differentiation strategy is that used by McDonald's to distinguish it's products and services from Burger King, etc. by introducing wholesome foods, re-introducing hostesses to carry trays and exploiting the Ronald McDonald mascot for the brand experience.

Innovative strategies employed by fast food companies include; operating units in non-traditional markets, dual branding, food science experimentation and test marketing of new products to adjust to the consumer's changing food tastes. For example, on 8th October 2003, McDonald's appointed a Director of Worldwide Nutrition to help guide McDonald's nutrition and active lifestyle initiatives, McDonald's (2003c).

The growth strategies of a fast food business expand the company's ability benefit from the economies of scale, product integration and global expansion. Both McDonald's and Burger King see the Eastern Hemisphere as a place to expand and compensate for the more saturated market in America and Europe.

Alliance strategies are becoming more prevalent in the fast food industry. Competitors like KFC and Pizza Hut share common locations and home delivery services. McDonald's have more than 800 restaurants in Wal-Mart stores.

Another strategy used by McDonald's to counter competitive forces is sponsorship. For the first time, the company became the exclusive worldwide sponsor of the Olympic Day Run, in addition to being committed to the International Olympic Movement for more than 30 years, McDonald's (2003b)

Value chain analysis model

The business model within the fast food Industry can also be analyzed using Michael Porter's value chain analysis model, described by Kotler (2003:p.70), as a tool for identifying ways to create more customer value. The primary activities in the generic value chain are in bound logistics, operations, outbound logistics, marketing, sales and service. The support activities are firm infrastructure, human resource management, technology development and procurement.

Using McDonald's as an example of a fast food business, the primary activities of logistics and operations are decentralized whereas sales, marketing and service are centralized, according to Lorentzen (2000). Each region of restaurants manages its own supply of materials and operational efficiency to create customer value, but sales, marketing and service are centralized.

The fast food business support activities are usually centralized, with the exception of procurement. McDonald's implements a centralized Supplier Social Accountability Program and Supplier Product Quality Program, reports Beurskens (2002), as a condition of doing business with the company. However, whilst a supplier is in compliance with these procurement programs, buying from these suppliers is controlled regionally.

An ERP as a good solution to McDonald's challenges

McDonald's has 10 challenges:

• Customer satisfaction - McDonald's has been ranked the worst company for customer satisfaction in America for a decade.
• Franchisee monitoring standards - The company has no system for monitoring standards, so as to avoid trouble with the franchisees.
• Investor relations - McD's share price has underperformed the S&P500 for several years. Investors want a tighter, more centralized McDonald's.    Instead of aggressive expansion, investors want the company to concentrate on the profitability of existing stores, The Economist (2001).
• Threat of substitutes - The future of fast food may be congee, tofu and roast duck as Chinese will displace the burger and pizza, says The Economist (2002a). The Economist (2002b) reports that sales at McDonald's and Burger King are declining and 'fast casual' gourmet sandwich, salad and soup chains are taking market share. McDonald's offering looks increasingly outdated.
• Changing customer eating habits - “The world has changed. Our customers have changed. We have to change too", says McDonald's CEO, Jim Cantalupo, in The Economist (2003). There are too many confusing meal choices and variety will be reduced and salads, yoghurts and sliced fruit introduced.
• Growth - The company no longer aims to be bigger than everybody else in the fast food industry, just better. A decade of stagnant US store sales was followed by declining sales in 2002. like Coca-Cola or Disney, McDonald's is in the maturity stage of it's life cycle and, as a cash cow, needs milking.
• Capital investment - The company massively misallocated capital for decades, according to The Economist (2003), and slashed capital spending by a third, to USD1.2 billion, for 2003.
• Out-of-date strategies - The Economist (2003) quotes an analyst as saying that McDonald's top management, shaped by previous out-of-date strategies, lacks the vision or stomach to make the necessary changes."
• Decentralization - The company decentralized operations in 1998 to rebuild tattered relationships with franchisees. However, this caused reduced service, quality and cleanliness standards. McDonald's new CEO promises improvements in franchisee restaurant management.
• Franchisee alienation - The poorly executed and imposed 'Made For You' kitchen initiative had an adverse effect upon franchisee revenue growth and profits.

An enterprise resource planning (ERP) system would provide a good solution for McDonald's 10 challenges.  The company's internal businesses would be integrated and improved through a framework. This would enable monitoring of franchisee standards and increase customer satisfaction. An ERP would increase efficiency, thereby reducing costs and improving investor relations. Quick access to sales information would allow the company to develop menus to match the changing eating habits of customers, counter the threat of substitutes and make informed capital investment decisions. The decision support from an ERP would also enable strategies to be adjusted and brought up-to-date. Centralization of the many regional and departmental existing information systems would give greater agility to McDonald's.

Burger King's ERP system, reports Malcom (2003), enables the company to analyze sales trends and track food costs on a daily basis and is also used by marketing to analyze the product mix. A growing number of fast food companies, like Burger King, are standardizing their systems on packaged ERP systems, according to Songini (2002). Burger King uses Microsoft's “Business Solutions” says iStart (2003)

CRITICAL SUCCESS FACTORS

Critical success factors driving technological change

The 'Investor Fact Sheet, McDonald's (2003a) defines the company's critical success factors as being those of McCarthy's Four P Components of the Marketing Mix, Kotler (2003:p.16), plus people - Product, Price, Promotion, Place and People.

The product variety needs to match changing customer tastes and swift fast food outlet feedback is necessary to drive the changing product mix. Product quality requires controlling and customer service needs improving.

The food price is determined by market forces, so costs need reducing through greater operational efficiency. Operating profits and returns on investment call for improvements.

Promotion of McDonald's brands needs re-building to differentiate its products and service from competitor offerings.

The place where customers dine, the McDonald's restaurant, has lost it's status as the gold standard for clean restaurants. It needs re-imaging, rebuilding and renovating.

The people who produce the restaurant food require training to deliver better customer service and educating in the use of technology for logistics, production and sales.

Reasons for failure of IS within the fast food industry

The 6 reasons for failure of IS within the fast food industry are; project cancellation, user resistance to IS, system crashes, user lack of understanding IS, bad system performance and IS not meeting expectations.

Management, organizational, and technology factors

Poor management can cause IS project cancellation. McDonald's wrote off $170 million already spent on a project in 2002 when they unexpectedly realized that the final cost would exceed $1 billion.  Taylor (2000) identifies scope management as the leading management activity leading to IS project failure. Companies tend to underestimate the planning complexity, development and training required to change business processes. Compressing new IS roll-out periods, an over reliance upon expensive and external ERP consultants and overstated expectations also contribute to IS failure.

Organizational factors in the fast food industry contribute to IS failure, especially if corporate IT systems are linked to individual stores or franchises that have workers who are relatively unfamiliar with technology, according to Computer Weekly (2002). The non-involvement of affected workers in development and insufficient employee training in ERP can also cause IS project failure.

Technology factors are the least cause of IS failures. Technology problems are only responsible for between 12 and 15 percent of projects that don't work, says Everett (2002).

ALTERNATIVE IS DEVELOPMENT PROJECTS

Role and impact of alternative IS development projects

The role of alternative IS development projects in the fast food industry is to increase revenues and reduce costs.

McDonald's has tested automated order taking machines, using paper money only, says Belilos (1999).

The VISA quarterly report (2002) describes how Burger King and VISA are developing cashless payment.

Contact-less, cashless payment, according to Longini (2002) and Kuykendall (2003), is accepted at certain fast food outlets, e.g. McDonald's in Chicago in the form of a car key fob.

Centralized management of HVAC, lighting and food processing energy conservation systems, reports Sheehan (2001), is being tested by McDonald's at their restaurants in Atlanta, Chicago, Colorado springs and San Francisco.

Ewalt (2002) and Hamblen (2002) say that Burger King uses Palm-100 PDA programmed warming bins in 500 company-owned restaurants and is transitioning to all of it's 8,000 outlets.

McDonald's is looking at putting in an electronic invoicing system that will be integrated into it's network, reports Newman (2002).

Singer (2003a), Black (2003) and Krane (2003) report that McDonald's unveiled wireless hotspots at 10 restaurants in New York and plan to "unwire” 300 restaurants by the end of the year. The New York launch was followed by a similar launch in San Francisco, according to Singer (2003b), and subsequent openings in Chicago, Canada and Australia, reports Kaye (2003).

Burger King, according to Hulme (2003), uses identity and access management systems at a cost of $5 to $25 per employee to protect access to it's systems because of rapid staff turnover.

The impact of automated order taking and cashless payment is to reduce order processing times and cash handling costs. Energy conservation, programmed warming bins and electronic invoicing all reduce operational costs. The impact of WiFi is to increase sales revenue by attracting new customers or retaining existing customers who might be tempted to use the facility elsewhere.

If McDonald's and Burger King choose the strategic directions of cashless payment to reduce costs and WiFi to increase sales revenues then substantial capital investment is required.

Risk associated with each project

Risk evaluation is required at the beginning of each project to evaluate the risk probability and magnitude of effect of the occurrence of the risk associated with each project.

The risks associated with ERP and operational efficiency systems implementation vary according to whether the project has a piloted, phased or 'big bang' roll-out. Risks connected with existing legacy systems, crash contingency plans, stoppages etc. need evaluating. Floyd (2000) says that "the obvious places to start a phased migration are with the 'easy' modules, like Fixed Assets and General Ledger.

Cashless payment IS project risks include system crashes, software and hardware bugs, card theft, communication problems and employee training.

Prevention of negative impact of technology

Technology is prevented from having a negative impact on the people concerned by involving them from conception to completion of each project. Users need to be involved in project development and they need to be trained. Pilot programs require assessing and investors should be kept informed of the hefty financial commitment before the first cheque is written.

McDonald's have introduced e-Ieaming tools in restaurants to bridge the technology skill gap of franchisee employees required to use new information systems. Jones (2001) quotes McDonald's as saying, "This is not a white collar tool. This is a business tool”.

Customer and employee acceptance of new technology can be assessed using pilot programs. For example, a new POS contact-less smart card has been tested by McDonald's and Mastercard in Orlando, says Lingblom (2003).

The financial performance of the stock can be protected by making provisions in several years of accounts for investment in IS. The total costs must be realistic and must include all costs for data conversion, employee training, software, hardware, implementation, maintenance and a risk contingency

List of references

Belilos, C. 1999, 'Technology enhancing service at MacDonald's', CHIC Hospitality Consulting Services, 16th August 1999. Retrieved: from http://www.easytraining.com on 1 th October 2003.

Beurskens, F. 2002, 'Value of Supply Chain Management Issues from the Customer's Perspective', Corn Utilization and Technology Conference 2002, 3rd June 2002. Retrieved: from www.agribiz.com on 1ih October 2003.
Black, J. 2003, ~The Magic of Wi-Fi', Businessweek, 18th March 2003. Retrieved: from www.businessweek.com on 17th October 2003.

'Burger King standardizes ERP menu', Computer Weekly, 9th July 2002. Retrieved: from www.computerweekly.com on 17th October 2003.

Cantalupo, J. 2003, 'McDonaJd's eMac Digital News', McDonald's Corporate Press Release, 20th May 2003.
'Did somebody say a loss?', The Economist, 10th April 2003.

Everett, C. 2002, 'Special Report - The slings and arrows of CRM', Akibia, 18th July 2002.

Ewalt. D. M. 2002, 'PDAs get more innovative, from food-service to life-saving functions', Informationweek, 9th September 2002. Retrieved: from www.informationweek.com on 17th October 2003.

Floyd, T.H. 2000, 'Phased ERP Implementation instead of "The Big Bang"', ERP World West, Anaheim 2000. Retrieved: from www.supgrp.com on 17th October 2003.
Hamblen, M. 2002, 'Field Report: Want Fries With Your PDA?, ComputelWorfd, 29th July 2002. Retrieved: from www.computerworld.com on 17th October 2003.

Hulme, G. V. 2003, 'Companies can cut costs significantly by implementing software that manages users' access to applications', Informationweek, 20th January 2003. Retrieved: from www.informationweek.com on 17th October 2003.

'Investor Fact Sheet', McDonald's, May 2003a. Retrieved from www.mcdonalds.com on 1th October 2003.

Jones, M. 2001, 'Comdex E-Ieaming experts call for knowledge management rethink', Infoworld, 15th November 2001. Retrieved: from www.infoworld.com on 17th October 2003.
'Junk food?', The Economist, 5th December 2002a.

Kaye, T. 2003, 'Will you be having a McWiFi with that, sir?', Australian IT News, 26th August 2003. Retrieved: from www.australianitnews.com.au on 17th October 2003.

Kotler, P. 2003, Marketing Management, 11th ed., Prentice Hall, New Jersey, USA.
Krane, J. 2003, 'Burgers, Fries, And Wi-Fi', Informationweek, 11th March 2003. Retrieved:
from www.informationweek.com on 17th October 2003.

Kuykendall, L. 2003, 'Will Contactless Payments Prove Sticky?' I American Banker, 9th June 2003. Retrieved: from http://aO-gateway.proquest.com.ezproxy.scu.edu.au on 17th October 2003.

Lingblom, M. 2003, 'Mastercard puts contactless smart card to the test', CRN.Jericho, 3rd March 2003, Iss. 1035; p. 55. Retrieved: from http://80-gateway.proquest.com.ezproxy.scu .edu.au on 1ih October 2003.

Longini, P. 2002, 'Models for Internet Success and Failure', Techyvent, 7th January 2002. Retrieved from www.imakenews.com/techyvent on 17th October 2003.

Lorentzen, 1.2000, tlmplementing multi-site ERP projects: centralization and decentralization revisited', Department of Sociology, NTNU Inform. Science, Norway.
Malcolm, A. 2003, 'Aussie burger chain gains Kiwi smarts', IDG Communications Ltd, 24th January 2003. Retrieved: from www.idg.co.nz on 1 ih October 2003.

'McDonald's Announces Worldwide Sponsorship of Olympic Day Run', McDonald's Corporate Press Release, McDonald's 16th June 2003b.

'McDonald's Corporation Announces Worldwide Nutrition Director' I McDonald's Corporate Press Release, McDonald's ath October 2oo3c.

'Microsoft Business Solutions delivers for Burger King', iStart Limited, February 2003. Retrieved: from www.istart.co.nz on 17th October 2003.

Newman, K. 2002, 'McDonald's seeks closer electronic relations', iStart Limited, August 2002. Retrieved from www.istart.co.nz on 1ih October 2003.

'Not so fast', The Economist, 5th December 2002b.

O'Brien, J. A. 2003, Management Information Systems, McGraw Hill, New York, USA.

Sheehan, M. 2001, '10 Ways to Cut The Cost of Energy', H T Magazine, March 2001. Retrieved from www.htmagazine.com on 1ih October 2003.
Singer, M. 2003a, W-Fi Gets 'Super Sized", IT Management, 11th March 2003. Retrieved: from www.itmanagement.earthweb.com/erp/article.php/2107771 on 17th October 2003.

Singer, M. 2003b, 'McDonald's Serves Up Wi-Fi in SF', Jupitermedia Corporation, ath July 2003. Retrieved: from www.cioupdate.com on 17th October 2003.
Songini, M. L. 2002, 'Burger King Upgrades to mySAP.com', Computerworld, 15th July 2002. Retrieved: from www.computerworld.com on 17th October 2003.

'Spotlight: Burger King Pilot', Visa Quarterly Report, Visa, August 2002. Retrieved: from www.visa.com/usnewsroom on 17th October 2003.

Taylor, A. 2000, 'IT Projects: Sink or Swim', The Computer Bulletin, January 24-26. 'Where's the beef, The Economist, 1st November 2001.

I originally wrote this article, “Online retail“ in April 2003.  The effectiveness of the marketing and operations management of Amazon.com are discussed and changes are suggested to improve the management of these functions.

Introduction

Amazon.com is an international business with operations in Asia, Europe and the US.  Using the latest internet technology, the company trades in goods online and provides services to other companies. Amazon.com owns several patents based upon internet technology.  'Amazon.com Reports Second Profit Ever' (2003) describes how the company's revenue for 2002 was $1.43 billion, up 28% from 2001's figures and annual sales for 2003 are expected to increase by 15 percent upon sales for 2002. Net income for the company in the last quarter of 2002 was $2.7 million, down 48 per cent from the same period in 2001. A $40.6 million exchange rate loss in the euro contributed to this fall as Amazon's $2.15 million borrowings are in this currency.  However, euro fluctuations in 2001 gained the company $16.3 million.

International sites in Japan, Germany, France, UK and Canada provided the company with the largest growth during 2002.  The annual revenue for each international site increased by more than 60% in 2002. This created a 76 per cent annual increase for the international business, outside the US, to $461.4 million.

The company was founded in 1995 by Jeff Bezos and Schepp (2002) describes how Jeff attributes continuous improvements in computer and internet technology as being key to the success of his operations. According to Moore's Law, a doubling of speed in computing technology takes place every year. Lower prices, faster delivery and new web-site features have been achieved by Amazon as a result of this.

International marketing business strategies

Amazon's SEC report ‘Annual Report Persuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31,2002' (2003) includes their mission statement, “We seek to offer Earth's Biggest Selection and to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online. We have designed our Web sites to allow millions of new, used and collectible products to be sold by us and by other businesses and individuals worldwide. A product on our Web sites may be listed for sale simultaneously by several different sellers. For instance, a product may be offered by us, by a participant in our Merchants@ program and by a business or individual selling a new, used or collectible version of the product through Amazon Marketplace, zShops or Auctions. We also offer certain e-commerce services to other businesses through our Merchant.com and Syndicated Stores programs." The expansion of Amazon's product and service range appears to be getting to a stage where either the company should consolidate its position within the market or split up the company. There is a danger that customers and management will find it hard to focus and identify with the aims of a company with such a diverse product I services mix.

Cost leadership is the international business strategy adopted by Amazon.  Additionally, the company also adopts a strategy which attempts to differentiate its products and services from that of its competitors. The product range is greater than that of high street book sellers. Promotion of Amazon's products is online rather than in-store and distribution is centralized via courier, rather than personal pick up of the product from the retailer. However, with such a variety of products, its competitors are not now just the booksellers. It is any company that sells any of its products either offline or online.

To attain synergy and competitive advantage, Amazon has strategic alliance partner networks with other retailers. Jeff Bezos' goal is to provide customers with a single source of supply. "Our vision is to become a one-stop shopping place for anyone to buy anything. It will be done not exclusively by us alone but in conjunction with what will ultimately be thousands of partners. The benefit of which is lower prices and better selection for Amazon customers“. I would recommend that the book sales business be separated from the 'one-stop shopping place'. Amazon have good experience with book sales but could jeopardize the success of this portion of Amazon by diluted efforts.

Last year, Amazon opened its fifth international business operation and expanded into the Canadian market. Amazon saw it as a natural choice as Canada was served by only one major online retailer, Heather Reisman's Chapters - Indigo. I consider that the choice of Canada for the latest international site was a mistake. Canadian law prohibits direct management of the operations and the company is in danger of losing control of its operations which are entirely subcontracted to third parties.  Additionally, the total population and population density of Canada isn't amenable to providing a wide variety of products with a quick delivery service.

Think global, act local

Amazon's marketers had to decide between an ethnocentric, polycentric or geocentric approach to their international operations.  They chose geocentric marketing and operations management. To the international consumer, it appears to be a polycentric company. Each website, for countries whose first language is not English, is available in that country's language and English.  However, Amazon achieves this "think global, act locally" approach through the clever use of software.  They have developed a single piece of global software which can handle any language. This reduces their entry costs into further international markets.

Foreign pricing laws

Amazon's international pricing policy is influenced by the laws and regulations of host countries. For example, there is no law against price fixing in Japan. Publishers in Japan do not allow retailers to discount prices on their books. This means that Amazon's strategy is modified for the Japanese market.  Only books in non-Japanese language and other products are discounted.  List price is used for Japanese books. I recommend that Amazon focus on the product, promotion and place in countries where laws dictate list price. A larger product collection, online promotion and same day delivery would differentiate Amazon from its competitors in densely populated cities of certain countries.

Cultural differences

Soto (2002) describes how mobile phones are heavily used by the Japanese for online purchases. They spent $19.2 million for online purchase of books and music, via mobile phone in early 2002. Amazon lags behind its Japanese competitors, such as Kinokuniya, in the use of mobile technology for online purchases.  However, Amazon state that they expect only a small proportion of their sales income growth through mobile devices, compared with internet access through computers.

American culture and products are popular in Japan. Amazon bought 9% of the shares of a US company that specializes in assisting companies to expand into international markets using multi-lingual software.

Japanese preferences for payment methods has also affected another of Amazon's strategies in this country. The payment method to Amazon for goods, used internationally, is by credit card. However, the Japanese don't normally use credit cards for payment of goods. Amazon has changed its payment policy in Japan and offers cash on delivery, to suit the local market.

Branding

Amazon expects growth in its international markets to exceed growth in its domestic market. High international brand recognition is assisting this growth. For example, the market in Japan was developed prior to the company starting operations there.  Tens of thousands of Japanese customers were already patronising Amazon's other international sites, based upon the high brand recognition.  After commencing operations in that country, the Japanese web site now has revenues in excess of $100 million.

Yamada (2000) reports that three years ago, complaints started to be made about Amazon's alleged practice of dumping liquidated, discontinued, damaged, returned or overstocked products on its auction sites. Questions were asked as to whether this strategy conflicted with Amazon's quality branding image. In response to this criticism however, the company gave 'money back' guarantees for purchased items to a value of $2,500. I'd recommend that Amazon separate these business activities from its core business an operate them under a different company name to preserve their brand image in online book sales.

Pricing

Amazon's sales volumes increase yearly. The sales are driven by lower prices and Jeff Bezos claims that Amazon is lower in price because it can afford to be. 'Chewing the Sashami with Jeff Bezos' (2002) reports that although one of Amazon's long standing goals had been to reduce prices, it was only in 2002 that they were able to do so. A re-arranged cost structure from years 2000 to 2002 allowed the company to achieve this goal. Price reductions were achieved in three stages. Firstly, a 30 percent discount was offered on all books over $20. This was followed by free or discounted shipping. Most recently, the 30 percent discount was extended to books over $15.

Retail prices are discounted by 20 per cent to 80 per cent for liquidated products sold online by Amazon. This compares to 40 per cent to 80 per cent discounts offered by traditional liquidators. Amazon receives 5% sales commission for these products and the company's aim is to provide a better return than traditional liquidators can achieve. I'd recommend that liquidated products be sold by the company under a name other than 'Amazon' to preserve brand image.

Market pricing

Amazon's Canadian operations, which began last year, has adopted market pricing.  It discounts its top 40 bestsellers in Canada by 40%. Amazon's Canadian competitor, Indigo, was forced to adopt the same strategy. This form of geographic market pricing is necessary to compete in local markets.

Product prices can be adjusted to match changing geographic, demographic or economic market conditions using web-based systems. In 2001, Amazon tested market pricing but had to abandon the test after five days because of customer resentment.  I'd recommend that the company only use market pricing geographically.

Advertising

Amazon's expenditure to retain existing customers and to acquire new customers is very large. Advertising costs in 2003 will exceed $100 million.

The company has developed software that analyses the purchasing patterns of individual customers. It then recommends complimentary products based upon that particular buyer's previous buying history. According to Jeff Bezos, “The goal here is not rampant consumerism. The idea is to use technology to capture information about customers and their interests and match individuals with other products they might like, including products they don't know even exist."  I'd recommend that Amazon spend more effort in re-assuring the customer of how this information is exactly used to prevent mistrust.

Sales promotions

Soto (2003) reports that Amazon's free shipping promotion will cost the company $100 million in 2003.  Free shipping commenced at the end of 2002 and the campaign has proved to be so successful that the promotion will continue throughout 2003 for orders above $25 in the US and £39 in the UK.  Amazon attributes a 28 percent sales increase as being a result of the free shipping promotion. Free shipping is also offered at its international sites in Japan and Europe throughout 2003.  Sales volumes in the UK rose 32 percent for the end of 2002 as the British operations shipped 6.2 million products. The free shipping promotion contributed to a sales growth of 76 percent for its international operations at the end of 2002.  I'd recommend that Amazon use quantitative analytic techniques on a regular basis to match sales promotion expenditure with increase in sales revenue and make sure that it is a profitable activity.

‘Jeffrey P. Bezos' (2002) describes how Amazon offers a 15 percent commission to other companies whose web sites link a customer to Amazon, resulting in a sale. The web sites can recommend Amazon books and tens of thousands of these affiliate sites are linked to international Amazon sites.  I'd recommend that Amazon be selective in the frequency of payments to affiliates. Only a few hundred affiliates with large commissions due should be reimbursed monthly, the remainder being paid yearly.

International operations management

The international operations management is now organised on a geocentric basis.  The company merged the management of its US home country business with its international business operations in November 2001.

Supply chain management

Jeff Bezos states that the distribution philosophy at Amazon is different from traditional retailers. Amazon uses a centralized distribution system. The inventory is much reduced when compared to that of high street retailers. Jeff Bezos expects that this business decision will ultimately lead to a very high return upon the capital investment.

International couriers, international and national postal services are used by the company for distribution of its products to customers. Urban property identification is very different in Japan, when compared to Europe and the US. Many streets don't have names and there is often no sequence to property numbers. Amazon aligned with Nippon Express for customer deliveries to benefit from their 'in country' knowledge.

Amazon was taught a lesson from its distribution centre mistakes in the US and applied its learned experience in Europe. The company had previously constructed too much warehouse capacity in the US and was forced to close one warehouse. They built five automated warehouses but only actually required four.  After this, international depots were designed more efficiently.

International business accounts for one-quarter of Amazon's sales. However, much of this business doesn't involve products crossing borders.  For example, the business operation in Germany deals mainly in books produced in the German language. These books are published and distributed within the same country.

Supply problems have created difficulties for Amazon in Canada. The relatively small population leads to smaller stocks of fewer titles being held by the publishers.  It’s not economically viable to maintain huge stocks in Canada and this has lead to customer complaints of late deliveries. The business in Canada was created to alleviate the problems experienced by Canadians when they orders goods from the US.  High shipping costs and adverse exchange rates are avoided.  However, low warehouse stocks levels in Canada create the situation whereby it’s still quicker and cheaper for Canadians to order from Amazon's US operations. "It’s hard to come out of the gate perfect," acknowledges Amazon spokesperson Kristin Schaefer. "It’s difficult to know how to accurately manage and stock inventory until you know what customers are buying."

International logistics

Amazon ships products to 220 countries. Products are shipped to customers entirely domestically within international operations or via international inter-company transfers. Shipping times have been reduced by two-thirds and growth has been achieved in both international internal markets and export markets.

International distribution is offered to customers in three tiers. Customs clearance charges and import duties are the responsibility of the customer. Firstly, using DHL Worldwide Priority Express, products can be shipped in one to four business days.  Secondly, using DHL World Mail, products may be shipped in 7 to 21 days. The slowest shipping method is by surface mail and the shipping times are; 3 weeks to Canada, 6 weeks to the UK, 8 weeks to Australasia and 12 weeks to Brazil. Tracking of shipments from Amazon is available over the internet. I'd recommend that Amazon consider undertaking delivery to densely populated cities within the world through their own organisation, without subcontracting to third parties. This would provide a complete service to millions of customers and customs clearance would be facilitated.

International service operations

Amazon has international service operations where it derives income from partnerships.  Retailers use the international Amazon web sites as portals for purchase of their products. Borders, CDNow and Toys"R"Us are some of Amazon's partners. This exploits the benefits that Amazon receives from internet traffic.

The role of government

As well as crossing national borders, Amazon's business also crosses national laws.  Two interesting cases have arisen due to differences in US law and UK law.  Courts in the UK issued an injunction against the distribution of a book defaming the founder of a religious sect. The book was removed from all of Amazon's international websites. A huge protest ensued by the global public who criticized Amazon for globally applying UK law. The book was returned to Amazon's selection, except for the UK web site. Courts in the UK also issued another injunction against the distribution of a book defaming a political activist in the Northern Ireland dispute. The book was withdrawn from the UK website and sales from the US website are not allowed to residents of the UK. I'd recommend that Amazon pay more attention to the consequences of their actions with regard to the differences between the laws of different countries.

Europe is a large market for online shoppers but it is a collection of many individual countries, each having their own laws. There are common EU directives on e-commerce but irregular execution of these laws in member countries may splinter Europe into several different markets. Asbo (2003) reports Amazon as noticing that the value of transactions within the EU is growing alongside the increase in online trade. The company would like to see legislation keep pace with the technological advances being made. I'd recommend that Amazon continue to be involved, along with other e-commerce companies, in the harmonization of national laws.

Wolverton (2002) states that two of Amazon's technology patents were published by the US Patent and Trademark office last year. They were related to their particular system for online payment. Previous patents from Amazon were for its purchasing process, affiliates programme and recommendation service.  The company has lodged these patents for a particular reason. The techniques described within the patents are not particular technological breakthroughs. However, the processes are critical to the business of the company. Having the patents in the name of Amazon prevents any other company from suing Amazon or from threatening the core operations of the business.  Indeed, many other companies utilize the same techniques patented by the company. Amazon choose not to litigate against these other companies as evidence of their intention to use the patents purely in a defensive manner. This was a good tactic by Amazon to counter any potential legal threat to the operation of its core business.

Canadian law requires book retailing companies in Canada to have a minority of foreign ownership. Amazon expanded into the Canadian market, with books in the English and French languages, last year but had to adjust the operation to comply with Canadian law. It has accomplished this by using Canadian registered companies to provide supply and distribution services. However, a similar previous arrangement tried by Borders was disallowed by the Canadian Booksellers Association. Borders challenged the legality of Amazon's operations in the Canadian courts but lost.  As Amazon doesn't have an office in Canada, it works through partner companies and the Canadian government ruled that the Investment Canada Act did not apply.

References

'Amazon. corn Reports Second Profit Ever', Associated Press, January 24,2003. Retrieved: April 3, 2003 from http://www.tallahassee.com/mld/tallahassee/news/

'Annual Report Persuant to Section 13 or 15( d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31,2002' United States Securities and Exchange Commission, February 19,2003. Retrieved: April 3, 2003 from http://phx.corporate-ir.net

Asbo. P. 2003, 'Amazon exec warns that legal uncertainties hinders Eurpoean ecommerce', europemedia.net, February 20, 2003. Retrieved: April 3, 2003 from http://www.europemedia.net

'Chewing the Sashimi with Jeft Bezos', BusinessWeek online, July 15, 2002. Retrieved: April 3, 2003 from http://www.businessweek.com

'Jeffrey P. Bezos', METU Industrial Engineering Department, Ankara, Turkey, 2002

Schepp, D. 2002, 'Amazon's Bezos pushes growth', BBC News, June 3,2002. Retrieved: April 3, 2003 from http://news.bbc.co.uk/1/hi/business/

Soto, M. 2002, 'Amazon faces big test in international markets', The 8eaftle Times, April 22, 2002. Retrieved: April 3, 2003 from http://seattletimes.nwsource.com /htmllbusinesstechnology/

Soto, M. 2003, 'Earnings: Amazon posts second net profit', The 8eaftle Times,
January 24,2003. Retrieved: April 3, 2003 from http://seattletimes.nwsource.com
. /html/businesstechnology/

Wolverton, T. 2002, 'Amazon seeks patent for payment system', CNET Networks, Inc., September 23, 2002. Retrieved April 3, 2003 from http://news.com.com

Yamada, K. 2000, 'Shop Talk: Amazon.com's junkyard strategy', RHC Media, Inc., June 2, 2000. Retrieved: April 3, 2003 from http://www.redherring.com/insider/

I originally wrote this article, “International business” in March 2003.

Reasons for international business growth

'Marriott to double Wi-Fi coverage' by Junnarkar (2003) is a good example of the reasons for international business growth.  The article reports upon a strategic alliance between Intel and Marriott to provide high speed internet wireless access in the US, Canada and Europe.  It shows how market expansion, competitive forces, technological changes and social changes create international business growth needs for both Intel and Marriott.

Junnarker (2003) quotes a Marriott vice president as saying, 'High speed internet access is one of the most common requests at our worldwide reservations department.' The article notes that 'many hotspots offer free access, but security concerns often keep business travellers from tapping into the network.' Marriott, with Intel, will expand into the market of providing secure high speed internet access for business travellers. The article also describes how Intel is working with companies such as Marriott to 'verify wireless compatibility.' This approach is essential. The service is being tested in a smaller market to identify product improvements, prior to further market expansion.

Competitive forces influence Marriott's decision to enter this new market because, according to the article, 'customers are selecting hotels based on it's [high speed internet access] availability.' Junnarker (2003) also reports on competition to Intel from T-mobile, Cisco and Connexion. The Intel and Marriott strategic alliance will combat these competitive forces. Additionally, the article reports that 'as hot spots proliferate in cafes, hotels, airport lounges and city neighbourhoods, companies from various industries have been seeking ways to provide Wi-Fi services to business travellers. This could mean a drop in Marriott's revenues derived from business communications unless the company also provides the same service.

This particular international business growth has only been made possible because of technological changes. Commercially available equipment that utilise wireless network services have only been on the market in the last few years.  Telecommunication advancements have made broadband hubs more readily available in diverse locations. Portable computers and hand held devices are now produced, or easily be adapted, to utilise wireless network technology. Business e-mail security systems, once reliant upon land based telephone line country hubs, are now adapted to provide security with web based systems.

Social changes also create the need for wireless networks to be made available to the business traveller. The businessman replaced office to hotel communication by fax with e-mail through hotel room telephone lines. A disadvantage of this technique is that large documents and files can take a long time to download. Additionally, the businessman has to conduct all communications in his personal room so that call charges can be billed. This compromises business discussions between travellers in hotel conference rooms and lounges.  This change of attitude is reported by Junnarker (2003), 'High-speed access is increasingly available at work and at home, and business travellers aren't willing to compromise a fast connection when they travel. '

The timing for this strategic alliance between Intel and Marriott is explained by the accelerating competitive forces at the moment, together with social and technological changes.

Foreign direct investment

'Cadence to invest $50m' (2003) is a good example of foreign direct investment. The article reports on international investment of $50 million in the customer call centre and IT support service business.

India currently enjoys comparative advantages in the CCC and IT support service businesses. The availability of skilled workers at low cost entice companies like Cadence to continue their foreign direct investment which, according to the article, is $100 million since 1987. India has a large pool of well educated graduates and their good command of the English language is a legacy from colonial times. Whilst western countries also have workforces skilled in the CCC and IT support service industries, India is able to offer workers at a relatively much lower cost.

The article quotes the Cadence CEO as saying "We will approximately invest $50 million in India in three years for research and development and for scaling up capabilities to outsource customer support and high-end call centre jobs to India."  It's interesting to note that the Cadence CEO is focusing on the 'high-end' of call centre jobs. Although not stated in the article, it follows that the Cadence CEO recognizes that innovative Indian CCC and IT support service companies are in the maturity stage of their life cycle and that this focus on high-end jobs is due to competitive, socio-economic and technological factors and a need to differentiate.

Low entry costs into the CCC market have created a glut of Indian service providers, some well organised but others being more speculative and lacking a good business model. These companies provide insufficient CCC agent training and attract the attention of labour unions from countries whose workers are displaced by foreign direct investment. The quality of customer relations in these companies could be better and bad international publicity is creating a backlash. Firms in countries with large numbers of redundant CCC agents are improving working conditions and training to compete on the quality of service.

Ireland lost market share in the CCC industry when it's low labour cost comparative advantage was reduced. Wages were increased to workers due to demand and this appears to be also now happening in India.

Technological changes in natural speech recognition within the next five years will automate such low-end call centre activities as telephone directory enquiries. The internet is already the preferred method for parcel tracking, train times, airline bookings and on-line shopping.

According to the article, the Cadence CEO states, "India offers Cadence tremendous opportunities to grow and expand it's scope of activities..." However, political instability and infrastructure factors may influence this growth.

Historically, Indian governments have opposed foreign direct investment.  The current ruling coalition party encourages FDI. This policy may be reversed with a change in government.

Privatisation of the Indian telecom companies is proceeding at a slow pace because of government bureaucracy. The telecom infrastructure needs rapid improvement if the CCC and IT support service companies are to maintain current growth rates.

The role of culture

‘Bickering is something of a habit' by Oon (2003) is a good example of the role of culture.  The article discusses the many unresolved bilateral issues between Malaysia and Singapore. Oon (2003) identifies the water issue as being the most important.  The role of culture plays a significant role in the majority of these unresolved issues. It is well understood that Malaysia's additional income from a water price increase wouldn't have a noticeable effect on the country's wealth and Singapore has more than enough financial reserves to pay whatever price Malaysia demands. The problem could be solved tomorrow were it not for one cultural factor common to both - saving ‘face'.

Although Oon (2003) attributes today's problems to the acrimonious split in 1965, it is evident that the cultures of Malaysia and Singapore have been very adaptive since 1965.  Unfortunately, they have been diverging.  Singapore's culture is being influenced by the European and U.S. continents whilst that of Malaysia is being influenced more by the Arab nations. The Singapore government has actively sought to maintain a status quo between all nationalities since 1965 whereas Malaysia has internally promoted the interests of the Malay businesses at the expense of the Chinese.

In negotiations between the two nations, Malaysia often accuses Singapore of being too legalistic and the Malaysian PM refers to water agreements of 1961 and 1962 as 'special prices on ancient pieces of paper.' This difference in importance attached to written contracts is another example of divergent cultures.

Religion or social conduct is also an important factor. Confucianism and effective business practices by the Chinese majority in Singapore have been significant in the State's success since 1965. The independent success of Singapore was unforeseen by Malaysia.' To associate itself with some of Singapore's glory, according to Oon (2003), 'Malaysia has tended to regard Singapore as the little brother which needs to show the big brother more respect and deference.' Obviously, statements like this are not well received in Singapore.  They give rise to what Malaysia sees as 'arrogant' counter statements. Singapore is well aware of it's secular minority status in the region of mainland Malaysia, Sumatra, Kalimantan and Java. This is why it maintains an independent armed force strength which is disproportionately greater than that of Malaysia and sometimes displaying a siege mentality. According to Oon (2003), religious differences also created problems in 1986 during a meeting when Israeli diplomats visited Singapore, 'it's relationship with Malaysia was soured for some time after that.'  The current Malaysian PM is replaced this year by Mr Bawadi and the article states that, 'many political observers say there will be great pressure on him to stand tough against Singapore.' This shows how the malevolent behaviour aspect of Malaysia's culture is transmitted intragenerationally, due to peer pressure.

The role of culture in bilateral relations between neighbouring counties is not unique to Malaysia and Singapore.  Cultural differences are usually the catalyst for the formation of two or more new nations from an existing country.

National trade policy

'Businesses Say Reforms Must Start at Top' by Lavrentieva and Clark (2003) is a good example of national trade policy. It reports upon an interesting export demotion strategy in the energy sector. Russia is the world's largest producer of natural gas.  The country has an oil reserve of fifty years in comparison to the world's average of ten to twelve years and a gas reserve of seventy years. Russian companies achieve margins six times greater for exporting gas when compared to domestic gas sales.

Russian Deputy Prime Minister Alexei Kudrin proposes a change in the national trade and investment policy. The article states that 'export duties on oil and petroleum products are likely to be increased to $39 to $40 per metric ton as of March 1, which would provide an additional $500 million in the following two months and contribute as much as $$4.6 billion to a stabilization fund by the end of the year.' Many countries are removing barriers to international trade and most remaining tariffs are collected only on imported goods or services. The aim of this particular Russian government policy revision is to diversify the economy away from it's heavy reliance upon energy sector exports.

The article quotes Kudrin as saying, 'The government is optimistic about the diversification, which he said would allow for the modernisation of the economy and give a much-needed jump start to domestic production.' Although not stated in the article, the increase in export duty would also tend to prolong the life that petroleum products, as a natural resource in Russia, would give the country a comparative advantage in the energy sector.

The article states that additional revenues gained from the energy export tariff increase will 'contribute as much as $4.6 billion to a stabilisation fund by the end of the year.'  This will shift the current tax burden away from the manufacturing industries, allow for increased spending in the country's infrastructure and could enable export promotion of manufactured goods.

Russia already has trade agreements with countries such as Kazakhstan, Belarus and Ukraine which share their borders and with whom a common heritage exists since soviet times.  Russia's President Vladimir Putin is keen for the remaining members of the eiS, currently outside of the free economic space, to participate in trade agreements. Putin's plan is for co-ordinated efforts to join the World Trade Organisation in the future.

Whilst the change to Russia's trade and investment policy to encourage diversity is good, two factors may prevent $4.6 billion being realised for the stabilisation fund.

Firstly, as quoted by Kudrin in the article, 'If oil prices drop to $16 to $17 per barrel, due to the situation in Iraq, we could fall into a trap where we don't get those taxes.'

Secondly, as stated in the article, is the 'more amorphous and persuasive problem of corruption.' Will the government's stabilisation fund actually receive monies due by the large oil and gas corporations for the export tariff increase?

References

'Cadence to invest $50m', Business Standard, February 25,2003. Retrieved: March 7, 2003, from http://www.business-standard.com/archives/2003/feb/50250203 .015.asp

Junnarker,S. 2003, 'Marriott to double Wi-Fi coverage', CNET Networks, February 27, 2003. Retrieved: March 7, 2003, from http://news.zdnet.co.uklstory/O,,t269S2131173,00.html

Lavrentieva,V. & Clark,T. 2003, 'Businesses Say Reform Must Start at Top', The Moscow Times, February 27,2003. Retrieved: March 7,2003, from http://www. Themoscowtimes. co m/stories/2003/02/27/002. html

Oon, Y. 2003, 'Bickering is something of a habit', Bangkok Post, January 21, 2003. Retrieved: March 7,2003, from http://www.bangkokpost.com/210103_News /21 Jan2003 - opin33. html

I originally wrote this article, “New product launch” in April 2003 when I was asked to spearhead the development of a new product.

Summary

There is a customer need for an effective household lizard destroyer. An innovative electrostatic device has been developed and will be launched on 1st July at five retail outlets in Singapore. The company has low fixed costs, low market exit costs and a positive cash flow forecast after product introduction. As the company is new, it has no reputation and promotion is limited to passing trade at five store locations. Opportunities exist for product diversification for the extermination of other household pests. Threats remain from a depressed market caused by economic downturn and raw material supply from China is a concern. A market-penetration pricing objective is chosen. Cost estimation, competitor's prices and the company's ROI objective dictate a selling price of S$28.99 per unit. An action programme of pre-launch tasks has been produced. The marketing budget clearly forecasts that the product should be deleted after 2 years when it is in the decline period of its life cycle and demand has fallen. Sales, financial and personnel controls procedures will be adopted.

Product life cycle

The four stages of the product life cycle for the LizaKilla^TM in Singapore’s home country market are estimated to be 3 months introduction, 6 months growth, 2 years maturity and 4 years of decline. Although risky and expensive, we choose to gain a pioneer advantage by being first into the market with our electrostatic lizard terminator. Our quality product uses new technology and our company will benefit from the brand awareness of being first to enter the market. We expect to add new design features to the existing product at the latter end of the growth stage to sustain market growth. Our advertising, promotion and pricing will be modified during the maturity stage and the product will be deleted from our range at the latter end of the decline stage.

Market evaluation

The market for the LizaKilla^TM is currently latent. Customers need an efficient method of ridding their premises of house lizards but no highly effective product is currently available. Two surveys of 100 home owners each in Jurong, Holland Village and 20 business owners throughout the island show that 70% would be interested in buying our new product if it was economic to buy, maintenance free and was more successful that current methods. We expect competitors to enter the market as it grows and we will defend our share of the market through introducing product innovations. As competition becomes more fierce during the maturity stage of the market, our modified advertising, promotion and pricing will maintain our position as market leader. As the market becomes saturated and demand declines, we will dispose of the product when profits become unattractive.

Challenges

We face many challenges with our launch of LizaKilla^TM but we have taken steps to mitigate our risks associated with bad market information, product performance, costs and competition.

Ideas

Our idea for this new product came from the need of customers who were dismayed with the ineffective traditional method of house lizard extermination. We used several creativity techniques to provide a short list of six alternative product designs. The electrostatic device was chosen in preference to our other alternatives of ultrasonic, mechanical, electrical and chemical device ideas.

Concept to strategy

Over the last few months, we've developed several LizaKilla^TM prototypes and tested them at various locations throughout Singapore. Prototype MKT01 was the most effective but was not economic to manufacture. Prototype MKT02 suffered from spurious discharges which reduced battery life. The most economic prototype was MKT04, but the structure of this model was not rigid enough for commercial use. Eventually, from development tests, we chose Prototype MKT03 as being economic to manufacture, effective and robust for commercial use. Our marketing strategy for pricing, distribution, market size, structure, share, positioning and financials are given in our marketing plan.

Development to commercialisation

We negotiated the supply of raw materials which arrive from China every month. Our fist batch arrived last month and our staff of four contract employees are assembling 100 units per day to build up stock for the product launch and market testing next month. We've secured contracts with Cold Storage at their Centrepoint, China Square, Holland Village, Novena and Takashimaya locations. We'll be market testing for the first month at these stores. If the trial results prove favourable then we'll commence negotiations to expand our manufacturing operations by moving to larger premises at the start of the growth phase in three months.

Consumer adoption

Cold storage have agreed to locate our LizaKilla^TM product displays at end-of aisle positions at it's five stores for a an initial one month period to create customer awareness. Each display stand has an enlarged lizard at it's top to stimulate interest and customers can evaluate the product by reading the technical and commercial information at the display stand. We expect that our marketing mix will encourage customers to buy LizaKilla^TM and to recommend the product to others, after effective trials at their home.

Product mix

The LizaKilla^TM provides benefits to the customer at various levels. The core benefit is the elimination of lizard faeces on ceilings, walls, floors and eradication of any bacteria, virus or disease spread by the reptile. Our basic product consists of a 15 cm plastic oblong, internally housing an electro statically charged foil mat powered by a battery operated capacitance circuit with automatic discharge. The product expected by our customers, we estimate, has a battery life of six months, is safe to humans, 95% effective, robust, easy to operate, can be moved around the premises and retains the dead lizard as evidence of a kill. An augmented product will be introduced at the start of the growth stage. We will continually develop the LizaKilla^TM, using customer feedback, to produce the potential product during the growth stage.

Branding

The trade name of our LizaKilla^TM product has been registered and our strategies instil the idea of affordable effectiveness in the customer's mind. The product represents the values of our company being a quality manufacturer of an effective, economical product. The identity of theLizaKilla^TM is readily identified by it's name and our logo of a green lizard inside a yellow circle with a line through, signifies the absence of lizards. We will build brand loyalty through reputation so that our brand equity differentiates our product from competitors' offerings during the growth stage. Customer feedback and complaints will be efficiently dealt with to retain our brand equity.

Packaging

The packaging takes advantage of the rectangular shape of the product. The external surfaces are flat, as all the functional parts are contained within the oblong housing. The product name, logo and instructions are all printed on the external surfaces to allow simple and cost effective clear cellophane to package the product.

Preface - organisation, mission, corporate objectives

Lizakilla (Singapore) Pte Ltd was incorporated on 1st April 2003 with registered offices at Shopping Block 445, Clementi Avenue 3. There are currently two full time employees (directors) and four contract workers based at the 500 sq. feet ground floor facility. Each company director has provided S$10,000 of share capital and S$40,000 of investment capital in Lizakilla (Singapore) Pte Ltd. The company mission statement of Lizakilla is "We serve our customers with quality products which keep their homes free of household pests. Our customers benefit from receiving the latest technology in pest extermination devices at affordable prices.”

The company has financial, marketing, operational and personnel corporate objectives. A return upon investment of greater than 85 percent per year will be achieved through market leadership in all of our product offerings. We will efficiently execute our operations, matching scale with demand. We will provide a stable work environment to attract and retain staff.

Current marketing situation

The total market size for LizaKilla^TM is that of all homeowners in Singapore (approx. 800,000). Our market surveys show that the potential market of Singaporeans with a sufficient level of interest in an electrostatic lizard terminator is approximately 500,000. Out of this, it's estimated that the available market of people with income, access and interest is approx. 200,000. To curtail promotion costs, the target market size of 100,000 relies upon available market customers patronising the five Cold Storage locations, during introduction. The potential, available and target market sizes will grow as the number of people interested in the offer expands, due to the stores promotions and referrals. The penetrated market is expected to grow quarterly from 1 % to 4% of the target market during growth, reaching a saturation level of 6% before decline, as shown in the table below :

	Introduction	Growth	Maturity
	2003		2004				2005
	Q3	Q4	Q1	Q2	Q3	Q4
Market	800k	800k	800k	800k	800k	800k	800k
Potential market	500k	510k	520k	530k	540k	540k	540k
Available market	200k	204k	208k	212k	216k	216k	216k
Target market	100k	102k	104k	106k	108k	108k	108k
Penetrated market	1k	2k	4k	5k	6k	6k	12k

Strengths and weaknesses

An evaluation of LizaKilla^TM and Lizakilla (Singapore) pte Ltd's internal strengths and weaknesses gives:

Strengths

• The quality of the product is tested during assembly, prior to distribution
• Delivery of the product to each stores location takes place every day by a dedicated employee
• The product is innovative and uses the latest technology
• The finance of the product launch is entirely by way of share capital and personal investment by company directors
• The cash flow forecast, after introduction, is favourable
• The company is currently financially stable
• The fixed cost for the small assembly facility is low
• All of the workforce are on six month renewable contracts
• Assembly efficiency within the small company is high
• The business premises are on a short term lease
• The directors are proven good leaders and have a financial interest in the success of the company
• The company directors have an entrepreneurial orientation
• The company has the flexibility to cease trading with low exit costs and the ability to expand with minimum relocation loss

Weaknesses

• The company is new and has no track record
• Promotion of the product is through passing trade in Cold Storage outlets only
• Only five retail stores locations are used during the product launch
• The current workshop has a limited output capacity
• The workforce is contract labour

Threats and opportunities

An analysis of LizaKilla^TM and Lizakilla (Singapore) pte Ltd's opportunities and environmental threats gives:

Opportunities

• Stimulation and retention of the interest of passing trade, within the five stores, through regular change of the end-of-aisle displays
• Expansion in the number of sales places to include all of the Cold Storage store locations
• Expansion in categories of sales places to include all grocery and hardware locations for a variety of companies
• Accreditation to ISO 9000 and Singapore PSB domestic product testing to display conformance to standards by the product
• Product diversification for the extermination of other household pests
• Cost effectiveness through the economies of scale
• Promotion through internet based companies
• Developments in attributing disease to household lizards

Threats

• Economic downturn reduces the available market size
• Government legislation protecting certain species of reptile
• Adverse publicity from animal rights campaigners
• Premature entry into the market of competitors
• Withdrawal of sales place by retailers
• Disruption to supply of raw materials from China

Marketing strategies

The company has considered options in selecting the objective of market penetration pricing. Survival pricing was not chosen because it is short term and just covering costs would not assist in company expansion. Maximum current profit pricing was excluded because market demand for is not known with certainty. The product does not lend itself to market-skimming pricing as their insufficient buyers with a high demand. Market-penetration pricing will stimulate the market growth required, lower costs and discourage competition.

Although customers are expected to buy the LizaKilla^TM infrequently, the maximum price that may be charged has to be set to provide a minimum demand. As the product is new, there is no history to estimate the relationship between price and demand. The price may be adjusted once the elasticity of demand has been established during the introduction phase of the product.

The fixed cost for Lizakilla (Singapore) Pte Ltd are S$20,000.00 per month for the business unit rent, utilities, salaries and transport. The variable cost of the LizaKilla^TM is S$5.00 per unit for the raw materials from China and for the cost of packaging each item. From these fixed and variable costs, the average cost per unit is :

Monthly production	Fixed cost	Variable cost				Total cost			Average cost per unit
1000	S$20,000	S$5,000				S$25,000			S$25.00
2000	S$20,000	S$10,000				S$30,000			S$15.00
3000	S$20,000	S$15,000				S$35,000			S$11.67
4000	S$20,000	S$20,000				S$40,000			S$10.00
5000	S$20,000	S$25,000				S$45,000			S$9.00
6000	S$20,000	S$30,000				S$50,000			S$8.33
7000	S$20,000	S$35,000				S$55,000			S$7.86
8000	S$20,000	S$40,000				S$60,000			S$7.50

There are currently three competing products in the market for getting rid of house lizards :

Competitor’s product	Selling price	Characteristics	Estimated monthly demand
Ultrasonic repeller	S$80.00	Plugs into electricity supply. Emits repelling high frequency sound with 80% claimed success. No evidence of kill.	100
“Wet Feet”	S$30.00	White chemical painted onto walls and ceilings.	200
Lizard paper	S$3.50	Paper with adhesive on one side to catch prey. Ineffective.	400

Lizakilla (8ingapore) Pte Ltd estimates that a price position below the ultrasonic repeller and “Wet Feet” but above lizard paper is correct.

The lowest price, given a customer monthly demand of 2000 to 4000 units is S$10.00 to S$15.00. At this price the company would make no profit. The highest price is dictated by positioning within the current product offerings of competitors and is S$30.00. Additionally, the company's financial objective dictates a target rate of 85% minimum return on investment per year. Target-return pricing dictates a unit selling price of S$28.99, as shown in the cash flow forecast. It is estimated that the customer would have a reference price of $20.00 to $30.00 for the product, based upon competitive products and the application of the device. Additionally, the company is anxious to encourage Cold Storage to promote the product and has agreed to offer S$5.00 commission to the retailer on the sale of each unit. Taking into account the psychological benefit of '.99', a sales price of S$28.99 is chosen.

Action programme

	Action plan for product launch on 1st July 2003
Item	Description	Person responsible	Date required	Date completed
01	Meet Cold Storage to sign sales contract	Tan M H	01 May
02	Buy stands for product in store displays	Wong B	15 May
03	Stock control procedure with Cold Storage	Tan M H	13 May
04	Create workshop inventory system	Tsee M	20 May
05	Define daily stocking store procedure	Tsee M	23 May
06	Process April letter of credit letter with supplier	Wong B	26 Apr
07	Expedite supplier for May delivery	Tsee M	26 Apr
08	Process May letter of credit with supplier	Wong B	26 May
09	Expedite supplier for June delivery	Tsee M	26 May
10	Commence discussions with new premises landlord	Tan M H	15 Jun
11	Process June letter of credit with supplier	Wong B	26 Jun
12	Meet Cold Storage for display locations	Wong B	23 Jun
13	Deliver product to 5 Cold Storage sores	Tsee M	30 Jun

Marketing budget

Sales	Jul-03	Aug-03	Sep-03	Oct-03	Nov-03	Dec-03
Units sold	300	300	400	500	700	800
Sales @ S$23.99/unit	8,697	8,697	11,596	14,495	20,293	23,192
Cost of sales
Retailer commission	1,500	1,500	2,000	2,500	3,500	4,000
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	1,500	1,500	2,000	2,500	3,500	4,000
Total cost	23,000	23,000	24,000	25,000	27,000	28,000
Opening balance	80,000	65,697	51,394	38,990	28,485	21,778
Contribution	(14,303)	(14,303)	(12,404)	(10,505)	(6,707)	(4,808)
Closing balance	65,697	51,394	38,990	28,485	21,778	16,970

Sales	Jan-04	Feb-04	Mar-04	Apr-04	May-04	Jun-04
Units sold	1200	1300	1500	1600	1700	1700
Sales @ S$23.99/unit	34,788	37,687	43,485	46,384	49,283	49,283
Cost of sales
Retailer commission	6,000	6,500	7,500	8,000	8,500	8,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	6,000	6,500	7,500	8,000	8,500	8,500
Total cost	32,000	33,000	35,000	36,000	37,000	37,000
Opening balance	16,970	19,758	24,445	32,930	43,314	55,597
Contribution	2,788	4,687	8,485	10,384	12,283	12,283
Closing balance	19,758	24,445	32,930	43,314	55,597	67,880

Sales	Jul-04	Aug-04	Sep-04	Oct-04	Nov-04	Dec-04
Units sold	1900	2000	2100	2100	2000	1900
Sales @ S$23.99/unit	55,081	57,980	60,879	60,879	57,980	55,081
Cost of sales
Retailer commission	9,500	10,000	10,500	10,500	10,000	9,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	9,500	10,000	10,500	10,500	10,000	9,500
Total cost	39,000	40,000	41,000	41,000	40,000	39,000
Opening balance	67,880	83,961	101,941	121,820	141,699	159,679
Contribution	16,081	17,980	19,879	19,879	17,980	16,081
Closing balance	83,961	101,941	121,820	141,699	159,679	175,760

Sales	Jan-05	Feb-05	Mar-05	Apr-05	May-05	Jun-05
Units sold	1900	1700	1500	1300	1100	900
Sales @ S$23.99/unit	55,081	49,283	43,485	37,687	31,889	26,091
Cost of sales
Retailer commission	9,500	8,500	7,500	6,500	5,500	4,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	9,500	8,500	7,500	6,500	5,500	4,500
Total cost	39,000	37,000	35,000	33,000	31,000	29,000
Opening balance	175,760	191,841	204,124	212,609	217,296	218,185
Contribution	16,081	12,283	8,485	4,687	889	(2909)
Closing balance	191,841	204,124	212,609	217,296	218,185	215,276

Sales	Jul-05	Aug-05	Sep-05	Oct-05	Nov-05	Dec-05
Units sold	800	700	600	500	500	500
Sales @ S$23.99/unit	23,192	20,293	17,394	14,495	14,495	14,495
Cost of sales
Retailer commission	4,000	3,500	3,000	2,500	2,500	2,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	4,000	3,500	3,000	2,500	2,500	2,500
Total cost	28,000	27,000	26,000	25,000	25,000	25,000
Opening balance	215,276	210,468	203,761	195,155	184,650	174,145
Contribution	(4,808)	(6,707)	(8,606)	(10,505)	(10,505)	10,505)
Closing balance	191,841	204,124	212,609	217,296	218,185	215,276

Controls

The marketing plan has sales, financial and personnel controls procedures to keep the programme on track and to identify any changes that may be required.

Sales figures are received daily when stock is taken and replenished by the dedicated distribution worker for Lizakilla (Singapore) pte Ltd. Additionally, this information is verified in the weekly account statement from Cold Storage. Production volumes and raw material purchases are adjusted during the demand forecast for the next four weeks.

Payments received, and expenditure made, are reconciled with bank statements every month and audited company accounts are produced every six months. Deviations from cash flow forecasts are analysed and corrective action is taken, where required.

Personnel are informed every Friday afternoon of next week’s production target and contract workers are advised every month of the security of their tenure.

I originally wrote this article, “Marketing management” in March 2003 when Mickey Bakshi, the owner of Hide & Chic Luggage sought my advice.

September 2001:

Mickey Bakshi was planning the opening of his new store in Parramatta, Sydney, for October 4, 2001. Mickey had worked in the luggage business for over 10 years; he had started with a stall at the Sydney Markets and over the years had established good contacts with suppliers and wholesalers. When he heard about the new Riverbank Shopping Centre being developed in Parramatta he decided the time was right to open his own store.

Mickey's vision was for a specialised luggage store offering good quality at value-for-money prices. Apart from Grace Bros and David Jones there was no specialised luggage store in the west of Sydney. The concept of a store specialising in luggage and briefcases had been successful in Sydney city. Mickey checked out other shopping centres in the Sydney metropolitan area, before settling on the Riverbank, Parramatta.

He chose the catchy name "Hide & Chic Luggage" for his store. His luggage range included well-known brands: Samsonite, Antler, Paklite and Hedgrain as well as some cheaper unbranded lines. He also offered complementary products: leather briefcases, and small leather goods such as wallets and purses.

Parramatta was the third largest CBD in Australia. The Riverside Centre was close to the CBD and would house 50 stores. Around 30% of the stores were already trading, the rest would open over the next 3 to 4 months. Mickey selected his location carefully, finally settling on a site close to Country Road, Bed BathNTable, and David Jones Foodchain, which he believed would ensure passing customers.

Riverside was being marketed by the developers as an 'up-market' shopping centre, supported by a $2 million promotional spend spread over the next 12 months. Mickey had placed advertisements in the local paper to create awareness of his new store.

October 2001:

Reviewing performance week by week following the opening, Mickey was becoming increasingly concerned. His worst fears were being realised; world events through September and the collapse of Ansett Airlines in Australia were having a serious impact on sales. Luggage sales were virtually non-existent, wallets had been his main seller but these alone would not bring in enough turnover or profit.

Asmorestores in thecentre opened, customertraffic was beginning to build up; the lunchtime period was especially busy with workers from nearby offices. Mickey believed his prime target market was women aged 25-39 but men were also visiting the store.

Mickey decided to extend his product line to include sports bags and other casual bags to counter the falling demand for luggage, and with the Christmas trading season looming. He found he was often having to give a discount to attract customers; he couldn't afford to spend any more on promotion.

October 2002:

Mickey's business had survived - just. Luggage sales had slowly picked up but were still well below his forecast, and he had continued to stock the sports bags and casual bags to boost sales. He was breaking even, mainly because the landlord had agreed to reduce his rent.

Occupancy of the shopping centre had not achieved forecast levels and David Jones had announced the Parramatta Foodchain would close in the next few months. David Jones launched its first Foodchain outlet in Brighton, Melbourne in November 2000, and followed with stores at Hawthorn and St Kilda in Melbourne, and Parramatta, 'Sydney. At Foodchain you could find fresh foods and prepared meals, an extensive range of everyday grocery lines at competitive prices, as well as speciality products from Australia and around the globe.

According to David Jones, an operational review had highlighted operational issues for Foodchain's failure to meet key targets. Whilst some locations were expected to achieve targets this year, Parramatta did not meet their revised site selection criteria and they had approached the Parramatta landlord regarding assigning the lease.

The departure of Foodchain was a blow to the shopping centre, although centre management were confident they would attract one of the major supermarkets (Woolworths or Coles) to take over the Foodchain site.

Mickey was worried about the future direction for his business. Hearing that  I was business consultant, he had sought my advice.

Summary

Marketing is of growing importance to Hide & Chic. Marketing focuses on the needs of the buyer, as opposed to the sellers needs. Hide & Chic can obtain a differential advantage using the tools of the marketing mix, ie. product, price, promotion and place. A marketing plan is required to implement the marketing concept through SMART goals.Primary and secondary market research information may be obtained at low cost by Hide & Chic. The company needs to be aware of; what triggers the need for luggage, where buyers search for information, evaluation of alternatives, purchase decision influences and customer satisfaction. Hide & Chic can position their luggage to attract target customers within a market segment.

The Marketing concept

An understanding of the concept of marketing to Hide & Chic Luggage could create the difference between the success or failure of the company. Marketing is a separate and different activity to selling. The two terms are often wrongly used synonymously.

The selling concept focuses on the needs of the seller. The organisation has stock of a product and sells it, without much knowledge or research into the needs of the customer.

The marketing concept focuses on the needs of the buyer. Emphasis is given to providing value to the customer. Companies using the marketing concept get to know who their customers are, what they actually value and strive to give better value than their competitors.

Implementing the marketing concept

The marketing concept involves providing a product or service that meets the value requirements of the customer. Hide & Chic can use four marketing tools to categorize their current and to implement their desired position in the luggage retail market. These are to consider the product, price, place and promotion for Hide & Chic Luggage to obtain a differential advantage over the competition. These four 'P's are known as the marketing mix.

The product can be considered in terms of Hide & Chic's luggage design features, branding, quality and other attributes.

The price component of the marketing mix considers the pricing strategy to be adopted by Hide & Chic and determines the selling price, credit allowed or discounting.

Promotion of Hide & Chic Luggage may be through several avenues, which may include magazine slots, newspaper adverts, sales promotions, etc.

Hide & Chic's place of conducting the business involves a study of the store's physical location, stock capacity and stock variety.

Implementation of the marketing concept also needs to take into account microenvironmental forces and macroenvironmental forces that are affecting Hide & Chic's business. Competitors, suppliers and customers are exmples of microenvironmental forces. Macroenvironmental forces such as recession, terrorism and bush fires also affect the business.

Marketing planning

Hide & Chic Luggage need a marketing plan to implement the marketing concept. All businesses have a finance plan to control cash flow. Large companies may also have a mission statement, business objectives, business plan, production plan, etc. Small companies like Hide & Chic need a separate marketing plan, in addition to their business I finance plan. Hide & Chic would aIso benefit from the creation of business objectives derived from a mission satement to avoid the creation of a narrow marketing plan or one focused in the wrong direction.

The marketing plan should consist of an audit of the current situation, goals for the desired outcome and a breakdown of tasks to achieve the goals. Most importantly, constant feedback is required throughout the execution to control and adjust the plan.

Information for marketing

Hide & Chic need information on their market and would benefit from low cost market research methods.

Market research of competitor performance at Grace Bros. and David Jones can be done by relatives or friends staking out stores over given periods to obtain primary data.

Research of market size and fluctuation can be obtained from published secondary data at no cost. For example; government economy statements and forecasts, airline traveller numbers and Sydney demography can be obtained from the internet.

Knowing your customer

It's important that Hide & Chic are aware of the buying decision-making process of their customers. This impacts upon the company's current strategy to offer different quality levels of luggage at the same location. The buying decision process can be chronologically divided into the five processes of trigger, search, evaluation, decision and satisfaction.

What triggers a need in the customer to buy luggage?

Where does the buyer search for information on what luggage to buy?

How does the buyer evaluate the alternatives in luggage available to him?

Who and what influences the buyer to decide to complete the purchase?

How does Mickey retain satisfied customers and minimize dissonance?

The above processes are influenced by psychological, personal, cultural and social factors.

Segmentation, targeting and positioning

Hide & Chic can position their luggage to attract target customers within a market segment.

Market segmentation for Hide & Chic involves recognizing and profiling the customer group for it's luggage sales. The segment can be described in demographic, geographic, psychographic and behavioural terms. Within the market segment, Hide & Chic may identify niches of buyers who want to purchase quality luggage. Additionally, this niche will consist of several people from the local area of Sydney or individuals willing to travel to the store to make a purchase.

Hide & Chic may target customers through concentration, specialisation or even full market coverage.

Concentration on a single segment of the market would be aimed at people in the same location within a certain age group exhibiting similar behaviour and holding the same values.

Specialization in market segmenting could be selective, product or market specialized. The abovementioned single segment market may be too volatile. Selective marketing chooses several, single segments to spread the risk. Product specialization focuses on one product within several segments and market specialization targets one segment with many products.

Full market coverage isn't viable for Hide & Chic. It requires mass-advertising for undifferentiated marketing or a large inventory for differentiated marketing

The timing of Mickey's entry into the sale of specialised, good quality luggage at value-for-money prices is unfortunate. The recent national economy slowdown was exasperated by the further effects of 911 in the travel industry and, consequently, demand for his company's products was lower that anticipated. It's recommended that his company vacates the Riverside Centre because of low occupancy and an uncertain future. The available market passing trade at Riverside doesn't exist. Mickey should re-locate to a large CBD with a proven available market passing trade within his segment for quality luggage. Unbranded luggage should be dropped from his offering. Economic market information is required by Hide & Chic and, when above break even, promotion should commence to increase market share.

Evaluation of Hide & Chic's marketing strategy to date

Hide & Chic's current marketing position can be analysed by investigating the company's internal strengths and weaknesses and considering external opportunities and threats.

INTERNAL FORCES
STRENGTHS	WEAKNESSES
10 years luggage sales experience	No marketing skills
Good supplier & wholesaler contacts	No store sales experience
Vision for good quality luggage store	No profits to re-invest
Proven successful product concept	Riverside store location decision
Offering complimentary products	Mix of branded and unbranded product in same store
Good passing trade demography	Wrong choice of advertising
	Wrong identification of target market
	Product extension to casual bags
	Discounting to attract trade
	No promotional budget left
EXTERNAL  FORCES
OPPORTUNITIES	THREATS
Economic upturn in 2004?	Store opened just after 911
Only two competitors in West Sydney	Collapse of Ansett Airlines
Riverside marketed as 'up-market'	Lower demand for air travel luggage
$2 million Riverside promotion	Economic downturn till 2004
Workers from nearby offices	Low Riverside Centre occupancy
Lower rent to reduce fixed costs	Low passing trade for Country Road
Woolworths or Coles at Riverside	David Jones Foodchain closing

Definition of the problem faced by Hide & Chic

Hide and Chic's problem is that the potential and available markets for it's product have collapsed.  The potential and available markets for quality luggage customers contracted in 2001 and will not recover till 2004. The problem can be sub-divided into the three external factors of national economy, travel decline and passing trade.

National economy

The national economy is in a downturn till 2004. Retrenched consumers have left the available market and returned to the potential market till they have income. Additionally, the interest of consumers still within the available market has reduced. Quality luggage purchases are delayed by the available market till the return of the 'feel good' factor.

Travel decline

Travel by air attracts less people now than compared to two years ago. Less people have an interest innew travel luggage and have left the potential market.

Passing trade

The ability to attract the interest of the available market through passing trade is less than Hide & Chic envisaged because of transient and long term factors.

Transient passing trade

Hide and Chic are located adjacent to Country Road, Bed BathNTable and David Jones Foodchain. They share a common market segment. The transient increase in passing trade from the correct market segment during a good national economy benefits all adjacent stores. However, the decrease in passing trade during economic downturns is caused by the temporary loss of a whole market segment.

Long term passing trade

Occupancy of the shopping centre has not achieved forecast levels. The overall size of the available market of interested consumers is lower than anticipated by Hide & Chic. Compounded with the transient lower available market, there is effectively no commercially viable available market for Hide & Chic's quality luggage in it's current location through passing trade.

Alternatives for a future marketing strategy

Ansoff's Matrix

Ansoffs Matrix can be used as a tool to analyse market penetration, market extension, product development and diversification possibilities.
               

PRODUCT
		Existing	New
MARKET	Existing	Market penetration Increase market share for luggage	Product development Introduce travel, leather and hand carried related products
	New	Market extension Introduce luggage for additional market segments	Diversification Diversify into different markets with different products

Marketing Mix

The available marketing mix to Hide & Chic is :

MARKETING MIX
PRODUCT	PRICE	PROMOTION	PLACE
Product variety	List price	Sales promotion	Channels
Quality	Discounts	Advertising	Coverage
Design	Allowances	Sales force	Assortments
Features	Payment period	Public relations	Locations
Brand name	Credit terms	Direct marketing	Inventory
Packaging			Transport
Sizes
Services
Warranties
Returns

Evaluation of alternative marketing strategies

Ansoff's Matrix and the marketing mix can be combined to produce several alternative marketing strategies. Certain permutations are not worthy of consideration and, additionally, basic assumptions have to be made about the personal preferences of Mickey Bakshi. It's assumed that:
Product and market diversification is too risky for Hide & Chic
Mickey has no profits to re-invest, i.e. 'breaking even' from the case study
Mickey can't afford to spend any more on promotion
Upturn in the national economy and air travel increase occurs in June 2004

Strategy 1 - Market penetration

Market penetration requires Hide & Chic to capture more of the available market from Grace Bros. and David Jones for the quality luggage and from the Sydney Markets for unbranded luggage.

Market penetration of quality luggage

Hide & Chic would need to make the available market aware of their presence to capture market sharefrom Grace Bros. and David Jones. Mickey has no capital to invest in sales promotion. Passing trade from the current market segment is negligible. Moving to a location with more passing trade would be desirable if Mickey is unable to survive with no profit for the next year. Additionally, offering quality branded products alongside unbranded products at the samestore location depresses sales of the branded products as consumers receive mixed signals and procure the cheaper product or make no purchase at all.

Market penetration of unbranded luggage

Mickey has 10 years of experience at the Sydney Markets selling unbranded luggage. According to the case study, 'he is breaking even ... and has continued to stock the sports bags and casual bags to boost sales'. Riverside Centre is the wrong place to sell sports bags and casual bags alongside Country Road, BedNtable and David Jones Foodchain. The relatively high fixed cost of the store, low return per square foot for unbranded luggage and low available market make this a strategy with a limited life span.

Strategy 2 - Product development

Hide & Chic could extend their product range to serve the same two market segments that they serve now. However, with two market segments for branded and unbranded luggage, sports bags and casual bags, the cost of stock holding and return per square footage would create further problems for Hide & Chic.

Strategy 3 - Market extensions

Market extension would involve Hide & Chic in catering for additional demographic, geographic, psychographic and behavioural market segments and increased stock levels. Do Hide & Chic have the financial reserves to support this strategy?

Specific recommendations for future marketing strategy

Based upon strategy 1 - Market penetration, the following five point plan is proposed for Mickey and Hide & Chic Luggage:

1) Focus on Mickey's vision for a specialized luggage store offering good quality at value-for-money prices. Drop the sale of unbranded luggage and get Mickey to, when economically possible, visit the factories of Samsonite, Antler,paklite and Hedgrain to obtain product and marketing knowledge.

2) Negotiate lease termination with the Riverside Centre on the basis that occupancy of the shopping centre has not achieved forecast levels.

3) Carry out a no cost market research information surveyusing primary data from friends and relatives for a demographic profile of Grace Bros. and David Jones customers.  Obtain secondarymarket information for the West Sydney luggage industry from the internet. Invest in a sales promotion in 2004 to take market share from Grace Bros. and David Jonesand take advantage of the growth inthe available marketfor quality luggage.

4) Determine the location for a new quality luggage store and negotiate a lease for a location which has a proven track record of available market within Hide & Chic's target segment for quality luggage.

5) Time the transition from Riverside to the new location to coincide with the expected upturn in the national economy in 2004. Rely upon break even sales for the next twelve months.

I originally wrote this article, “Entrepreneur’s web site” in June 2003.

A group of three Australian friends were thinking about forming a small business partnership to be called "Books 'R' Us." The idea for the name came from the store Toys 'R' Us, which carried a wide assortment of toys. This new company would do the same for books. In fact, the friends were planning to offer as many books as possible at a 20 percent discount off the list price. Once they had set up their small bookstore, they would create a Web page on the Internet and offer to sell any book in their listing at a discount. Since the partners could order books at a significant discount from publishers, their only major problem, as they see it, would be to have these books available. They had very little working capital, so they couldn’t afford to buy the books and store them at their facility. However, they intended to sidestep this problem by playing the role of book broker merely to bring buyers and sellers together. When someone visited the Books 'R' Us Web site and ordered a book, the store would take this order, place it with the respective publisher, have the latter send the book directly to the customer, and then remit payment to the publisher. And since the customer would pay for the book in advance using a credit card, the bookstore would avoid a cash outlay.

The basic idea for this business had been presented to a number of knowledgeable people, and they all agreed that it could work well if “Books 'R' Us” could generate sufficient orders from its Web page. This is why the potential partners were determined to create a page that was attractive and kept people coming back to see what was new. One of the features was to be a random drawing every day to send one winner a free book from the current New York Times best-seller list. The winner's name and his or her book choice would be displayed on the page for a week so that everyone who visited the site would know who the latest winners were and would be encouraged to enter the drawing. Every entry would be eligible for a period of seven days. So people who return to the site every week to enter could participate in the contest every day.

The group also intended to make available as many of the publishers' titles as possible. Since publishers often distributed their book lists on CD-ROMs, this was not a problem. However, the group wanted to list the titles by subject (mystery, drama, history, humour, cooking, general interest, and so on) and author and not just by publisher. So Books 'R' Us may need to modify the material from the publishers.

Finally, the group had considered that publishers have their own Web pages, so someone who wanted to buy a  book from a major publisher did not have to visit the Books 'R' Us Web site or any other on-line bookstore to buy this book. Nevertheless, these publisher Web pages carried only the publisher's titles, while the group would carry as many of these publisher offerings as possible in one site.

I advised the group on its business plan. I told them what I thought of a Books 'R' Us Web page.  I made recommendations for improvement.  I gave reasons why someone would buy from the partners rather than visit a publisher's Internet site and purchase directly. Of these reasons, I recommend one that the group should emphasize most heavily. I suggested how the friends could do this through their Web page. Finally, I identified and offered additional recommendations to the three potential partners.  Two of these are described.

An evaluation of the introduction of a “Books 'R' Us” website is best done by looking at the opportunities and threats  faced by the group of three friends thinking about the small business partnership. Opportunities exist with a growing economy, government support, a product easily marketed using the internet and an established market of Australian online book buyers.  However, global and local competition needs to be considered.

Opportunities

The Australian GDP growth is forecasted to increase from 3.0 percent this year to 3.5 percent in 2004 and unemployment has fallen slightly from 6.3 percent last year to 6.1 percent this year, according to The Economist (2003).
An article in Financial Review (2003) reports that the Small Business Minister for Australia, Joe Hockey, was present at the launch of the e-businessguide in Melbourne, last week. This is part of a $6.5 million federal government package to encourage small businesses to go online. At the same launch, it was stated that 'almost half of Australia's present economic growth was caused by communication technology' by Communications Minister, Richard Alston.

Spector (2000, p. 29) gives a major reason why Jeff Bezos of Amazon chose to sell books on the internet as his first product is that 'everybody understands what a book is. You didn't have to explain product specifications; the book you would buy on the internet would be the same book you could buy at a bricks-and-mortar store. By contrast, if Bezos wanted to sell electronics on the internet, he would have to show side-by-side comparisons of the models, product reviews...'.

Australian online book retailer Ozbooks claims in Internet Business News (2002) that Australians spent more than AUD 120 million in 2001 ordering books online from U.S. sites Amazon.com and Barnes and Noble. The company also states that many of the books ordered internationally could have been purchased from www.ozbooks.com at a lower cost and with faster delivery.

Threats

The world's largest online book retailer, Amazon, has operations located in Austria, Canada, France, Germany, Japan, U.K. and U.S. but not in Australia. Books ordered by Australians, from Amazon take two to six weeks to arrive.

There are many online book retailers already operating in Australia and a search for the word 'book' at the Australian site of Google gives 1,140,000 entries. A search for the words 'books on line' gives 291,000 entries. These figures are not surprising, given the low market entry cost of online book retailing.

Several Australian online book retailers pay a regular fee to internet search engine companies to be located on the first page of search results connected with buying a book on line. Sites such as www.buyaustralian.com, www.readersrefuge.com.au, www.getonce.com.au, qbdthebookshop.com.au are examples of these web sites.

From the above analysis, it is evident that a market exists for the online service being considered by the three friends. Competition from already established companies has to be taken into account  when they create a marketing plan to diversify their service offering from that of the competition.

Three reasons why someone would buy from the “Books 'R' Us” web site rather than the publisher's internet site

The group of three friends have identified three features for their web site to differentiate it from that of the publisher's internet site and to create a reason for someone to buy from the “Books 'R' Us” website, rather than the publisher's internet site. Two of the features are based upon the two selling rules described by Hodgetts and Kuratko (2001, p.32). The third feature is that of differentiation, as recommended by Kotler (2003, p. 315).

The first selling rule is that the internet company should make it easy for people to find the site. By choosing the name "Books 'R' Us", the group of three friends have managed to include the category of product they sell within their company name and web site. The name is short, easily remembered and identifies the product sold in either a category search or an alphabetical search.

The second selling rule is to keep potential customers coming back. According to the case study in Hodgetts and Kuratko (2001, p.50), one of the “Books 'R' Us” features on the web site is to be a random drawing everyday to send one winner a free book from the current New York Times best-seller list.

The winner's name and his or her book choice will be displayed on the page for a week so that everyone who visits the site will know who the latest winners are and will be encouraged to enter the drawing. Every entry will be eligible for seven days. So people who return to the same site every week to enter can participate every day.

The third feature of differentiation is provided by the pricing policy, breadth of product range and breadth of product information to be provided by “Books 'R' Us“. The case study states that 'the friends are planning to offer as many books as possible at a 20 percent discount off the list price.' This provides a comparative advantage against the publisher's internet site, where books are sold at list price. The product range at the publisher's internet site is limited to those books sold by the publisher whereas the Books 'R' Us web site will feature books from many publishers. The case study also states that 'the group wants to list the titles [sold at the “Books 'R 'Us” web site] by subject (mystery, drama, history, humour, cooking, general interest, and so on) and author and not just by publisher.' These features give further reasons why someone would buy from the “Books 'R' Us” web site rather than the publisher's internet site.

Recommendations in relation to launching the web site

Seven recommendations are made to “Books 'R' Us” in relation to launching their web site. They are associated with the market, segmentation, book variety, returns policy, supplier agreements, pricing and promotion.
The group of friends need to determine who their target or served market will be. Assuming that they will not, at this stage, receive orders internationally then they are restricted to the Australian population of approximately 20 million. Of this population, a market of (say) two million actual and potential customers exists. The available market of consumers who will be aware of Books 'R' Us, read books and buy online may only be (say) 100,000 people. The group of friends need to decide upon a strategy of marketing to the whole available market or a target market within the available market.    Their penetrated market needs to be at least several thousand consumers to provide sufficient income for the group of three friends to pay for salaries, shop rent, utilities, financing, inventory, advertising, etc. If the group are able to segment their market geographically then they may achieve a larger market share in their city of operations to counterweight a lower national market share.
Assuming that the group of friends takes advantage of their shop location for geographic segmentation then demographic, psychographic and behavioural segmentation can be done to further create the target market. Market surveys using secondary information can be used to determine the reading preferences of major segments. This would form the basis of choice of segmentation to create the inventory stocked within the premises and listed online.

Based upon the above target market, the variety of books to be listed can be chosen. Additional factors to be considered in creating the listed variety of books are profit margins per book and promotions for books having an unusually high appeal, e.g. Harry Potter.

The group of friends need to formulate and publish a returns policy. As they receive the purchase order, yet the publisher distributes the books, responsibilities need to be clearly defined.

Agreements need to be signed with each book publisher that they choose to represent. The case study states that 'the friends are planning to offer as many books as possible at a 20 percent discount off the list price.' Each publisher will have a different discount structure for retailers ranging from 10 percent to 50 percent and the discount amount will be related to sales volume figures and monetary value by “Books 'R' Us“. Additionally, payment terms of net monthly account, upon invoice, etc. need to be agreed with each book publisher.

The implications of the fixed 20 percent discount pricing policy need to be determined by “Books 'R' Us“. Although simple to administer and advertise, the group of friends may find themselves selling below cost if demand is high for books having a low retail discount from the publisher.  Alternatively, customers may be lost if books having a high retail discount are priced above their competition. Alternative pricing methods of mark-up pricing, target-return pricing, perceived value pricing, etc. should be considered.

Considering the promotion of “Books 'R' Us“, the decision of the group of friends to set up a small physical bookstore is a good one. It provides further differentiation from other local virtual online book retailers and increases customer confidence in the anticipated level of service. The bookstore also acts as free advertising for the web site to passing trade. This would be enhanced by placing advertisements in local journals, magazines and newspapers to get around the problem of letting the target market easily know the web site address.

List of references

'Australians order books from U.S. web sites', Internet Business News, 20 May 2002

'Economic and financial indicators', The Economist, 31 May - 6 June 2003.

Hodgetts, R.M. & Kuratko, D.F. 2001, Effective Small Business Management, Harcourt, Florida

Kotler, P. 2003, Marketing Management, Pearson, New Jersey

'Small business told to find productivity online', Financial Review, 24 June 2003.

Spector, R. 2000, Amazon.com: get big fast, HarperCollins, New York.

I originally wrote this article, “Entrepreneur interview” in July 2003.

I interviewed Robin, the owner of a small travel business, in July 2003. It was an enjoyable experience and we discussed the business generally, business turning points, human resources, marketing, IT, owner skills and outside sources.

The business

Insight Vacations (Singapore) Pvt Ltd is a small enterprise located in the Suntec City area of Singapore. It operates within the travel industry. Robin runs the business and he is a wholesaler of holiday tours. Products are supplied to Robin by TIC (The Travel Corporation) and he retails them to travel agents. The company also reaches out to other countries in Asia, through agency agreements, to enable the sale of TIC products beyond Singapore. There are twenty employees of the company and the business was established in 1987.  Belat (2000) succinctly describes Robin's products by quoting an employee as saying that "Insight Vacations offers unforgettable good memories like seeing the sunset over San Marco , Venice from your gondola, mixing with locals at a late night cafe in Champs Elysee, soaring above Swiss mountains in a cable car to the summit of Mt. Pilatus".

TTC produces several branded products and Robin markets three of them, from Singapore, to travel agents in Asia. They are Busabout, Contiki Holidays and Insight Vacations.

Busabout is a flexible "hop-on / hop-off" style coach transport network for independent travellers.

Contiki Holidays are for 18 to 35 year olds. They are guided tours throughout the world, using all forms of transportation.

Insight Vacations are worldwide coach tours. They incorporate centrally located hotels, sightseeing inclusions and quality transportation.

The travel industry has undergone many changes in the last decade and will continue to do so at an ever increasing pace. Mergers and acquisitions of travel companies have created large global operators able to undercut the prices of smaller enterprises. Some of the smaller companies, having been in existence for half a century, have either ceased trading or have been acquired by larger companies. Low market entry costs have seen businesses come and go, particularly in the last five years.

The definition and roles of supplier, wholesaler, retailer and customer continue to overlap and are being re-moulded within the travel industry. Suppliers, like airlines, now sell direct to the end-user, cutting out the travel agent. Supplier commissions to travel agents have been reduced or capped. Technology has accelerated this change through the use of the internet.  Customers are even now able to offer a price that they are willing to pay for a travel service, via the internet, and providers can bid for custom at auctions.

In addition to the internal changes taking place within the travel industry, external factors have impacted heavily in the last five years. Many of these external forces have been without precedence and have caused havoc within the tourism industry. Global recession, regional financial crisis, war, terrorism and disease have all created unique challenges within the last five years. These events have affected the travel sector of business more than any other industry. Monthly revenue declines of between 50% and 90% have been experienced by companies during this period.

The year 2003 has been most difficult for Robin and Insight Vacations (S) Pvt Ltd.

The International Herald Tribune (2003) quotes Lian Chia Liang at J.P. Morgan Chase in Singapore as saying that the [Singapore] economy would not grow any faster than 0.9 percent in 2003. This is consistent with the government's forecast of growth resuming in the second half of 2003 to achieve yearly growth of between 0.5 percent and 2.5 percent. This is after the GDP shrank at an annualised 11.8 percent rate from the previous second quarter due to recession, war and the outbreak of SARS. Evidence of Singapore's economy being already on the rebound is given by Aggarwal and Chiam (2003) and they state that "[Singapore] exports surged 18.7 percent last month [June 2003] from a year ago, and the country's struggling tourism industry is set to soar once more."

Turning points

Recent events during the fist half of 2003 created nervousness amongst potential travellers about the security of their holidays. This was predominantly caused by many flight cancellations during this uncertain period. Hoon (2003) reports that Insight Vacations restored confidence amongst their customers by guaranteeing every departure on all available tours up to the end of July 2003.

The company reduced their operating expenses during the first half of 2003 to match a decline in revenue. This was achieved by placing staff on a four-day week. As sales picked up, staff were returned to a normal working week in June 2003.  Singapore Airlines reduced their air fares towards the end of the second half of 2003 and this contributed to an increase in bookings for Robin.

Insight Vacations' Winter 2003/2004 programme was issued two months early in 2003. This gave customers a longer time to plan their end-of-year vacation and should attract customers who delayed summer holidays due to the uncertainties that existed in the early half of this year.

Robin had an innovative idea in the midst of the recent travel industry troubles, in April 2003, to cater for a very small niche market.  Travel Weekly East (2003) reported that "Robin, Insight Vacations, is quick to seize an opportunity when he sees one. With most hotels and travel businesses running empty due to the SARS crisis, he is urging his travel industry colleagues to 'Take a break, Go Bohemian'. The offer is specially targeted at general managers of hotels who have asked most staff to go on leave during this period. 'I thought why not give the general manager a break too. It is depressing for them to be around here,' said Robin. He is urging them to take advantage of it's special travel trade rebate and go on it's nine-day Bohemian tour featuring three nights in Vienna, two nights in Budapest, one night in Bratislava and two nights in Prague."

Insight Vacations' market research of it's customers in 2002 created a product change. Travel Gazette Asia (2002b) quotes Robin as saying, 'We've found an increased demand for longer stays in cities and our consumer research highlights that clients want to get under the skin of the destinations they visit. As a result, we've expanded our Country Roads programme in 2003 by 33 percent to include 12 itineraries. As we move forward into 2004 and 2005, we plan to grow this popular series." The magazine also states that Insight has listened to the market and has inserted a mid-priced product between it's existing first-class tours and budget tours.  It's called SuperSaver and aims to offer first class touring but on a budget.

A 'Passport to Knowledge' campaign was introduced by Insight Vacations in December 2000 and was reported by Tan (2000). The scheme encourages travel agents to sell more of Or Robin's products by introducing a rewards system. Travel agents are able to collect points every time they book a customer on an Insight Vacations tour. These points can then be redeemed to receive free places on one of Insight Vacations' European or U.S. tours. The scheme is designed to be both motivational and educational. A new sales guide, 'The Art of Touring in Style' was issued to travel agents and it identifies the unique points of Insight Vacations' products. In it's report on the scheme, the TTG magazine quotes Robin, "The sales guide would provide the necessary knowledge to facilitate closing sales, while the Passport to Knowledge is aimed at assisting our colleagues in the trade to better understand the destination and our products." A 40 percent growth in business was achieved in 2000 and a 30 percent growth was expected in 2001. However, the impact of terrorism in September 2001 reduced the growth to 5 percent.

Insight Vacations (S) pvt Ltd is still in the growth stage of it's business life cycle. The Singapore island population is expected to slightly decline over the next decade, creating a smaller market. However, the potential and available markets (within the market) are expected to increase. Media, peer pressure, curiosity and a quest for adventure are factors which will increase the set of consumers who have interest, income and access to the tours offered by the company. Language Travel Magazine (2000) quotes Robin as saying, "As consumers get more discerning, getting information from a host of sources, many are looking for off-the-beaten-track destinations. "

In contrast to Singapore's declining population, the total Asian market continues to expand. The impact of technology also increases the available Asian market for Insight Vacations (Singapore) Pvt Ltd's products. The company is in a good position to serve this expanding market and already has representative offices in Brunei, China, Hong Kong, India, Indonesia-Japan, Korea, Malaysia, Pakistan, Philippines, Taiwan and Thailand.

Human resource management

Robin is passionate about the training of his staff and from 4 percent to 5 percent of the business operating costs are allocated to staff training. This is through sponsorship of his employees to attend Diploma or Degree courses related to travel and tourism.

"I personally feel strongly about training and retraining… …if everyone in the industry trains 20 percent of their staff, the level of professionalism will rise. Then, worries about one agency poaching trained staff from another agency will go away", says Robin in Travel Trade Gazette Asia (1999b).

Robin commented upon the issue of retaining quality staff in the travel business in Travel Trade Gazette Asia (2001).  He expressed his opinion that career development and the industry's image are linked to compensation, which is currently S$1,200 to S$1,500 per month for those with no experience. This is comparable with other industries. Robin attributes the perceived lack of travel industry job prestige to image and human resource management. Attrition, due to job stress, is at similarly high levels in law and medicine - although salary levels are higher in these professions. He says that travel specialists must work harder to retain commission levels, instead of giving commission away to achieve a sale. The resulting retained profits could then be used to increase salary levels and retain staff. Insight Vacations (Singapore) pvt Ltd are given a day off on their birthday. This perk is very popular with Robin's staff. He also makes a special effort to nominate staff for national awards, such as Model Worker. Staff who decide to further their careers beyond Insight Vacations for better prospects are allowed to leave gracefully by Robin. Although unfortunate for the company, he says that his ex-employees are the best salesmen for the company in their future endeavours.

Competency management programmes are conducted within Robin's company and he has identified 22 skill sets required of his staff.

Through the networks mentioned later in this article, Robin is able to identify potential future employees. He comes into contact with these candidates through his work external to the company and when students attend his offices during industrial attachments for a few months. This is an ideal opportunity to judge the capabilities of a potential future member of his workforce. He doesn't need to advertise in the newspaper to attract candidates.

Robin conducts appraisals with all of his staff. The appraisals are held collectively, off-site, on a monthly basis at such locations as Sentosa Island. Management by objectives is used, where the objectives are common, as opposed to being individualistic.

Marketing

The marketing strategy of Insight Vacations (Singapore) Pvt Ltd is illustrated by the components of the marketing mix. The three TIC products give variety and attract different target markets.

Segmentation variables

Busabout
Geographic - Asian consumer via agent
Demographic - under 35 years, single, low income
Psychographic - culture orientated lifestyle, outdoor orientated lifestyle
Behavioural - service benefits, economy benefits

Contiki
Geographic - Asian consumer via agent
Demographic - under 35 years, single, medium/high income
Psychographic - sports orientated lifestyle, outdoor orientated lifestyle
Behavioural - service benefits

Insight Vacations
Geographic - Asian consumer via agent
Demographic - above 35 years, married, high income
Psychographic - culture orientated lifestyle
Behavioural - quality benefits, service benefits

Departure guarantees and a meet and greet service offers private car transfers at Heathrow Airport for passengers booked on Insight's First Class Tours to Britain and Europe.

Insight Vacations tours are priced at US$10 more per day on average than what other tour operators are charging. However, the company includes many features that most other operators charge as optional extras.

Insight Vacations (S) pvt Ltd's products are promoted through travel agents. Travel Trade Gazette (2002a) reports upon a newly introduced commission structure from Insight Vacations (Singapore) pvt Ltd which gave travel agents up to 17 percent commission on certain tours booked in 2002.  The commission would be paid in 2003.  Previously, commission was 10 percent and 15 percent for high volume. There used to be no incentive to sell tours for larger passenger numbers. Now the commission is on a sliding scale from 10 to 17 percent for 15 to 91 passengers, respectively.

Information technology

Information technology, and specifically the internet, has created many changes within the travel industry that the business operates. Robin attended a seminar, "Travel Agents Surviving the 21st Century" in which it was discussed that leisure travel will change, with better informed individual travellers overtaking group tours. From the seminar, Travel Trade Gazette Asia (1999a) quotes Robin as saying, "The consumer will be more informed than the travel agent because of the information which is available to them via the internet. Individual leisure travel will grow faster than group travel and because of that, agents will need to know more about events, destinations and highly-specialised tours, such as ecotourism, which are available."

When interviewed on My Angel.com's 'Hospitality & Tourism PowWow' in May 2000, Robin was asked for his opinion on travel providers being in a sunset industry because the internet allowed individuals to do their own bookings. Robin replied that, "Contrary to speculation that Travel Industry being a sunset industry, the internet is going to speed up its development. Whilst some IT Savvy travellers may attempt to plan their own itinerary etc, how many would bother to spend hours on their computer screen scrolling and search for the best combination? It may be simple for a hotel booking or a simple point to point air reservation but if one were to try planning a 15 days vacation to Europe for their family, I think engaging the service of a travel consultant is a far easier option" - My Angel.com (2000). In the same interview, he said that the internet was changing the way that Insight Vacations was carrying out it's business. The internet had enabled customers to be more knowledgeable about the products they were buying. Travel specialists had to be even more knowledgeable so that customers would pay a good fee to save time and money.

Owner skills

Robin had ten years of experience with Singapore Airlines before running Insight Vacations (Singapore) Pvt Ltd. His prior jobs were in technical supplies, marketing, tourism development, advertising and promotion. Transferring the skills he learned from Singapore Airlines has been of benefit to the running of Insight Vacations (Singapore) Pvt Ltd. He is also a Fellow of the Chartered Institute of Marketing, holds and MBA and DBA from Hull University.

Outside sources

Many outside sources have attracted Robin over the last decade. He has held many positions within NATAS (National Association of Travel Agents, Singapore), is a director of the Tourism Management Institute of Singapore and was Chairman of Singapore's Chartered Institute of Marketing in 1999. Robin has also served as external examiner and panel member for Singapore's several polytechnics and is a part-time evening lecturer for Southern Cross University.

Robin acknowledges the new ideas that new employees bring to the company, particularly in the area of computing and computer applications.

Finally, a motivational company was brought in recently to work with Insight Vacations (Singapore) Pvt Ltd. A six week programme was held to identify a temporary area of weakness within the sales function. The programme highlighted difficulties that existed and steps were taken to remedy the situation.

List of references

'Agency fees to combat technology', Language Travel Magazine, January, 2000. Retrieved from http://www.hothousemedia.com/ltmlltmbackissues/jan00web/jan00 travelnews.pdf.

Aggarwal, N. & Chiam, C., 'Singapore's economy on the rebound', The Straits Times, July 18, 2003.

Belat, K. 2000, 'Brunei: European tours by motorcoach', The Borneo Bulletin, January 27, p. 1.

'Book more, earn more', Travel Trade Gazette Asia, August 23, 2002a. Retrieved from http://ttg.com.sg/currentlarchive/2002/0823-29/ne0820022313.html.

Hoon, Y.S. 2003, 'Insight sees resurgence in US bookings but Asia "still slow"', Travel Weekly East, May 23,2003. Retrieved from http://travelweeklyeast.com/news_articlecfm?id=9035.

'Insight offers more', Travel Trade Gazette Asia, November 29, 2002b. Retrieved from http://www.ttg.com.sg/currentlarchive/2002/1129-05/pr1120022901.html.

'Insight's Yap offers "Bohemian Break" to hoteliers', Travel Weekly East, April 11, 2003. Retrieved from http://travelweeklyeast.comlnews_articlecfm?id=8664.

'IT-savvy agents to gain', Travel Trade Gazette Asia, September 24, 1999a. Retrieved from http://80-proquest.umLcom.ezproxy.scu.edu.au.

'Learning the Tourism 2-step', Hospitality & Tourism Pow Wow - My Angel.com , May 26,2000. Retrieved from http://www.myangel.comlforumlhospitality/Robin Yap - Transcript.shtml.

'Singapore economy contracts at record rate', International Herald Tribune, July 10, 2003.

Tan, W. 2000, 'Insight incentivises agents', Travel Trade Gazette Asia, December 15, 2000. Retrieved from http://80-gateway.proquest.com.ezproxy.scu.edu.au.

'Training part of bigger plan', Travel Trade Gazette Asia, April 16, 1999b. Retrieved from http://80-proquest.umi.com.ezproxy.scu.edu.au.

'Trying to make it all worthwhile', Travel Trade Gazette Asia, May 4, 2001. Retrieved from http://www.ttg.com.sg/currentlarchive/2001/0504-10/co0520010402.html.

I originally wrote this article, “Entrepreneur interviews” in April 2004.

I interviewed two entrepreneurs during Spring 2004. They were both ethnic minorities and owned the same type of business, but one was a female entrepreneur and the other was a male entrepreneur. The interviewees were asked questions regarding (a) entrepreneurial growth, (b) female entrepreneurs, and (c) ethnic entrepreneurs.

The purpose of the interviews was to compare and contrast the two different people and to see how well their characteristics and experiences matched those published in entrepreneurial literature.

Entrepreneurial growth plans for both interviewees contrasted each other. However, both entrepreneurs closely matched the findings of previous researchers. The female entrepreneur demonstrated caution, whereas the male entrepreneur displayed enthusiastic plans for growth; some of which had come to fruition. The male ethnic entrepreneur didn't conform to the literature view that ethnic entrepreneurs are more satisfied with lower wages than non-ethnic entrepreneurs.

The female entrepreneur's approach to risk-taking and experience with support and role conflicts, closely followed the literature view. She had good support from her spouse, was a conservative risk-taker and the satisfaction she received from running her business had a positive impact on her family life. This contrasted with the male entrepreneur receiving support from friends, taking moderate risks and spending only half the week nights with his spouse and family.

The interviewee responses to questions associated with ethnic minority entrepreneurs demonstrated that the passage of time, in a market of non-ethnic customers, erodes the ethnic minority characteristics, e.g. low wage acceptability, internal financing. In a period of within (say) a decade, the ethnic minority entrepreneur may absorb the culture of the host country, if working outside of the ethnic community.

Both interviewees broadly conformed to the views of the entrepreneurial literature regarding ethnic minorities. They both started businesses in the service sector and they both chose a profession that they had prior experience in. However, whilst the literature supports the view that ethnic minority finance for start-up is usually internally sourced, only the female entrepreneur was self-funded.

Introduction

I interviewed two entrepreneurs during April 2004. The topics of discussion were limited to entrepreneurial growth, female entrepreneurs and ethnic entrepreneurs. Both entrepreneurs owned beauty salons and were ethnic minorities. Amy was female and was a hairdresser in Singapore. Cedric was in Malaysia.

Amy was originally from Malaysia, but had settled with her husband in Singapore a few years ago. She had run a small beauty parlour, for almost 2 years, within a condominium block and had a staff of three.

Cedric emigrated from Syria in 1984 and started his business 20 years ago. He had 30 employees and leased 2 retail units to provide his service of hairdressing, massage and spa therapy.

Entrepreneurial growth

The two entrepreneurs were asked the two questions of how they viewed the growth of their business and what their thoughts were on retaining business earnings versus making personal financial withdrawals. Both entrepreneurs had very different attitudes to growth.

Growth plan

Amy leased a small (200 square feet) unit from a condominium owner. She had been in business for almost 2 years. Her immediate goal was to increase the utilization of her current resources of space and labour. She had no immediate plans to grow the business beyond 3 staff, until demand fully consumed the existing resources.

Cedric leased two units (2000 square feet total) from a shopping mall owner. He had been in business for more than 20 years and had 30 staff. His idea was to open more outlets in different geographic locations and to diversify with different services in the same market and different products I services in different markets. For example, he had been interested in designing, manufacturing and marketing automated beauty products and he had recently increased the square footage of his business to expand the services to massage and spa therapy.  Although there were many years difference in the maturity of the two businesses, it could be argued that Amy's firm be classified as a lifestyle-business.  The characteristic that distinguished Cedric's business was that he was thinking strategically, as identified by Burns and Harrison (1996:49), about the direction and scope of the business over the longer term. Cedric was also following the guidance of Kuratko and Hodgetts (2004:549), who state that firms who fail to innovate will die and that Cedric was complementing current offerings with work on new product and service developments. However, Amy appeared to demonstrate more understanding of where her business was today.

Compensation

Amy withdrew fixed monthly compensation from her business, by way of a salary. Although not disclosed, the amount was small at this stage of her business. She expected to withdraw a larger wage when profits increased and to spend a little more on assets for her salon.

Cedric withdrew monthly compensation from his business and supplemented these regular withdrawals with occasional bonuses if he thought that the business was doing particularly well, so that he could reap some of the rewards that he said that he was entitled to, for his hard work.

Amy was Malay and had settled in Singapore. She displayed a characteristic described by Light (1984) where immigrants would be more satisfied than native-born workers with low profits from small businesses because of wage differences between their origin and destination countries. The inverse relationship between small business growth and the entrepreneur's compensation is described by Churchill and Lewis (1992:273) as occurring during the success stage of an enterprise. These authors pose the question of whether the owner "wishes to commit to their time and risk the accumulated equity of the business in order to grow or instead prefer to savour some of the benefits of success?" They recognize that all too often the owner wants both and this appears to be the situation that Cedric found himself in. Cedric is Syrian and emigrated to Malaysia 25 years ago and his approach to compensation, in conflict with Light's findings could, perhaps, be explained by a dilution of his original immigrant values over 25 years in a host country.

Female entrepreneurs

The two salon owners were asked three questions to compare and contrast between female entrepreneur and male entrepreneur experiences with regard to (a) support, (b) role-conflicts and (c) risk-taking. The female entrepreneurial traits published in the literature were supported by the findings.

Support

Amy had many personal friends who visited her salon, whilst she worked 6 days per week and they gave her support. But her greatest supporter was her husband, who also had a financial interest in the business.  Cedric had a network of friends in the same type of business and his greatest support was from his extended family and friends. His wife was a full-time lawyer and had little spare time for interest in the business.  Additionally, Cedric's son, Cecil, had been taken on board and was beginning to be a source of support for his father.  Brockhaus and Horwitz (1986:39) report that Hisrich and O'Brien found that female entrepreneurs had very supportive parents and husbands, which was Amy's situation.  Hisrich and Brush (1986:6), in a survey of ethnic minority entrepreneurs, found that spouses were their biggest supporters, followed by business associates, friends and other relatives. Whilst Amy typifies the findings of Hisrich and Brush, Cedric does not. This could be due to Cedric being male and, although still being a minority, having lost much of his ethnicity. However, Cedric's situation is best described by Hisrich (1986:72), where he states that, "men usually list outside advisors as most important supporters with the spouse being second. Women list their spouses first, close friends second, and business associates third."

Role conflicts

Amy had one child and had taken one month maternity leave from the business during the birth and had a maid to look after the baby girl till kindergarten. She, without fail, took every Tuesday off work to spend time with her daughter, Glenda.

Cedric had three children in their twenties, two of whom still lived at the family home. He spent three nights a week, 120 miles away from home, competing in hairdressing competitions. It was also a second source of income to Cedric.

Kuratko and Hodgetts (2004:680) summarize the findings of two surveys among female entrepreneurs regarding role conflicts. They report that "female entrepreneurship can be the most successful professional outlet for reducing [work/home role] conflict if autonomy and satisfaction are present." Amy's situation was in accordance with their findings and contrasted with Cedric's circumstances.

Risk-taking

Amy described herself as being a low risk taker and this was evidenced by her frugal salon layout and conservative attitude towards growth. She was unwilling to invest more funds into the business until she was 100% sure of it's success.  Cedric said that he was forced to take risks to retain his competitive position. For example, he had taken out a moderate commercial loan to expand his business to include a massage and spa therapy salon, next door to the location of his original business. He said that he had taken this action because all of his competition had similar enhanced facilities and that he feared losing business if he didn't expand into these related markets.

The above comments by Amy and Cedric conform to the observation by Hisrich (1986:79) who states that, "in general, women entrepreneurs have a conservative risk taking posture" and that businesses started by women entrepreneurs will not likely grow to a significant size. But Hisrich also asks if size is a measure of success and comments that the realism and caution exhibited by women business owners may actually ensure the success of their business over time.

Ethnic entrepreneurs

The two entrepreneurs were asked three questions regarding the ethnic minority impact of being a Malay in Singapore and a Syrian in Malaysia. The three questions asked about (a) how the type of venture was chosen, (b) what motivated each entrepreneur, and (c) how the start-up finance was obtained. The literature supports much of the entrepreneurs' experiences, although Cedric displayed some distinctive characteristics not generally found in minority entrepreneurs, but found in male entrepreneurs.

Nature of venture

Amy had chosen to open a hairdressing salon because she had previously worked as a hairdresser. She had been employed as a stylist by a couple of employers before she decided to start-up her own business.

Cedric, also, had chosen to open a hairdressing salon because he had previously worked as a hairdresser for the first five years when he emigrated to Malaysia from Syria. He furthermore said that the cost of starting-up a salon was much lower than for other business ideas that he had.

Amy and Cedric's common business choice supported the findings of Hisrich (1986:72), Brockhaus and Horwitz (1986:39), that women are more likely to start a business in a service related area, and that of Aldrich and Waldinger (1990: 112), who state that most ethnic enterprises are found in the service sector. Additionally, both these small enterprises served non-ethic populations, where the opportunities were much greater than if they served an ethnic community's needs. The fact that Amy and Cedric had previous skill in their line of work supported the survey results of Hisrich and Brush (1986:4). These authors found that the majority of the minority entrepreneurs they surveyed had prior experience in their fields of endeavour. This supports previous findings that entrepreneurs tend to start businesses in the fields in which they have worked.

Start-up motivation

Amy had two motivations for starting her own business. Firstly, she had wanted to achieve something in her life, and “being her own boss” was something that she'd always wanted to do. Secondly, she had felt that she could do just as well on her own as working for someone else.

Cedric had also wanted the achievement of self-employment but, as husband and father of three children, he also had the need to raise his income to increase his family's standard of living to that which he and his family desired. In the interim time since arriving in Malaysia, he had been working for Syrian and Indian business owners and had thought that employing people to work for him would be the way to increase his income.

The experiences of Amy and Cedric support the view of Aldrich and Waldinger (1990:125) regarding prior work and, particularly for Cedric, employer type. The authors identify that immigrant workers often begin as temporary workers in small businesses and that the potential owner is an employee in a co-ethnic or family member's business.   

Start-up finance

Amy's start-up capital had been provided by herself and her husband. They had savings Which they had used to establish her venture.

Cedric did not have a great deal of personal capital at the time when he decided to open his salon. Instead, he had taken out a commercial loan from a Malaysian bank, using the family's home as security for the loan. He has since paid off this loan.

Cedric's situation contrasts with that noted by Aldrich and Waldinger (1990:125), whereby the author's state that, “immigrant workers ... seek jobs that provide opportunities to work long hours and accumulate savings." However, Hisrich (1986:69) accurately describes Amy and Cedric's start-up financial situation when he identifies that male and female entrepreneurs differ in the area of start-up financing. He comments that, “while males often list investors, bank loans, or personal loans in addition to personal funds as sources of start-up capital, women in nearly all cases have relied solely on personal assets or savings.

List of references

Aldrich, H. & Waldinger, R. 1990, 'Ethnicity and entrepreneurship', Annual Review of Sociology, No. 16 pp. 111-135.

Brockhaus, R.H. & Horwitz, P.S. 1986, 'The psychology of the entrepreneurs' in Sexton, D.L. & Smilor, R.W. (Eds), The Art and Science of Entrepreneurship, Cambridge, MA: Balinger Publishing pp. 25-48.

Burns, P. & Harrison, J. 1996, 'Growth' in Burns, P. & Dewhurst, J. (Eds) Small Business and Entrepreneurship, 2nd edn, London: Macmillan pp.40-72

Churchill, N.C. & Lewis, V.L. 1992, 'The five s~ages of small business growth' in Sahlman, W.A. & Stevenson, H.H. (Eds), The Entrepreneurial Venture: Readings, Boston, MA: Harvard Business School Publications pp. 263-275.

Hisrich, R. D. 1986, 'The woman entrepreneur: Characteristics, skills, problems, and prescriptions for success', in Sexton,D. & Smilor, R., The Art and Science of Entrepreneurship, Massachusetts: Ballinger, pp. 61-81

Hisrich, R.D. & Brush, C. 1986, 'Characteristics of the minority entrepreneur', Journal of Small Business Management, Vol. 24, October, pp. 1-8.  Kuratko, D.F. & Hodgetts, R.M. 2004, Entrepreneurship: Theory, Process, and Practice, 6th edn. Ohio: South Western

Light, I. 1984, 'Immigrant and ethnic enterprise in North Ameri~Ethnic Racial Stud. 7:195-216

I originally wrote this article, “Concepts of entrepreneurship” in March 2004.

Entrepreneur traits, creativity, innovation, business planning and growth management are five of the main concepts of entrepreneurship. Lists of characteristics common to entrepreneurs have been published by many authors but others suggest that previous experiences are more important. Entrepreneurial creativity requires a paradigm shift and there are many techniques available to help the entrepreneur to see things in a different perspective, to come up with new ideas. Innovation involves implementing newly created ideas and the process can be classified as invention, extension, duplication and synthesis. Strategic planning is used to assess the entrepreneur's position in external/internal environments, identify key success factors/competencies and to implement a strategy. Finally, the issue of growth management requires the entrepreneur to settle on what size of company he is happy with, how much direct control is afforded to him and how entrepreneurial spirit can be retained in a growing business.

ENTREPRENEUR TRAITS

Many authors have published lists of characteristics that they consider to be displayed by entrepreneurs. Cunningham and Lischeron (1991) have grouped these contributions into six schools of thought. They classify these as the; "Great Person", Psychological, Classical, Management, Leadership and Intrapreneurship schools of thought.

"Great person" - Born entrepreneurs, e.g. Fords, Rockefeller, Trump.
Psychological - Entrepreneurial personality, behaviour developed over time.
Classical - Entrepreneurial key factors are innovation and creativity.
Management - Entrepreneurs can be developed or trained in the classroom.
Leadership - Attract people to support a vision and transform it into reality.
Intrapreneurship - Encouraging people to work in semi-autonomous units.

However, much criticism is levelled at these theories because many of the characteristics are not unique to entrepreneurs and can be found in successful managers and executives. Liles (1974:43) proposes that "certain kinds of experiences and situational conditions - rather than personality or ego - are the major determinants of whether or not an individual becomes an entrepreneur" and Bailey (2003) questions whether entrepreneurs possess different characteristics or whether they are merely products of unique situational factors. This view is also supported by O'Neile (1989), who affirms that the entrepreneur is a "product of his historical and environmental circumstances." The choice to become an entrepreneur must be influenced by events that led to the decision, claims Brockhaus and Horwitz (1986). They suggest that previous experience has an effect. These previous experiences could be positive, such as role models and education, or they could be negative displacements. Refugees and migrants may choose entrepreneurship if gaining employment is difficult. Job dissatisfaction or job loss may be other stimuli to select entrepreneurship.

CREATIVITY

Entrepreneurship can be partly described as a combination of creativity followed by innovation, where creativity is the act of 'thinking' new things, coming up with ideas and innovation is 'doing' new things or implementing the newly created ideas. Creativity is also concerned with new ways of looking at opportunities and new approaches to solving problems. This may require the entrepreneur to shift paradigms and discard old assumptions and perspectives. Mukerjea (2003), in "Brain Symphony", describes sixteen techniques that can be used by entrepreneurs to stimulate creativity:

Visual Gym - Creating scenes through imagination, used by Nikola Tesla.
Torrence Tests - Reverse, substitute, modify, adapt, new uses, combine, eliminate, simplify.
Random' Riting - Paragraph creation from randomly selected words.
Cinquains - Noun, two adjectives, three verbs, four word statement, noun.
Matchmaking - Attribute matrices, linking, lists and morphological analysis.
Radiant Thinking - Word association to branches radiating from the centre.
Metaphorical-Analogical Thinking - Problem, analogy, attributes, emergent ideas.
Cut n' Paste - Collage of cut-out images with captions.
Abstract Designs - Creative interpretation of instructions for drawing objects.
Object Analogy - Use ordinary objects to draw analogies for problem solving.
Freewheeling - Combine randomly selected objects to produce new objects.
Mentamorphosis - Infusing oneself into the actual form of the central problem.
Ideavisuals - Picture codes and storyboarding, used by Wait Disney.
Kaleidoscoping - Mixing and matching synonyms of the key problem words.
SitSol Reversal - Reverse the situation and focus on the negatives.
Fishboning - Cause and effect diagram for clarifying ambiguities.

Another technique is to “surround yourself with people who are different from you. Always ask for help and another point of view - even when you may not think that you need it. You'll often be surprised that there is a better way to look at the original idea", says Gillian Franklin, according to Turner (2003). Once the entrepreneur has created, or discovered, new ideas then they are evaluated against each other as a candidate for innovation.

INNOVATION

Schumpeter (1934) identifies the entrepreneur's challenge as discovering and implementing new ideas. He asserts that innovation is a unique feature which separates entrepreneurs from managers. It's stated that this is achieved by (1) developing new products or services, (2) developing new methods of production, (3) identifying new markets, (4) discovering new sources of supply, and (5) developing new forms of organizations.

The innovation process can be categorized into four basic types, suggests Kuratko and Hodgetts (2004). These are; invention, extension, duplication and synthesis. Novel products or services are 'inventions', and the application of a current concept to a different application is an 'extension'. An improvement to an already existing concept is a 'duplication' and forming a new application from existing concepts is 'synthesis'.

BUSINESS PLANNING

Entrepreneurs are repeatedly monitoring windows of opportunity. These windows are continuously opening and closing and strategic planning is required to assess if the opportunity is worthwhile for the entrepreneur and how it should be successfully exploited. Whilst strategic planning is essential to ensure successful operation, it is a particularly useful tool when the entrepreneur's business is growing, it serves a niche market or business performance is improving. There are many schools of strategic management thought available to the entrepreneur and Mintzberg (1990:112) illustrates the Design School Model.

The Design School Model can be described as having eleven components:

External appraisal - An examination of the external elements influences the entrepreneur's strategy options. This involves investigating customers, competitors, market and the environment. Where the environment is political, economic, society, technology and ecology considerations.

Threats and opportunities in the environment - The external appraisal reveals the opportunities that the entrepreneur can exploit and the threats he faces. Opportunities are regarded as positive trends and threats are negative trends.

Key success factors - Key success factors are competitive assets or competences that the entrepreneur needs to compete successfully in his chosen industry. An absence of strategic necessities is a weakness and possession of strategic strengths will give advantage to the entrepreneur.

Internal appraisal - An examination of the skills of the entrepreneur's employees, resources, innovations and financial position discloses how the business is constrained by it's capabilities and resources.

Strengths and weaknesses of the organization - Any activities that the entrepreneur does well are identified as strengths from the internal appraisal. Any lack of resources or activities that the entrepreneur does not do well are identified as weaknesses.

Distinctive competencies or assets - Distinctive competencies are the activities that the entrepreneur does exceptionally well.

Social responsibility - Social responsibility is the entrepreneur's obligation, beyond that required by the law and economics, to pursue long-term goals that are good for society.

Managerial values - This describes how the entrepreneur's managers establish, promote and practice the business values. The building of team spirit, influencing marketing efforts, shaping of employee behaviour and guidance for manager's decisions and actions are examples of the main purposes of managerial values.

Creation of strategy - Strategic alternative strategies need to be developed by the entrepreneur for evaluation. These strategies should take advantage of environmental opportunities and exploit the company's strengths.

Evaluation and choice of strategy - Some of the criteria used for selection of a strategy from alternatives are scenario consideration, sustainable competitive advantage pursuit, organizational vision and objectives consistency, feasibility and the relationship to the other strategies of the entrepreneur.

Implementation of strategy - For the entrepreneur to succeed, the chosen strategy must be implemented and this involves converting strategic alternatives into an operating plan.

The final stage of business planning is to actually implement the strategic plan and four approaches are suggested. Strengths and weaknesses can be identified on a year-to-year basis in an opportunity management approach. Activities can be carried out sequentially in a milestone planning approach with achievable goals along the way. Expert theory can be used in a strategic model approach which states how the plan should be prepared and executed. Significant variables, venture phase and the entrepreneur's growth preferences can be applied to a contingency model.

MANAGING GROWTH

The entrepreneur's management of the growth of the business raises many important issues. Amongst these are; activity level, retaining entrepreneurial spirit, delegation, and ownership. The ability, need and opportunity will determine the business growth.

First and foremost, the entrepreneur has to make the big decision as to what level of activity he wants for the business. Churchill and Lewis (1992) categorize the entrepreneur's business growth into the five stages of existence, survival, success, takeoff, and maturity. So, the entrepreneur must want to move from each stage to the next, otherwise he must remain at a stage where he is comfortable with the level of activity.

The high entrepreneurial spirit that exists in a small business can erode as the business grows in size, unless a conscious effort is made to avoid the adverse effects of bureaucratization. This can be achieved by creating entrepreneurial momentum that exists within the business and which, in itself, becomes a driving force of entrepreneurship. The business cannot grow unless the entrepreneur is able to effectively delegate. This can create a problem for many entrepreneurs who might fear that they are losing control of the business by giving greater responsibility to their staff. The act of delegation is made easier if the entrepreneur is able to create work procedures for standard activities like accounting, dispatch, etc.

The final main issue of growth management is that of ownership. It is not possible for most entrepreneurs to achieve growth with their own limited financial resources and the surplus cash flow of the business, especially in the early years. Working capital requirements increase dramatically with increasing growth rates because of the need to outlay capital for expenditure before revenue is received. For this reason, the entrepreneur must raise capital through debt or dilution of ownership. Many entrepreneurs fear that shareholders or venture capitalists will influence the management of their venture or, in the extreme, remove them from the business.

References

Bailey, J. 2003, 'The right stuff', Business Review Weekly, 4-10 September, pp. 32-34, 36.

Brockhaus, R.H. & Horwitz, P.S. 1986, 'The psychology of the entrepreneurs' in Sexton, D.L. & Smilor, R.W. (Eds), The Art and Science of Entrepreneurship, Cambridge, MA: Ballinger Publishing pp. 25-48.

Churchhill, N.C. & Lewis, V.L. 1992, 'The five stages of business growth' in Sahlman, W.A. & Stevenson, H.H. (Eds), The Entrepreneurial Venture: Readings, Boston, MA: Harvard Business School Publications pp. 263-275.

Cunningham, J.B. & Lischeron, J. 1991, 'Defining entrepreneurship', Journal of Small Business Management, Vol. 29, January, pp. 45-59. Kuratko, D.F. & Hodgetts, R.M. 2004, Entrepreneurship: Theory, process, and Practice, 6th edn. Ohio: South Western.

Liles, P. R. 1974, 'Who are the entrepreneurs?', MSU Business Topics, Vol. 22, No. 1 pp. 43-55.

Mintzberg, H. 1990, 'Strategy Formation - Schools of Thought', in J.W. Frederickson (ed) Perspectives on Strategic Management, Harper Business, New York.

Mukerjea, D. 2093, Brain Symphony, Horizon Books pte Ltd, Singapore.

O'Neile, M.J. 1989, 'The entrepreneur in economic thought', Armidale, NSW: Department of Accounting and Financial Management University of New England.

Schumpeter, J.A. 1934, The Theory of Economic Development, Harvard University Press, Cambridge, Mass., p.56.

Turner, R. 27hey just did it', Boss Magazine, April, pp. 55-56, 59-60, 64-70.

I was asked to carry out this 16" angle control valve seismic analysis for one of the world's leading engineering companies.

1.0   Summary of findings
2.0   Introduction
3.0   Identification of susceptible features to be analysed
3.1   Body studs
3.2   Area behind outlet flange
4.0   Identification of operational loads
4.1   Pressure of the line fluid
4.2   Tightening of the body stud nuts
4.3   Mass of the valve, actuator and bonnet
5.0   Calculations
5.1.0 Stresses imposed on the body studs by the action of operating loads and seismic acceleration, along the horizontal axis
5.1.1 Stresses caused by the hydrostatic end thrust or gasket seating
5.1.2 Bending stress due to the actuator
5.1.3 Bending stress due to the bonnet
5.1.4 Bending stress due to the body
5.1.5 Direct stress due to the actuator weight
5.1.6 Direct stress due to the bonnet weight
5.1.7 Direct stress due to the body weight
5.1.8 Direct stress due to the actuator thrust
5.1.9 Summation of stresses
5.2.0 Stresses imposed on the body studs by the action of operating loads and seismic acceleration, along the vertical axis
5.2.1 Stresses caused by the hydrostatic end thrust or gasket seating
5.2.2 Direct stress caused by the body under the influence of acceleration due to gravity plus seismic effects
5.2.3 Direct stress caused by the actuator under the influence of acceleration due to gravity plus seismic effects
5.2.4 Direct stress caused by the bonnet under the influence of acceleration due to gravity plus seismic effects
5.2.5 Direct stress due to the actuator thrust
5.2.6 Summation of stresses
5.3.0 Stresses imposed on the area behind the outlet flange by the action of operating loads and seismic acceleration along the horizontal axis
5.3.1 Longitudinal stress caused by the internal pressure
5.3.2 Bending stress due to the actuator
5.3.3 Bending stress due to the bonnet
5.3.4 Bending stress due to the body
5.3.5 Direct stress due to the actuator weight
5.3.6 Direct stress due to the bonnet weight
5.3.7 Direct stress due to the body weight
5.3.8 Direct stress due to the actuator thrust
5.3.9 Summation of stresses
5.4.0 Stresses imposed on the area behind the outlet flange by the action of operating loads and seismic acceleration along the vertical axis
5.4.1 Longitudinal stress caused by the Internal pressure
5.4.2 Direct stress caused by the body under the influence of gravity and seismic effects
5.4.3 Direct stress caused by the bonnet under the influence of gravity and seismic effects
5.4.4 Direct stress caused by the actuator under the influence of gravity and seismic effects
5.4.5 Direct stress due to the actuator thrust
5.4.6 Summation of stresses
6.0   Results

1.0 Summary of findings

The 16" angle control valve will perform it's intended duty during an earthquake having a seismic acceleration of 0.81g in the horizontal direction, and during an earthquake having a seismic acceleration of 0.81g in the vertical direction. There will be no rupture of the valve body nor failure of the studs at the valve body/ bonnet joint.

2.0 Introduction

I consider the performance of a 16"angle control valve subjected to both horizontal and vertical seismic forces together with normal operating loads. Two regions are identified as being susceptible to damage during seismic events.

The maximum tensile stress is calculated for the two susceptible areas for normal operating loads plus seismic loading along the horizontal axis and for normal operating loads plus seismic loading along the vertical axis.

Component stresses are determined by accepted axial loading stress theory, bending stress theory, cylinder stress theory and bolt load theory. These stresses are summated and compared with the yield stress of the material being considered to show that the total tensile stress is not in excess of the yield stress for non-pressurised components and not in excess of 90% of the yield stress for pressurised components.

The following assumptions are made in this analysis :

(1) The design seismic acceleration of 0.81g acts in the horizontal direction or vertical direction separately and not simultaneously.
(2) The pipe work and equipment adjacent to the valve exert no force or moment to it.
(3) The component stresses are all tensile and not compressive.
(4) The changes of section near to the region under consideration are such that negligable concentration of stress occurs.

3.0 Identification of susceptible features to be analysed

The two areas that we consider to be susceptible to seismic stresses are the body studs and the area behind the outlet flange.

3.1 Body studs

The body studs are manufactured in chromium-molybdenum steel ASTM A320 Grade L7. This material has a minimum yield stress of 105,000 psi and a minimum tensile strength of 125,000 psi There are 24 studs on a PCD (pitch circle diameter) of 30-1/2".

3.2 Area behind the outlet flange

The valve body is manufactured in carbon steel ASTM A350 LF2. This material has a minimum yield stress of 36,000 psi and a minimum tensile strength of 70,000 psi.

4.0 Identification of operational loads

The valve would be subject to stresses caused by the pressure of the line fluid, tightening of the body stud nuts and the mass of the valve body, bonnet and actuator.

4.1 Pressure of the line fluid

The maximum line pressure of the fluid is 1230 psig and this will act on all 'wetted parts'.
 
4.2 Tightening of the body stud nuts

A torque is applied to the body stud nuts which is sufficient to provide the body/bonnet seal by loading the body studs.

4.3 Mass of the valve body, valve bonnet and actuator

The mass of the valve body is 11,000 pounds and under the influence of acceleration due to gravity and earthquakes, this would produce a force and moment.
The mass of the actuator is 1,330 pounds and this also would produce a force and moment due to the above.
The mass of the valve bonnet is 1,200 pounds and under the influence of acceleration due to gravity and earthquakes, this would produce a force and moment.

5.0 Calculations

Firstly, we consider the stresses imposed on the body studs by the action of operating loads and seismic acceleration along the horizontal and vertical axis.  Secondly, we consider the stresses imposed on the area behind the outlet flange by the action of the above loads.

5.1 Stresses imposed on the body studs by the action of operating loads and seismic acceleration along the horizontal axis

The body studs are subject to stresses caused by the hydrostatic end thrust or gasket seating, bending due to the actuator, bending due to the bonnet, bending due to the body, force due to the actuator, force due to the bonnet, force due to the body and force due to the actuator thrust.

5.1.1 Stress caused by the hydrostatic end thrust or gasket seating

Using the method as described in Appendix 2 of the 'ASME Boiler and Pressure vessel code - Section VIII, Division I', calculations shall be made for each of the two design conditions of operating and gasket seating and the more severe will control.

The minimum required bolt load for operating conditions,

Wm1 = 0.785G²p + (2b x 3.14 GmP)

Where,

G = 27.050
P = 1150 psig
b = 0.3186
m = 3.75

Wm1 = 0.785 x 27.050² x 1150 + (2 x 0.3186 x 3.14 x 27.050 x 3.75 x 1,150)
Wm1 = 893,945 lbf

The minimum required bolt load for gasket seating,

Wm2 = 3.14 bGy

Where,

b = 0.3186 in
G = 27.050 in
Y = 7,600 psi

Wm2 = 3.14 x 0.3186 x 27.050 x 7,600
Wm2 = 205663 lbf

As the larger of the two loads is due to the operating conditions, we consider the stress imposed on the studs due to hydrostatic end thrust,

S1 = Wm1 / A

Where,

Wm1 = 893,945 lbf

A = bolt area, 24 x 1.78 = 42.72 in²

S1 = 893,945 / 42.72
S1 = 20,926 Ibf/in²

5.1.2 Bending stress due to the actuator

The bending stress due to the actuator under the influence of seismic acceleration is given by,

S2 = (M / I) / Y

Where,

M = bending moment at stud, lbf in
    = mass of actuator x seismic acceleration x distance
    = (1330 / 32.2) x (0.81 x 32.2) x 59.25
    = 63,830 lbf in

Y = distance from neutral axis to outermost fibre, in
   = 16.063 in

I = second moment of area of twenty four studs, in⁴
  = (1 + AL²)
  = 24 x 0.2302 + 4 (1.78 x (1.9905² +5.8359² + 9.2836² + 12.0986² + 12.0986² + 14.08916² + 15.1195² ))
  = 4,973 in⁴

S2 = (63820 / 4973) x 16.063
S2 = 206 lbf/in2

5.1.3. Bending stress due to the bonnet

The bending stress due to the bonnet under the influence of seismic acceleration is given by,

S3 = (M / I) Y

Where,

M = bending moment of stud, ibf in.
    = mass of bonnet x seismic acceleration x distance.
    = (1200 / 32.2) x (0.81 x 32.2) x 4
    = 3,888 lbf in

Y =16.063 in

I = 4,973 in⁴

S3 = (3,888 / 4,973) x 16.063
S3 = 13 lbf/in²

5.1.4 Bending stress due to the body

The bending stress due to the body under the influence of seismic acceleration is given by,

S4 = (M / I) Y

Where,

M = bending moment at stud, Ibf in
    = mass of body x seismic acceleration x distance
    = (11,000 x 32.2) x (0.81 x 32.2) x 17.75
    = 158,153 lbf in

Y = 16.063 in

I = 4,973 in⁴

S4 = (158,153 / 4,973) x16.063
S4 = 511 Ibf/in²

5.1.5 Direct stress due to actuator weight

The direct stress imposed on the studs by the weight of the actuator is given by,

S5 = W2 / A

Where,

W2 = Weight of actuator, 1,330 lbf

A = bolt area, 42.72 in²

S5 = 1330 / 42.72
S5 = 31 Ibf/in²

5.1.6 Direct stress due to bonnet weight
The direct stress imposed on the studs by the weight of the bonnet is given by,

S6 = W3 / A

Where,

W3 = weight of bonnet, 1,200 lbf

A = bolt area, 42.72 in²

S6 = 1200 / 42.72
S6 = 28 lbf / in²

5.1.7 Direct stress due to the body weight

The direct stress imposed on the studs by the weight of the body is given by,

S7 = W1 / A

Where,

W1 = weight of body, 11,000 lbf

A = bolt area, 42.72 in²

S7 = 11,000 / 42.72
S7 = 258 ibf/in²

5.1.8 Direct stress due to actuator thrust

The direct stress on the studs caused by the thrust of the actuator when the valve is in the closed position and the valve is not filled with line fluid is given by,

S8 = F / A

Where,

F = maximum thrust of actuator, 15,600 lbf

A = bolt area 42.72 in²

S8 = 15,600 / 4,272
S8 = 365 Ibf/in²

5.1.9 Summation of stresses

Addition of the eight component stresses yields a total stress of :

S = S1 + S2 + S3 + S4 + S5 + S6 + S7 + S8
   = 20,926 + 206 +13 + 511 + 31 + 28 + 258 + 365
   = 22,338 lbf/in²

The value of the total stress is less than 22% of the yield-stress for this non-pressurised component.

5.2 Stresses imposed on the body studs by the action of operating loads and seismic acceleration along the vertical axis

The body studs are subject to stresses caused by the hydrostatic end thrust or gasket seating, force due to the actuator, bonnet, body and actuator thrust.

5.2.1 Stress caused by the hydrostatic end thrust or gasket seating

The direct stress caused by the hydrostatic and thrust or gasket seating calculation is as detailed in 5.1.1 yielding a stress of 20,926 lbf/in².

5.2.2 Direct stress caused by the body under the influence of acceleration due to gravity plus seismic effects

The direct stress is given by,

S9 = F / A

Where,

F = effective force due to body, Ibf
   =11,000 + (11,000 / 32.2) x (0.81 x 32.2)
   =19,910 lbf

A = bolt area, 42.72 in²

S9 = 19,910 / 42.72
S9 = 466 Ibf/in²

5.2.3 Direct stress caused by the actuator under the influence of acceleration due to gravity and seismic effects

The direct stress is given by,

S10 = F / A

Where,

F = effective force due to actuator, lbf
   = 1,330 + (1,330 / 32.2) x (0.81 x 32.2)
   = 2,407 lbf

A = bolt area, 42.72 in²

S10 = 2,407 / 42.72
S10 = 56 lbf/in²

5.2.4 Direct stress caused by the bonnet under the influence of acceleration due to gravity and seismic effects

The direct stress is given by,

S11 = F / A

Where,

F = effective force due to bonnet, lbf
   =1,200 + (1,200 / 32.2) x (0.81 x 32.2)
   = 2,172 lbf

A = bolt area, 42.72 in²

S11 = 2,172 / 42.72
S11 = 51 lbf/in²

5.2.5 Direct stress due to the actuator thrust

The direct stress on the studs, caused by the thrust of the actuator when the valve is in the closed position and the valve is not filled 2 with line fluid, is as detailed in 5.1.8 yielding a stress of 365 lbf/in²
.
5.2.6 Summation of stresses

Addition of the five component stresses yields a total stress of :

S = S1 + S9 + S10 + S11 + S8
   = 20,926 + 466 + 2,407 + 51 + 365
   = 24,215 lbf/in²

The value of the total stress is less than 23% of the yield stress for this non-pressurised component.

5.3 Stresses imposed on the area behind the outlet flange by the action of operating loads and seismic acceleration along the horizontal axis

The area behind the outlet flange is subject to stresses caused by the internal pressure, moment of the actuator, moment of the bonnet, moment of the body, force due to the actuator, force due to the bonnet, force due to the body and force due to the actuator thrust.

5.3.1 Longitudinal stress caused by internal pressure

The longitudinal stress caused by the internal pressure is given by,

S12 = P (AI / AM)

Where,

P = Maximum working pressure, 1,150 psig

AI = inside area of cross section in²
     = Pi x (14.75² / 4)
     = 170.9 in²

Am = metal area of cross-section in²
     = ( ((Pi x 19.25²) / 4)) - ((Pi x 14.75²) / 4)) )
     = 120.1 in²

S12 = 1,150 x (170.9 / 120.1)
S12 = 1636 ibf/in²

5.3.2 Bending stress due to the actuator

The bending stress due to the actuator, under the influence of seismic acceleration is given by,

S13 = (M / Y) I

Where,

M = bending moment at cross-section, Ibf in
    = mass of actuator x seismic acceleration x distance
    = (1,330 / 32.2) x (0.81 x 32.2) x 91
    = 98,034 lbf in

Y= distance from neutral axis to outermost fibre, in
   = 9.625 in

I = second moment of area at cross section, in⁴
   = Pi (19.25⁴ - 14.75⁴) / 64
   = 4,417 in⁴

S13 = (98,034 / 4,417) x 9.625
S13 = 214 lbf in²

5.3.3 Bending stress due to the bonnet

The bending stress due to the bonnet under the influence of seismic acceleration is given by,

S14 = (M / I) Y

Where,

M = bending moment at cross-section, Ibf in
   = mass of bonnet x seismic acceleration x distance
   = (1,200 / 32.2) x (0.81 x 32.2) x 35.75
   = 34,749 Ibf in

Y = 9.625 in

I = 4,417 in⁴

S14 = (34,749 / 4,417) x 9.625
S14 = 76 lbf/in²

5.3.4 Bending stress due to the body

The bending stress due to the body under the influence of seismic acceleration is given by,

S15 = (M / I) Y

Where,

M = bending moment at cross section, Ibf in
    = mass of body x seismic acceleration x distance
    = (11,000 x 32.2) x (0.81 x 32.2) x 20.375
    = 181,541 lbf in

Y = 9.625 in

I = 4417 in⁴

S15 = (181,541 / 4,417) lbf in x 9.625
S15 = 396 lbf/in²

5.3.5 Direct stress due to the actuator weight

The direct stress due to the actuator weight is given by,

S16 = W2 / A

Where,

W2 = weight of actuator, 1,330 lbf

A = area of cross-section, 120 in²

S16 = 1,330 / 120
S16 = 11 lbf/in²

5.3.6 Direct stress due to bonnet weight

The direct stress due to bonnet weight is given by,

S17 = W3 / A

Where,

W3 = weight of bonnet, 1,200 lbf

A = 120 in²

S17 = 1,200 / 120
S17 = 10 lbf/in²

5.3.7 Direct stress due to body weight

The direct stress due to the body weight is given by,

S18 = W1 / A

Where,

W1 = weight of body, 11,000 lbf

A = 120 in²

S18 = 11,000 / 120
S18 = 92 lbf/in²

5.3.8 Direct stress due to actuator thrust

The direct stress on the cross-section caused by the thrust of the actuator when the valve is in the closed position and the valve is not filled with line fluid is given by,

S19 = F / A

Where,

F = maximum thrust of actuator, 15,600 lbf
A = 120 in²

S19 = 15,600 / 120
S19 = 130 lbf/in²

5.3.9. Summation of stresses

Addition of the eight component stresses yields a total stress of,

S = S12 + S13 + S14 + S15 + S16 + S17 + S18 + S19
   = 1,636 + 214 + 76 + 396 + 11 + 10 + 92 + 130
   = 2,565 Ibf/in²

The value of the total stress is less than 8% of the yield stress for this pressurised cross-section.

5.4 Stresses imposed on the area at he back of the outlet flange by the action of operating loads and seismic acceleration along the vertical axis

The area at the back of the outlet flange is subject to stresses caused by internal pressure, force due to the actuator, bonnet, body and actuator thrust.

5.4.1 Longitudinal stress caused by the internal pressure

The longitudinal stress caused by the internal pressure is the same as that calculated in 5.3.1 and is 1,636 lbf/in².

5.4.2. Direct stress caused by the body, under the influence of acceleration due to gravity plus seismic effects

The direct stress is given by,

S20 = F / A

Where,

F = effective force due to the body, Ibf
   = 11,000 + (11,000 / 32.2) x ( 0.81 x 32.2)
   = 19,910 lbf

A = 120 in²

S20 = 19,910 / 120
S20 = 166 lbf/in²

5.4.3 Direct stress caused by the bonnet under the influence of acceleration due to gravity plus seismic effects

The direct stress is given by,

S21 = F / A

Where,

F= effective force due to the bonnet, Ibf
   = 1,200 + (1,200 / 32.2) x (0.81 x 32.2)
   = 2,172 Ibf

A = 120 in²

S21 = 2,172 / 120
S21 = 18 lbf/in²

5.4.4. Direct stress caused by the actuator under the influence of acceleration due to gravity plus seismic effects

The direct stress is given by,

S22 = F / A

Where,

F = effective force due to the actuator, Ibf
   = 1,330 + (1,330 / 32.2) x (0.81 x 32.2)
   = 2,407 Ibf

A = 120 in²

S22 = 2,407 / 120
S22 = 20 Ibf/in²

5.4.5 Direct stress due to actuator thrust

The direct stress on the cross-section caused by the thrust of the actuator when the valve is in the closed position and the valve is not filled with line fluid is the same as that calculated in section 5.3.8 and being 130 Ibf/in².

5.4.6. Summation of stresses

Addition of the five component stresses yields a total stress of :

S = S12 + S20 + S21 + S22 + S19
   = 1,636 + 166 + 18 + 20 + 130
   = 1,970 Ibf/in²

The value of the total stress is less than 6% of the yield stress for this pressurised cross section.

6.0 Results

The calculated total tensile stress in the body studs by the action of operating loads and seismic acceleration along the horizontal axis is 22,338 lbf/in². Increasing this calculated value by 25% gives 27,923 lbf/in² which is less than 27% of the material yield stress ( 105,000 lbf/in²).

Under the action of seismic acceleration in the vertical direction the calculated total tensile stress in the body studs is 24,215 lbf/in². Applying the 25% increase produces 30,269 lbf/in² which is less than 29% of the material yield stress (105,000 bf/in²).

Considering the region behind the outlet flange, my calculations produce a total tensile stress in the section of 2565 lbf/in², for the action of operating loads and seismic acceleration along the horizontal axis. Increasing this calculated value by 25% gives 3206 lbf/in² which is less than 9% of the yield stress of the material ( 36000 lbf/in²).

The calculated total tensile stress in the region behind the outlet flange, subject to operating loads and seismic acceleration in the vertical direction is 1970 lbf/in². Increasing this calculated value by 25% gives 2463 lbf/in², which is less than 7% of the material yield stress (36000 lbf/in²).

I was asked to create this control valve cryogenic test procedure for one of the world’s leading engineering companies.

1 Introduction

2 Location of tests in manufacturing programme

3 Test temperature of minus (-)196 Celsius

4 Test temperature above minus (-)196 Celsius

5 Equipment specifications

1 Introduction

The company has the facility to carry out cryogenic testing of control valves at temperatures as low as minus (-)196 Celsius.  Tests conducted at these temperatures include:

(a) Seat leakage test
(b) Gland leakage test
(c) Body/bonnet joint leakage test
(d) Mechanical operation test

The tests are carried out on the valve when the required test temperature has been achieved and maintained for one hour.  This allows for a uniform temperature distribution throughout the assembly.  The allowable deviation from the desired temperature is ±3 Celsius degrees over this period.

There are two modes of operation for the cryogenic test plant, depending upon the required test temperature.  Heat transfer is effected by immersing the test valve in a bath of liquid nitrogen at its saturation temperature for a test temperature of minus (-)196 Celsius.If the required test temperature lies above minus (-)196 Celsius then an evaporator is used and this creates heat transfer by passing a mixture of evaporated nitrogen and cold air around the test valve.

2 Location of tests in manufacturing programme

All tests are carried out on the assembled valve and actuator upon completion of the hydrostatic and seat leakage tests.  Prior to testing, the valve is fully disassembled and degreased, ready for cryogenic testing.  The valve internal and external surfaces of the valve are to be free of moisture, dirt and metal particles.  The valve is fully disassembled, to check for any permanent distortion of components, upon completion of the test.

3 Test temperature of minus (-)196 Celsius

Blank flanges, with ¼” NPT connections, are bolted to the valve body and compress a PTFE gasket to provide an efficient seal.  Alternatively, for valves with butt welded ends, blind hubs are used.

The 1/4" metal tubing from the helium cylinders is attached to the inlet side of the valve. The tubing has a series of coils to increase the transfer of heat from the incoming helium, thereby reducing the temperature difference between the helium gas and the valve.  At the outlet of the valve, 1/4" metal tubing is connected to a bubble meter and flow meter.  Calibrated thermocouples are attached to the valve in five places :

(a) inlet blank flange (side)
(b) inlet blank flange (top)
(c) body/bonnet joint (body flange)
(d) body stud/nut
(e) actuator locking ring

The valve is carefully lowered into the insulated cooling tank, prior to the admission of liquid nitrogen.  A sufficient clearance must exist between the valve and the tank walls to allow for good circulation of the coolant.

Proof tests of the valve are carried out at ambient temperature to determine whether the test should continue and these tests are identical to those to be done at the test temperature.  The results of these tests should be better or equal to those required at the test temperature.

Upon satisfactory completion of the initial proving test, the valve is now ready to be cooled down to (-)196 Celsius.  Liquid nitrogen is poured into the insulated tank up to the body/bonnet joint.  Initially, rapid vaporisation of the nitrogen takes place, making it necessary to frequently pour liquid nitrogen into the vessel.  As the valve temperature is reduced to near the test temperature, only occasional 'topping up' is required to maintain the liquid nitrogen slightly above the body/bonnet joint.

When the test temperature has been achieved (± 3 Celsius degrees), a period of one hour must elapse to allow for the valve internals to reach the required temperature.  A purge of helium gas is required to be passed through the partially open valve to prevent the ingress of moisture throughout the cooling down operation.

The position of the valve is chosen so that the packing box, located in the valve bonnet, is clear of the cold boil-off gas.

(A) Seat leakage test - With the valve in the fully closed position, the helium gas pressure is raised to the seat test pressure of the valve.  The seat test pressure is equal to the maximum shut-offpressure in service.  This pressure may not exceed the cold pressure rating of the valve.  The valve trim leakage (if any) is recorded over a ten minute period and must not exceed a previously agreed value between the client and the company. Typical values for single seated globe valves, expressed as a percentage of the maximum flow coefficient (Cv), may be:

(a) 0.1000% metal piston rings
(b) 0.0060% nitrile '0' rings, balanced design
(c) 0.0050% p.t.f.e. lipseals
(d) 0.0020% metal/metal (standard)
(e) 0.0002% metal/metal (special lapped), solid design
(f) 0.0001% soft face
(g) bubble tight (special)

(B) Gland leakage test - With the body pressurised to the seat leakage test pressure, a 50% (by volume) solution of teepol/alcohol is brushed on to the top of the packing box.  Gland leakage, detected by the formation of bubbles, is not allowed. It may be necessary to slightly adjust the packing box flange nuts to achieve zero leakage because of component contraction during 'cool-down'.

(C) Body/bonnet joint leakage test - With the body pressurised to the seat leakage test pressure, careful examination of the body/bonnet joint area is undertaken.  The body/bonnet joint is submerged below the surface of the liquid nitrogen and any escape of helium gas (evidenced by bubbles) is not acceptable.

(D) Mechanical operation test - With no pressure in the valve body, i.e. just sufficient gas to prevent the ingress of moisture, the valve is stroked twenty times.  The valve should travel over its entire stroke length ina smooth action, with no jerks or jumpy action.

4 Test temperature of above (-)196 Celsius

The test valve is firmly supported on a platform above the evaporator.  Initial proving tests are carried out at ambient temperature to determine whether to proceed with the cryogenic test.

Upon satisfactory completion of the proving test, the evaporator is filled with liquid nitrogen.  A multi vane centrifugal fan draws air from the atmosphere and forces it through a heat exchanger.  This creates a reduction in the temperature of the air and evaporation of the liquid nitrogen.  The mixture of air and nitrogen then flows past the test valve in such a manner as to allow heat from the test valve to warm the mixture again, thereby reducing the temperature of the test valve.  The temperature of the test valve is regulated by the action of the centrifugal fan.

Various tests, as described in Section 3, are then carried out on the valve at the test temperature.

5 Equipment specifications

Fan
Type : 9” diameter Halifax multi-vane centrifugal fan
Outlet velocity : 4880 feet per minute
Speed : 2300 revolutions per minute
Static pressure : 1.75” water gauge

Heat exchanger
Tube diameter : 6” nominal
Tube length : 29 feet immersed
Evaporator Volume : 50 cubic feet

Insulated tank
Inside width : 1 foot
Inside length : 3 feet
Inside height : 2 feet

Overhead crane facility
Safe working load : 5 tonnes

Insulated enclosure
Insulation : 6" thick expanded polystyrene block
Housing : softwood
Inside width : 6 feet
Inside length : 6 feet
Inside height : 6 feet

Insulated pit
Insulation : 6" thick expanded polystyrene block
Sides : Concrete
Inside width : 6 feet
Inside length : 6 feet
Inside height : 6 feet

Electrical equipment
Five thermocouples
Digital voltmeter

Flow equipment
Alcohol Bubble meter
Positive displacement meter

I was asked to create this control valve mechanical test procedure for one of the world’s leading engineering companies.

1 Introduction
2 Location of tests in the manufacturing programme
3 Stem position error test
4 Deadband test
5 Hysteresis test
6 Hysteresis plus deadband test
7 Stroking time test
8 Operation instructions
9 Equipment specifications

1 Introduction

The company has the facility to provide a permanent record of an assembled valve’s performance, whilst undergoing mechanical operation tests. The results of these tests are recorded on A3 size paper using an XYT pen recorder.

2 Location of tests in the manufacturing programme

All tests are carried out on the assembled valve and actuator before hydrostatic and seat leakage testing. The packing box gland flange nuts are finger-tight and careful assembly of the valve ensures that the packing material is in an uncompressed state. A light lubricating oil is applied to the area of the stem that passes through the packing box.

3 Stem position error test

The purpose of the stem position error test is to verify that the desired and actual stem positions are within acceptable limits. The acceptable stem position error for the company’s range of control valves is ± 5% of the rated travel. The stem position should lie between the following upper and lower limits for an input signal of 3 to 15 psig:

INSTRUMENT	% OF RATED TRAVEL
AIR PRESSURE	LOWER	UPPER
(PSIG)	LIMIT	LIMIT
3		5.00
4	3.33	13.33
5	11.67	21.67
6	20.00	30.00
7	28.33	38.33
8	36.67	46.67
9	45.00	55.00
10	53.33	63.33
11	61.67	71.67
12	70.00	80.00
13	78.33	88.33
14	86.67	96.67
15	95.00

The equipment is connected to the valve and actuator as described in section 8.

4 Dead band test

Deadband is the range through which an input can be varied without initiating observable response. In a diaphragm actuated control valve, deadband is the amount that the instrument air signal can be changed without initiating valve stem movement.
The amount of deadband is determined by measuring the changeover pressure for a given stem position. The stem is taken up to a position of 25% of the rated travel. While stationary, the change in pressure which causes a change in stem movement is measured. The test is repeated at positions of 50% and 75%. This changeover pressure is known as the 'deadband' and it should not exceed the following values :

VALVE AND DIAPHRAGM ACTUATOR WITHOUT POSITIONER
SPRING RANGE	POINT	MAXIMUM CHANGEOVER
	OF TEST	PRESSURE
3 TO 15 PSIG	25%	0.20 PSI
	50%	0.25 PSI
	75%	0.35 PSI
6 TO 30 PSIG	25%	0.40 PSI
	50%	0.50 PSI
	75%	0.70 PSI

VALVE AND DIAPHRAGM ACTUATOR WITH POSITIONER
SPRING RANGE	POINT	MAXIMUM CHANGEOVER
	OF TEST	PRESSURE
3 TO 15 PSIG	25%	0.0056 PSI
	50%	0.0068 PSI
	75%	0.0096 PSI
6 TO 30 PSIG	25%	0.0112 PSI
	50%	0.0140 PSI
	75%	0.0192 PSI

The equipment is connected to the valve and actuator as described in section 8.

5 Hysteresis test

Hysteresis is a characteristic of a control valve that is the dependence of the stem position, for a given variation of the instrument signal, upon the history of previous variations and the direction of the varying instrument signal, i.e. increasing/decreasing. The amount of hysteresis is determined firstly by performing the deadband test, followed by stroking the control valve over its full travel and returning it to its starting point. The amount of hysteresis is calculated by deducting the deadband from the distance between the cyclic envelope at 25%, 50% and 75% travel. The hysteresis should not exceed the following :

POINT	MAXIMUM
OF TEST	HYSTERESIS
25%	0.40 PSI
50%	0.35 PSI
75%	0.25 PSI

The equipment is connected to the valve and actuator as described in section 8.

6 Hysteresis plus deadband test

Hysteresis plus deadband is the total dynamic friction present in a control valve and is the vertical or horizontal distance between the cyclic envelope obtained from the hysteresis test.  The acceptable hysteresis plus deadband for a control valve is ±5% of the rated travel.

The equipment is connected to the valve and actuator as described in section 8.0.











7 Stroking time test
The stroking time of a valve is the time taken for the valve to stroke over its entire travel. This may be from the fully open position to the fully closed position, or vice versa. The duration is measured from signal increase/ decrease to full travel.  As the stroking speed is dependant upon many factors, it is not practical to define acceptable limits. The influencing factors listed in order of priority are :

(a) Actuator size
(b) Actuator stroke
(c) Air supply
(d) Pressure
(e) Size of pipework connections
(f) Spring rate
(g) Air to open/close
(h) Type of positioner

The equipment is connected to the valve and actuator as described in section 8.

8 Operation of the test equipment

The plugs and sockets of the electrical equipment are individually numbered for ease of assembly and to eliminate the possibility of incorrect wiring. Plugs and sockets, having the same number, should be connected together - with careful consideration of the actuator fail position. There are two leads labelled 'R', and a further two labelled 'D'. When testing equipment having a reverse acting actuator, the leads labelled 'R' should be connected and when testing equipment having a direct acting actuator, the leads labelled 'D' should be connected.

The power supply for the pressure transducer is situated on the left of the cabinet and it is labelled 'PRESSURE TRANSDUCER'. The operating voltage of this power supply should be set at 10 VDC and this is achieved by careful adjustment of the coarse and fine potentiometers. In most cases, the pressure transducer power supply will already be set at exactly 10 VDC.

The power supply for the linear potentiometer is situated to the right of the pressure transducer power supply and it is labelled 'LINEAR POTENTIOMETER'. The operating voltage of this power supply should be set at 24 VDC and this is achieved by careful adjustment of the coarse and fine potentiometers. In most cases, the linear potentiometer power supply will already be set at exactly 24 volts VDC.

The scale setting for the instrument signal axis is situated on the left hand side of the pen recorder and it is labelled 'INSTRUMENT SIGNAL'. Three controls are required to be set and their positions are dependant upon the maximum instrument signal pressure used.

For a maximum instrument signal pressure of 15 psig, set the range knob to 2mV/cm, vernier to (approximately) 0.00 - 0.40, zero adjustment to (approximately) 4.90 - 5.10. The vernier and zero settings are approximate and may require fine adjustments to achieve full scale deflection.

For a maximum instrument signal pressure of 30 psig, set the range knob to 2 mV/cm, vernier to (approximately) 7.08, zero adjustment to (approximately) 4.19. The vernier and zero settings are approximate and may require fine adjustments to achieve full scale deflection.

The scale setting for the valve stroke axis is situated on the right hand side of the pen recorder and is labelled 'VALVE STROKE'. Three controls require setting and their positions are dependant upon the maximum valve travel.

For a maximum valve travel of 1.1/8", set the range knob to 0.1 V/cm, vernier to(approximately) 6.72, zero adjustment to (approximately) 5.20.
For a maximum valve travel of 1.1/2", set the range knob to 0.1 V/cm, vernier to (approximately) 7.63, zero adjustment to (approximately) 5.20.
For a maximum valve travel of 2.1/4", set the range knob to 0.2 V/cm, vernier to (approximately) 6.72, zero adjustment to (approximately) 5.20.
For a maximum valve travel of 3.1/2", set the range knob to 0.5 V/cm, vernier to (approximately) 1.76, zero adjustment to (approximately) 5.11.

All of the above settings for the vernier and zero adjustments are approximate only and may require fine adjustments to achieve full scale deflection.

9 Equipment specifications

Linearity of the linear potentiometer is better than 1%, as is the linearity of the pressure transducer.

EQUIPMENT	MODEL NUMBER	SERIAL NUMBER
Pen recorder - Farnell	RW101	F2058
Power supply (Potentiometer)	E30/1	005949
Power supply (Transducer)	E30/1	006189
Pressure transducer - Honeywell	136PC30G1
Linear potentiometer - Penny & Giles	LP26/200/6"/6K	108112B

This is a  design proposal that I was asked to carry out for a Swedish world leading manufacturer of compressors, generators, construction and mining equipment, industrial tools and assembly systems.  They required a magazine system to present end-pieces for the pre-assembly of pneumatic cylinders.

The second stage for the robot assembly of pneumatic cylinders involves the sub-assembly of end-pieces and half-pistons.  End-pieces need to be handled by a magazine system because they are too large for conventional vibratory feeders.  A magazine system is required at the pre-production facilities that is a scaled-down version of the future production system, within budget limitations.  The cost of the system is split between the fixed cost for the transfer of parts to the robot and the variable cost of end-piece storage.  The variable storage cost is proportional to the capacity of the magazine system. There is also an indirect labour cost for the filling and transport of magazines, in addition to the equipment material cost. The prototype can have the same transfer device as the production model, but with a smaller capacity.

MAGAZINE FILLING

The only economical method of magazine loading is to fill them at the point of final manufacture. This is because the time taken to insert a part into a magazine can approach the time taken to insert it into the part-built assembly.  Nevertheless, end-pieces have to be transported from manufacture to assembly and magazines are the best way of doing this, whilst also giving protection to the surface finish.

MAGAZINE CAPACITY

The capacity of the magazine is as large as possible to achieve the minimum number of journeys from manufacturing to assembly during the shift.  If demand for each cylinder diameter is equal then the magazine must contain in excess of sixty parts for a refill only once a shift.  A single vertical stack magazine would be in excess of three metres high. It is therefore proposed that a number of units should be combined to form one magazine. Three magazines of twenty end-pieces seems reasonable.

PROPOSED SYSTEM

The system shown is one method of end-piece distribution. The illustration shows one magazine to store one style of end-piece.  The production version for the Swedish manufacturing plant would have three magazines per end-piece, each behind the another.

I originally presented this article, "A Software Aid to Product Design for Robot Assembly", as a guest speaker at an I.Mech.E. Congress on Automotive Technology ...

INTRODUCTION

Original work by industrial researchers into classifying and coding parts for automatic parts handling, more than 30 years ago, led to considerations of good design features for automatic handling.  Further research work resulted in a classification and coding system for manual handling, manual insertion and automatic insertion.  This work culminated in the production of assembly system designer guidelines and these were later converted to computer software package to help product designers in the Design for Assembly process. With the increasing interest in the use of industrial robots for assembly, an obvious extension to the work on product design was the development of appropriate classification and coding systems for assembly robots and the translation of this into a user friendly computer based system.

PRODUCT DESIGN FEATURES FOR VARIOUS FORMS OF ASSEMBLY

There are inherent design rules for all forms of assembly and these are independent of the assembly process being used.  There are other rules which are process dependent.  The more important considerations are:

Number of Parts:- For all forms of assembly, reducing the part count, through considering the potential redundancy of every part, leads to a reduction in assembly and component manufacturing costs.
 
Parts Handling:- A further example of a common design requirement is for parts handling where, although manual handling is completely different to automatic handling, both benefit from an increase in the symmetry of a part.   Similarly, both methods cannot easily accommodate minor asymmetrical features, nesting and tangling parts, very small or large parts, etc. As a result of this commonality, features which allow a part to be automatically handled easily are invariably useful for manual assembly and, in general terms, unless there is a significant manufacturing cost penalty, parts can always be designed for automatic handling.

Parts Insertion:- The requirements for the various types of assembly vary significantly for some insertion operations. For manual handling, the emphasis is on access and sighting.  For automatic assembly, the main features are alignment, ease of insertion and stability after insertion.  An additional potential problem is the direction of insertion for robotic assembly.  For fastening operations, regardless of assembly method, the most economic operations use integral fasteners and the most expensive require threaded fasteners.

Parts Gripping:- In manual and automatic assembly (ignoring the features already mentioned related to size), gripping doesn’t create technological or economic problems. In robotic assembly, however, gripping features can be very significant and parts should be designed so that the least number of different grippers are required. This reduces costs and often reduces non-productive assembly time.

Assembly sequence:- The optimum sequence of assembly is very much dependent upon the type of assembly. For single worker assembly, the sequence of assembly is not important and it’s often determined by operator preference.  In manual line assembly, sequence is controlled by line balancing considerations.  In automatic assembly, sequence is related to the basic logic of the equipment and is controlled by the quality and, under some circumstances, the cost of the parts to be assembled.  The sequence of assembly is determined by gripper requirements in single station robotic assembly, where the emphasis is on reducing significant non-productive time, such as either gripper changing or turret indexing.

ASSEMBLY ALTERNATIVES

In manual assembly, the two categories are single worker and line, with many variations incorporating features of both methods. It is generally not too difficult to identify the most appropriate form of assembly.

For automatic assembly, the choice of equipment is limited  and selection is based on the number of parts, cost and component quality. Again, it is not difficult to identify the most appropriate equipment.

In single-station robotic assembly however, the selection of the most appropriate equipment is more difficult.  There are many assembly robot types with different characteristics.  Additionally, there are many parts handling possibilities and various gripper options.  Although basic design for robotic assembly is essentially independent of the particular assembly cell configuration, both the product designer and system designer need some help to evaluate the performance and economics of alternative systems. Software applications have been developed for robotic assembly to serve both these functions.

Firstly, the product design is analysed by investigating its operation sequence relationship, handling features, gripping features and its insertion features. The user is asked to configure a system by specifying the robot to be used.  The cost and performance specification for three popular assembly robots is built into a robot data file and these can be increased by the user at any time. The software application determines the most appropriate assembly sequence, based on interdependencies and the type of robot to be used.  It then evaluates various parts feeding options. These options are based on feeder characteristics built into the system and they can be increased to include new types of automatic feeders.

The software application offers re-design possibilities to reduce the handling cost, where only expensive feeding methods can be used or when only manual handling is possible.  If the robot type is unsuitable, due to lack of capability, then this is reported and the application user can either modify the robot data file, enhancing the robot specification, or select another robot.  If the number of grippers required is excessive then various re-designs for easier gripping are proposed.  The application also takes into account existing equipment utilisation.  This is important because greater utilisation reduces the assembly cost.

CONCLUSIONS

The product and system design software application is a useful tool for evaluating robotic assembly.  It can be modified and extended to reflect advancements in robots, feeders and grippers.  It gives a quick evaluation of the suitability of a product’s design and determines the effect of changing assembly system parameters. These tasks could be done manually, using data sheets, but it is time consuming because of the large number of permutations of the various equipment types.

I originally presented this article, "The Flexible Assembly of Automotive Components", as a guest speaker at an I.Mech.E. Congress on Automotive Technology ...

There is a requirement for a special kind of system to assemble products required in modest volumes with a degree of variety.  A system which is as cost effective and efficient as hard automation, whilst providing the flexibility of manual assembly, is called a flexible assembly system. Within such a system, certain product parts may be required at a different rate to other parts. Some operations may require the flexibility and dexterity of a robot, or even manual labour. The resultant system would be a hybrid of many methods of assembly. This article recommends a technique to be used for the design of such a system, with the aid of a case study.

INTRODUCTION

The factory cost of a product is the addition of the manufacturing cost (e.g. casting, moulding, turning) and the assembly cost (e.g. manual, automatic, robotic).  Industrial engineers continually seek new methods to reduce the factory cost of products. The current trend of exploiting cheap labour in developing nations, through “offshoring” creates a challenge for domestic manufacturers in the developed nations.  Between 40 and 60 percent of the factory cost for many products is associated with the labour content. The majority of this cost is incurred during assembly. There are three reasons for this uneven split between labour costs in manufacturing and assembly.

(i) Manufacturing operations are usually done by, or with the aid of, a machine, i.e. turning, milling, drilling, etc. The manufacturing systems designer does not have the wide choice of the assembly systems designer because some degree of mechanisation must be used. It is then a logical extension to further automate the manufacturing process to reduce labour costs.

(ii) New processes have been developed which eliminate many manufacturing operations. Powder metallurgy is an example of such a process.

(iii) Most products are designed to be assembled manually.  This often means that components are of such a design that they cannot be handled by automatic feeders.  Additionally, many assembly insertion operations are too complex to be automated.

THE DESIGN OF FLEXIBLE ASSEMBLY SYSTEMS

The assembly process has two constituent parts and these are; the handling of components and the insertion of components. The design features of a part must be examined to decide if it can be automatically handled automatically or if it must be handled manually or placed in magazines.  Similarly, the insertion process must be analysed to decide what type of workhead is required.

Various organisations have developed procedures that help the designer to estimate how easy it is to handle and orientate components by assigning a handling code to each part. The maximum feed rate and relative cost of the feeding method can then be estimated from this code. The parts which would require expensive automatic feeders or which could not be fed at the required feed rate can be identified.  These parts must then be handled manually or in magazines/pallets.  Additionally, certain parts cannot be handled automatically because they have other bad feeding qualities, e.g. they may be flexible or too light. The previously mentioned estimation systems also help the system designer to forecast the relative cost of the workhead required to insert a part into a part-built assembly. Those operations which require a complex path of insertion, or a large thrust, require more expensive workheads than for simpler operations. A list of parts (with their associated automated handling codes) and a list of operations (with their allocated automatic insertion codes) can be constructed from the preceding information.

If the product parts are listed in order of increasing handling difficulty levels then the most economical method of feeding a part to the workhead can be determined. Parts with low handling difficulty levels are fed by conventional vibratory feeders and, as the difficulty level increases, specially designed feeders/magazines/pallets/manual handling are used. The relationship between the handling difficulty level and the type of feeder to be used depends upon the required return on investment for the equipment.

The insertion operations can also be listed in order of insertion difficulty levels to determine the most economical method of insertion of a part into a part-built assembly. Greater difficulty levels can mean that the equipment is more expensive and, for assembly robots, more degrees of freedom are required for an insertion operation. If the difficulty level is too high then it’s necessary to employ manual workers for some operations.

When an assembly system is designed for a new product, the cost of parts handling and insertion can be reduced through re-design of the product. It’s usually not viable for an existing product to be re-designed, because of the tooling modification cost in the manufacture of the parts. Inevitably, therefore, the most economical method of assembly is limited to the existing product design, without design efficiency improvements.

The assembly handling and insertion codes determine which feeding method and insertion device are most appropriate for each part and operation. The part-built assembly has to be transported to each workstation between operations. This will either be synchronous or non-synchronous motion.  Synchronous machines are generally less expensive than non-synchronous types, but they are limited by how many parts can be assembled on one machine. This is due to downtime and the space available.

It is desirable to construct a product from as many sub-assemblies as possible to achieve a high overall efficiency of the assembly system. These sub-assemblies should be common to all product styles, within the family of products. The variety can then be created in the final assembly of the product. If this approach is adopted then sub-assemblies will be required at a rate which is enough to justify the use of automatic indexing machines having dedicated workheads. The output from these machines can then be sent to the final assembly line via free transfer lines, to create a buffer stock of sub-assemblies. The buffer stock is necessary to minimise the effect of any indexing machine downtime.

This is a manufacturing study that I was asked to carry out for a Swedish world leading manufacturer of compressors, generators, construction and mining equipment, industrial tools and assembly systems. The company wanted to create a database of observed operation times for robot assembly tasks.

INTRODUCTION

The robot assembly of the pneumatic cylinder has been analyzed using the video taken recently.  Activity times were related to the digital clock display on the video.  The object of analyzing the assembly process was to create a data base.  Information could be extracted from this database to evaluate the robot assembly of other products manufactured by the client.

PNEUMATIC CYLINDER ASSEMBLY

There are fifteen parts used in the assembly of the pneumatic cylinder and some of these are actually sub-assemblies.  All the parts are presented to the robot on a pallet, with the exception of the screws.  The cover screws and piston rod screws are automatically handled by vibratory linear feeders. The cycle time for the complete assembly is 166 seconds.  This is substantially longer than predicted by academic estimation methods.

The speed of the robot is set at 60 percent of the maximum.  An electric current in excess of that tolerated by the drive motor circuitry, at 100 percent, makes this action necessary. This high power consumption, at start-up, is caused by the mass of the turret being approximately five times that of a conventional gripper.  The robot manufacturer is replacing the relevant circuitry to allow full speed of the robot.  Additionally, they have modified the feedback circuit to compensate for the larger mass. The robot programmer estimates that an increase in speed, from 60 percent to 100 percent, would provide a reduction in the cycle time of no more than 20 percent.  The activity times obtained from the current analysis are used for the purpose of design for robotic assembly, and the evaluation of the client’s other products.

SYNTHESIS OF ROBOTIC ASSEMBLY TIMES

The time taken to assemble a part by the robot has four periods :

1) The movement of the gripper from the previous assembly position to above the current part to be assembled.

2) The picking up of the part.

3) The movement of the part to above the place of insertion.

4) The insertion, and subsequent release, of the part.

The above time periods, when added together, make up the basic operation time for a single activity.

RESULTS OF THE STUDY

The total assembly time for the pneumatic cylinder is broken down into 54 steps to quantify the 4 constituent periods in each activity.  The time study sheet is shown later in this article. From the time study sheet, a basic operation time of eight seconds is derived. It can be seen from the table that this basic operation time is equally divided between the four constituent periods.  Notable deviations from the basic operation time are :

End-piece - The end-piece is used to form a sub-assembly with the half -piston.  There is no insertion time for this part because it is integrated with the half-piston.

Cover Screw - There is a 50 percent increase in the basic operation time for this part.  It is caused by the extra time involved with screw fastening and the transportation distance between the linear feeder and the work fixture.

Piston Rod - A significant increase in the basic operation time for this part is due to the additional operation of 'knocking down' the piston rod after insertion. This is necessary because of the technique used to lift this part from the pallet.

Piston Rod Screw - A 50 percent increase in the basic operation time is caused by the screw fastening operation and the transportation time from the linear feeder to the work fixture.

Completed Cylinder - The gripper is in an adverse position from the previous operation and this increases the operation time.

PREDICTION OF CYCLE TIME FOR THE ROBOT ASSEMBLY OF THE PNEUMATIC CYLINDER

The cycle time for the robot assembly of the pneumatic cylinder is predicted by using a basic operation time, multiplied by a factor.

assembly time = basic operation time * assembly process factor
where,
basic operation time = 8 seconds
assembly process factor = 1.0 for straightforward insertion
                  1.5 for screw fastening operations
                  1.5 for long parts requiring two insertions

Using the above approximations, a cycle time of 164 seconds is predicted.  This is within one percent of the actual time of 166 seconds. It is not suggested that such a simple method could always achieve this accuracy.  However, in the present case, the predictions for 9 out of 10 parts are within plus/minus 1 sec.

PART            ACTUAL    PREDICTED    DEVIATION OUTSIDE
DESCRIPTION        TIME    TIME        1 SECOND
CYLINDER BARREL    7    8        NONE
END-PIECE        5    *4 *        NONE
HALF-PISTON        7    8        NONE
COVER SCREW        48    48        NONE
PISTON ROD        13    12        NONE
HALF-PISTON        8    8        NONE
PIN ROD SCREW        12    12        NONE
END-PIECE        8    8        NONE
COVER SCREW        12    12        NONE
COMPLETED CYLINDER    10    8        2 SECONDS
            166    164   
**NOTE**

The predicted time of 4 seconds for the end-piece allows for the fact that it is not inserted into the part-built assembly.  This part forms a sub-assembly with the half-piston.

There is a negligible amount of time lost due to gripper changing.  The turret is indexed during movement from one operation to the next.  A typical programming chart for a component is given at the end of this article and it shows that the basic assembly operation takes 8 program steps. Additional steps are required for screw fastening.

TIME STUDY FOR ROBOT ASSEMBLY OF PNEUMATIC CYLINDER

0:01 Gripper above cylinder barrel
0:02 Pick up cylinder barrel
0:05 Cylinder barrel above fixture
0:07 Release cylinder barrel
0:10 Gripper above end-piece
0:14 Gripper above half-piston
0:15 Insertion of end-pieces and half-piston completed
0:17 Half-piston and end-piece above barrel
0:19 Release half-piston
0:21 Arm 2 above cover screw
0:24 Pick up cover screw
0:26 Cover screw above barrel
0:34 Arm 2 above cover screw
0:36 Pick up cover screw
0:38 Cover screw above barrel
0:46 Arm 2 above cover screw
0:48 Pick up cover screw
0:50 Cover screw above barrel
0:58 Arm 2 above cover screw
1:00 Pick up cover screw
1:02 Cover screw above barrel
1:09 Gripper above piston rod
1:11 Pick up piston rod
1:14 Piston rod above fixture
1:20 Completion of piston rod assembly to cylinder
1:22 Gripper above half-piston
1:24 Pick up half-piston
1:26 Half-piston above fixture
1:28 Completion of half-piston assembly to barrel
1:30 Gripper above piston rod screw
1:32 Pick up piston rod screw
1:35 Piston rod screw above fixture
1:40 Completion of piston rod screw assembly to piston rod
1:42 Gripper above end-piece
1:44 Pick up end-piece
1:46 End-piece above fixture
1:48 Completion of end-piece assembly to barrel
1:50 Gripper above cover screw
1:52 Pick up cover screw
1:55 Cover screw above barrel
2:02 Gripper above cover screw
2:04 Pick up cover screw
2:07 Cover screw above barrel
2:15 Gripper above cover screw
2:17 Pick up cover screw
2:19 Cover screw above barrel
2:27 Gripper above cover screw
2:29 Pick up cover screw
2:32 Cover screw above barrel
2:36 All cover screws inserted
2:40 Gripper above barrel
2:42 Pick up completed cylinder
2:44 Completed cylinder above pallet
2:46 Completed pneumatic cylinder in pallet

BASIC OPERATION TIME OF THE ROBOT

            FROM PREVIOUS    PICK    MOVE TO    INSERTION    OPERATION
            OPERATION    UP    PLACE OF    AND        TIME
            TO ABOVE    PART    INSERTION    RELEASE    (SECONDS)
            PART               
10) CYLINDER BARREL    1        1    3        2        007
09) END-PIECE        3        2    0        0        005
08) HALF-PISTON        2        1    2        2        007
07) COVER SCREW    3        2    2        5        012
07) COVER SCREW    3        2    2        5        012
07) COVER SCREW    3        2    2        5        012
07) COVER SCREW    3        2    2        5        012
06) PISTON ROD        2        2    3        6        013
05) HALF-PISTON        2        2    2        2        008
04) PISTON ROD SCR    2        2    3        5        012
03) END-PIECE        2        2    2        2        008
02) COVER SCREW    3        2    2        5        012
02) COVER SCREW    3        2    2        5        012
02) COVER SCREW    3        2    2        5        012
02) COVER SCREW    3        2    2        5        012
01) COMPLETED CYLINDER    4        2    2        2        010
                                    TOTAL    166

This is a quick feasibility study that I was asked to carry out for a Swedish world leading manufacturer of compressors, generators, construction and mining equipment, industrial tools and assembly systems.  They wanted a swift appraisal of the economics for the robot assembly of their pneumatic valves.

INTRODUCTION

The client company has committed to capital investment in a two-armed robot for the assembly of its range of pneumatic cylinders at one of its Swedish manufacturing plants.  The robot will not be fully utilised and another product is required to economically justify the installation.

The manufacturing plant currently assembles two product families :

1) Pneumatic cylinders
2) Pneumatic valves

The feasibility of assembling a model of pneumatic valve is investigated for the client company.

VOLUME REQUIREMENTS OF THE SPECIFIC PNEUMATIC VALVE MODEL

The pneumatic valve annual production volume is 30 000 units.  The valve is currently assembled manually and the client company assumes that demand for the valve will increase to 40 000 within 2 years.  Three workers are currently required for product assembly.  The product has a total of 63 separate parts, of which, 31 are unique parts.

MANUAL ASSEMBLY

The manual assembly of the valve has been studied to create individual times for the 97 operations.  The manual assembly worksheet, shown below, gives the sequence of operations and their corresponding operation times.  The worksheet shows that the cycle time for the complete assembly is 389 seconds.  One worker can assemble 11 786 valves in one year, with single shift working at a labour efficiency of 70 percent :

225 working shifts per annum (single shift working)
= 5 940 000 working seconds per annum (440 minutes / shift)
= 4 158 000 working seconds per year at 70 percent labour efficiency
= 10 689 units assembled per annum.    .

ROBOT ASSEMBLY

Certain assembly operations can be executed by the robot without a re-design of the pneumatic valve.  The assembly sequence for the robot assembly is given at the end of this article and an estimate for the robot capital expenditure is :

 
(a) Cost of the robot and controller = 50 000 euros.

(b) Turret and eight grippers = 5 000 euros

(c) Fixture number 32 = 3 000 euros, fixture number 33 = 2 000 euros, fixture number 34 = 2 000 euros, fixture number 35 = 3000 euros, fixture number 36 = 2 000 euros, fixture number 37 = 500 euros, fixture number 38 = 500 euros, fixture number 39 = 2 000 euros

(d) Arm-2 0-ring tools (6 off), including tool holder = 1 800 euros.  Arm-2 screwdriver bit and friction screwdriver bit = 200 euros.

(e) Greasing station = 2 000 euros

( f) Labelling station = 5 000 euros

(g) Cleaning station = 2 000 euros

(h) Eight vibratory linear feeders at 3 000 euros each = 24 000 euros

Total = 105 000 euros

CYCLE TIME

It is estimated that the cycle time for the robot and manual assembly of the valve would be 456 seconds.  Using this estimate, one robot can assemble 5210 valves in one year, with single shift working at a robot efficiency of 80 percent :

225 working shifts per annum (single shift)
= 5 940 000 working seconds per annum (440 minutes/shift)
= 4 752 000 working seconds per year at 80% robot efficiency
= 10 421 units assembled per year (single shift)

The robot can assemble approximately the same number of products per year as one worker, considering single shift working.  However, certain operations (using the existing product design) must be executed manually.

ANNUAL COST SAVINGS

The annual cost saving of using the robot is one worker per year.  If the annual cost of an operator is 50 000 euros per year (including taxes, social charges, pension contributions, overhead contribution, etc.) then the cost saving would be approximately 50 000 euros per year.

PAYBACK PERIOD

The payback period for using the robot is 2 years, for the assembly of 10 421 units per year. 

VALVE SPECIFICATIONS

If the valve is to be re-designed then it must have the following performance characteristics :

(a) It must achieve a flow rate of 2.2 litres per second for 10 000 000 cycles of operation, without leakage from port to port.

(b) The upper sealing gasket must not drop off when the body sub-assembly is transported between operations.

(c) The inner sleeve 0-rings must be stable during assembly of the inner sleeve sub-assembly to the valve body.

(d) The activation time of the unit must be better than 0.02 seconds.

(e) The operating air pressure for the double acting valve should be less than 1.2 kg/cm2 and less than 2.5 kg/cm2 for the spring return valve.

(f) The customer should have the option of achieving flow rates between 0 and 50 percent of the maximum and between 50 and 100 percent of the maximum, using a convenient design feature.


RECOMMENDATIONS FOR A RADICAL RE-DESIGN OF THE PNEUMATIC VALVE TO REDUCE THE NUMBER OF PARTS IN THE ASSEMBLY

The following design changes are recommended to reduce the cost of the assembly of the pneumatic valve :

(1) Eliminate the choke screw housing (6) by providing an internal thread in the valve body, where the choke screw housing sub-assembly is currently situated.  This would involve the use of a choke screw and O-ring only, thus eliminating two parts.    .

(2) Eliminate the gasket (2) and top cover (23) by moulding the airway into the integral body and top cover. This would eliminate two parts but would require the bodies to be stocked in two styles to accommodate single acting and double acting valves.

(3) Eliminate the piston sleeve (9) by reducing the bore of the body at this point so that the piston is guided by the body, instead of the sleeve.

(4) Eliminate the three sleeves (9), (12), (14) and integrally mould the three sleeves as one part.

(5) Eliminate the piston by integrally moulding it with the spool piece, for single acting valves.

(6) Eliminate the spool piece O-rings / sealing rings and locate them on the spool piece sleeves.

(7) Eliminate one end piece and integrate it with the valve body.

(8) Eliminate the indicator and integrate it with the spool piece.

(9) Eliminate the label and print it directly onto the valve.

(10) Eliminate the cover screws and incorporate (a) a bayonet fitting or, (b) a screw thread between the body and end cover.

(11) Eliminate the short spring by changing the following design features of the long springs :
(a) spring wire gauge
(b) number of turns per inch
(c) spring material
(d) external diameter of spring

CONSIDERATIONS FOR THE RE-DESIGN OF THE PNEUMATIC VALVE

There are many factors that must be considered when re-designing the pneumatic valve for assembly.  The effect of changing one design feature of a part may have an effect on the design of the other parts.  The performance of the valve can be reduced by adverse design changes, or there may be an increase in the manufacturing costs of the product parts, due to new tooling costs.  A number of factors must be considered when the re-designed valve is being evaluated :

(1) A capital investment has been made by the client company in mould tooling for the valve body.  If other part features are to be integrated within the body, or if the body is to be split into more than one component, then there will be an investment required for the new mould tooling.

(2) If the choke screw housing feature is to be integrated within the valve body then the body tooling modification cost, and the scrapped choke screw housing tooling cost, must be considered.

(3) The assembly of the O-ring seals to the spool piece presents the problem of expanding the O-rings over the part and then allowing them to contract into the o-ring groove.  The task can be simplified by re-designing the joints between the spool piece sleeves.  Unfortunately, the current design of joints has been carefully chosen to avoid the possibility of an O-ring passing over a joint between two sleeves.  It would be very difficult to achieve this same performance, so that the valve would operate for more than 3 000 000 cycles without a loss in performance.

(4) The spool piece is surrounded by sleeves having a multitude of holes in them.  It would be logical to eliminate the sleeves and to direct the flow of air from one port directly to another port.  However, these sleeves are required to provide an even flow path around the spool piece to maintain the required flow rate.  Larger ports could be moulded into the valve body, but this could cause the  O-rings to be damaged as they passed over the ports.

(5) The piston is guided by the piston sleeve.  This piston guide design feature could be integrated within the valve body.  The inside diameter of the piston guide must be such that the air pressure required to operate the valve is no greater than that already required.  Additionally, it must still be possible to insert internal parts to the valve body.  If the piston sleeve is integrated into one half of the body only, for spring return valves, then all of the parts associated with the spool piece can be inserted from one end of the of the valve.  This option would, of course, require there to be two valve bodies for the product range.

(6) The thrust from a new single spring must be such that it can overcome the action of the fluid pressure and the friction between the spool piece O-rings and the sleeves.

(7) The sleeves are moulded as separate components because, as an integral part, it would be difficult to get the correct distribution of plastic in the mould.  If the sleeve must be split for this reason then it would be advantageous to situate spool piece O-ring seals between the sleeves.

(8) It must be impossible to inadvertently unscrew the choke screw out of the body.  If the valve was to be re-designed so that the choke screw could be inserted into the body after assembly of the cover, or into a body with an integral top cover, difficulties may arise.  If the choke screw can be inserted after the cover, or cover feature, then it could also be removed by screwing.  The addition of a retaining part would be counter-productive and, therefore, a stamping operation would be more efficient.  The tops of the choke screw holes would be deformed after insertion of the choke screw, thus retaining it.

(9) During manual assembly of the spool piece sub-assembly to the valve body, special tools are required to assist the operator.  The outside diameter of the sealing ring is much larger than the inside diameter of the spool piece sleeve.  A special tool is required to contract the rings before insertion into the valve body.  The operation is so complex that it may not be efficient to carry it out by a robot, in its current state of design.

(10) The operation of inserting the spool piece sub-assembly into the valve body is so complex that it is not feasible for it to be done by the robot.

(11) The piston and lip seal can only be inserted into the sleeve in one direction.  This is because the lip of the seal has a larger diameter than the inside of the sleeve.  The piston could be inserted in both directions if the seal was an O-ring.

(12) If one of the end pieces were to be integrally moulded with the body then all parts could only be inserted into the body from one direction.  The sealing of the indicator would create special problems.  If the seal is inserted by the robot then it cannot be sufficiently located.  Otherwise, the robot would not be able to assemble the seal.  During movement of the indicator, the seal may be removed from its housing.

(13) Integration of the top cover would make it impossible to change the routing of the signal air because the gasket would no longer be present.

(14) The current pneumatic valve design currently has two springs to generate the required thrust.

(15) The pin is required for the stability of the long spring, during operation.

(16) For aesthetics, the top cover and end covers must be of aluminium, to give the impression of robustness to the product.

(17) The dimensions of the inlet / outlet ports must be kept the same for compatibility with complimentary and substituted products.

MANUAL ASSEMBLY WORKSHEET

1 = Part identification number
2 = Number of times that the operation is carried out consecutively
3 = Two digit manual handling code
4 = Manual handling time per part
5 = Two-digit manual insertion code
6 = Manual insertion time per part
7 = Operation time in seconds (2) x [(4)+(6)]
8 = Operation cost, centimes 0.4 x (7)
9 = Figures for the estimation of the theoretical minimum number of parts

_1    2    _3    ___4    _5    ___6    _____7    ___8    9
23    1    30    01.95    00    01.5    003.45    01.38    1  PICK UP TOP COVER
                                      99    12.0    012.00    03.00        CLEAN THE TOP COVER
30    1    88    06.35    33    05.0    011.35    04.54        PEEL OFF LABEL
06    2    11    01.80                         003.60    01.44        PICK CHOKE S. HOUSING
05    2    03    01.69    30    02.0    007.38    02.95        PICK UP O-RING
04    2    10    01.50    00    01.5    006.00    02.40        PICK UP CHOKE SCREW
                                                                                              AUTO. SCREW CHOKE
07    2    03    01.69    30    02.0    007.38    02.95        PICK UP O-RING
01    1    30    01.95    00    01.5    003.45    01.38    1  PICK UP VALVE BODY
29    2    33    02.51    40    04.5    014.02    05.60        PICK UP BLANKING PC.
01    1    98    09.00                         009.00    03.60        TURN BODY UP/DOWN
         2    30    01.95    31    05.0    013.90    05.56        PICK UP CH. SCREW S/A
02    1    38    03.34    43    07.5    010.84    04.34        INSERT GASKET
         1                           02    02.5    002.50    01.00        INSERT COVER TO BODY
19    1    10    01.50                         001.50    00.60        PICK UP PISTON
18    1    10    01.50    30    02.0    003.50    01.40        INS. LIP SEAL TO PISTON
                                                                                              PICK UP O-RING TOOL
16    1    03    01.69    00    01.5    003.19    01.28        INSERT O-RING TO TOOL
17    1    00    01.13    30    02.0    003.13    01.25        INS. SPOOL TO O-RING
                                                                                              PICK UP MIDDLE O-RING
16    2    03    01.69    00    01.50    006.38    02.55      INS. O-RING TO TOOL
17    2    00    01.13    30    02.00    006.26    02.50      INS. O-RING TO SPOOL
15    3    03    01.69    44    08.50    030.57    12.23      SEAL RING TO SPOOL
24    2    10    01.50                           003.00    01.20        PICK UP INDICATOR
20    2    03    01.69    30    02.00    007.38    02.95        INSERT O-RING TO IND.
22    2    30    01.95    30    02.00    007.90    03.16        INSERT ENDPIECE
09    2    10    01.50                           003.00    01.20        PICK UP PISTON SLEEVE
08    4    03    01.69    30    02.00    014.76    05.90        INS. 0-RING TO SLEEVE
10    2    10    01.50    30    02.00    007.00    02.80        INS. SEAL TO SLEEVE
12    2    10    01.50    30    02.00    007.00    02.80        INS. SEAL TO PISTON
                                                                                                PICK UP O-RING TOOL
11    2    03    01.64    30    02.00    007.38    02.95        INS. O-RING TO SLEEVE
         1    10    01.50    00    01.50    003.00    01.20        SLEEVES TO FIXTURE
14    1    00    01.13                           001.13    00.45        PICK UP HALF SLEEVES
13    1    03    01.69    30    02.00    003.69                      INS. 0-RING TO HALF-SLV
               00    01.50                           001.50                      INSERT HALF PISTON
         1    00    01.13                           001.13                      PICK UP VALVE BODY
                                                                                                INS. TOOL TO VLV. BODY
               30    02.00                            002.00                     INSERT VALVE BODY
                                                                                                PICK UP O-RING TOOL
13    1    03    01.69    30    02.00     003.69                     INS. O-RING TO TOOL
        1                           12    05.00      005.00                     INS. O-RING TO VALVE
        1    10    01.50    30    02.00      003.50                    INS. SLEEVE TO BODY
        1    10    01.50    30    02.00      003.50                    INS. PISTON TO SLEEVE
        2    00    01.13                             002.26                    PICK UP END PIECE
21    2    23    02.36    43    07.50     019.72                    GASKET TO ENDPIECE
        2                            02    02.50     005.00                    ENDPIECE TO BODY
25    8    11    01.80    00    01.50     026.40                    INS. COVER SCREW
        8                            92    05.00    040.00    16.00        FASTEN COV. SCREWS
        1    98    09.00                            009.00    03.60        TURN VALVE BODY
        1    99    12.00                            012.00                     LUBRICATE VLV. BODY
                                                                                                PICK UP SPOOL TOOL
        1    00    01.13    31    05.00    006.13                        PICK UP SPOOL PIECE
                                                                                                 PUT TOOL DOWN
26    1    00    01.13    02    02.50    003.63                    INS. SPRING TO SPOOL
27    1    00    01.13    02    02.50    003.63                    INS. SPRING TO SPOOL
28    1    10    01.50    02    02.50    004.00                    INS. PIN TO SPRING
         1    00    01.13    00    01.50    002.63                         INS. VALVE TO FIXTURE
02    1    23    02.36    43    07.50    009.86                    INS. GASKET TO BODY
                                                             389.22

ASSEMBLY SEQUENCE FOR THE ROBOT ASSEMBLY OF THE PNEUMATIC VALVE, WITH MANUAL ASSISTANCE

Note - Operations marked with an asterisk (*) are carried out manually.

 (1) Pick up the cover (23) from the pallet and insert into fixture (32).
 (2) Automatically clean the cover.
 (3) Automatically feed and insert the label (30) to top cover.
*(4) Pick up the choke screw housing (6).
*(5) Pick up the O-ring seal (5) and insert onto choke screw housing.
*(6) Pick up the choke screw (4) and insert into the choke screw housing.
*(7) Fasten choke screw in choke screw housing by friction screwdriver.
*(8) Pick up O-ring seal (7) and insert into choke screw housing.
*(9) Pick up valve body (1).
*(10) Pick up gasket and assemble to valve body.
 (11) Pick up valve body and insert into fixture (33).
 (12) Automatically feed and insert the blanking piece (29) into the valve body.
 (13) Rotate the body in the fixture by 180 degrees.
 (14) Pick up the choke screw sub-assembly and insert into the valve body.
 (15) Pick up the top cover and insert into the valve body.
 (16) Automatically feed the piston (19) and insert into fixture (34).
 (17) Automatically feed the lip-seal and insert into the piston.
*(18) Pick up O-ring tool.
*(19) Pick up O-ring (16) and insert onto O-ring tool.
*(20) Pick up spool piece (17) and insert into tool.
*(21) Insert O-ring into spool piece.
*(22) Pick up O-ring tool.
*(23) Pick up O-ring and insert into O-ring tool.
*(24) Pick up spool piece and insert into tool.
*(25) Insert O-ring into spool piece.
*(26) Pick up O-ring tool.
*(27) Pick up O-ring and insert into tool.
*(28) Insert O-ring into spool piece.
*(29) Pick up sealing ring (15) and insert onto spool piece.
*(30) Pick up end piece.
*(31) Pick up end piece gasket (21) and insert into end piece.
*(32) Insert end piece sub-assembly into magazine.
 (33) Pick up end piece and insert into fixture (35).
 (34) Automatically feed and pick up end piece O-ring (20) and insert end piece.
 (35) Automatically feed and pick up indicator (24) and insert into end piece.
 (36) Automatically feed the piston sleeve (9) and insert into fixture (36).
 (37) Automatically feed the O-ring (8) and insert into piston sleeve.
 (38) Automatically feed the lip-seal (10) and insert into piston sleeve.
 (39) Automatically feed the sleeve (12) and insert into piston sleeve.
 (40) Automatically feed O-ring (11) and insert into sleeve.
 (41) Pick up piston sleeve and sleeve and insert into fixture (37).
 (42) Automatically feed middle sleeve O-ring (13).
 (43) Automatically feed middle sleeve (12) and insert into O-ring.
 (44) Insert middle sleeve and O-ring into sleeve.
 (45) Pick up the body and insert onto sleeves.
*(46) Insert O-ring into valve body.
 (47) Pick up sleeve and piston sleeve and insert into valve body.
 (48) Pick up piston and insert into piston sleeve.
 (49) Pick up end piece and insert into valve body.
 (50) Automatically feed end piece screw and insert into valve body.
 (51) Fasten end piece screw into valve body.
 (52) Rotate the valve body by 180 degrees.
 (53) Lubricate the valve.
 (54) Insert spool piece tool into body.
 (55) Insert spool piece into body.
 (56) Remove spool piece tool.
 (57) Automatically feed and insert long spring (26) into spool piece.
 (58) Automatically feed and insert short spring (27) into spool piece.
 (59) Automatically feed and insert pin (28) into spring.
 (60) Repeat operations 49 to 51.
 (61) Pick up the valve and place onto the test station.
 (62) Pick up the gasket (3) and insert into the valve body.

I originally published this article under the title, “The Presentation of Parts for Robot Assembly” in the book “Advances in Manufacturing Technology”, Kogan Page, London, ISBN 1.85091.3951 ...

The presentation of parts for robot assembly involves the selection of the correct parts handling devices and it influences the robot degrees of freedom required. The design of appropriate feeders is discussed, with an emphasis on their flexibility.  A classification system is described that allows parts to be categorised by their design features and physical properties. The performance of an automatic parts feeder is shown to depend upon the design of the part that is being handled. A selection procedure is described that enables the correct handling device and robot configuration to be chosen for a particular application. An expert system is shown to be the best method of acquiring design information about the handle-ability of a part.  A software package that simplifies the selection of parts feeders and robot configurations is described. The importance of knowledge transfer between industrialists and researchers, in defining relevant handling devices, is discussed. The development of an enhanced CAD system is the subject of a further publication.

INTRODUCTION

The presentation of parts to a robot presents some of the most difficult problems in robot assembly. Single cell robot assembly systems may assemble a complete product consisting of several parts. These parts have to be presented to the robot at the correct rate and in a known orientation, or a limited number of known orientations. The rate of supply of parts to the robot cell is seldom a problem because cycle times are usually long. The orientation of the part, at the exit of the parts feeding device, is critical because this influences many other factors.  The orientation of a particular design of part at the feeder exit can be predicted using knowledge of handling device design. Parts are classified according to size, geometry, etc. so that feeding device performance can be qualified. Using a standard parts coding system, feeder performance can be matched with that required for a particular design of part. The orientation of the part, at the exit of the automatic feeder, can be predicted and the need for extra robot degrees of freedom can be determined. The presentation of parts for robot assembly is a complex problem and it’s best carried out using a software application.

PARTS PRESENTATION TECHNIQUES

A multitude of automatic feeders are available to handle a wide variety of parts. However, only a small proportion of these automatic feeders are economically viable for robot assembly.  For robot assembly, an automatic parts feeder must have a high general-purpose content and a low special-purpose content, so that the flexibility of the robot is not compromised by the inflexibility of its feeders. The vibratory linear feeder has a low cost special-purpose feed track that is mounted on a general-purpose drive unit and frame.  The device is very flexible because changeover is effected by removing the current feed track and replacing it with a feed track for the next part. The vibratory bowl feeder consists of medium cost special-purpose tooling that is mounted around the periphery of a general-purpose bowl. The feeder is generally inflexible and the time associated with part changeover makes it unsuitable for many applications with small batch sizes. The horizontal pallet transfer system has low cost special-purpose pallets that move into, and out of, the work zone by a general-purpose transfer system. Flexibility is achieved by using different pallet configurations or by simply changing the pallet contents. The 'Hitachi' type feeder works on a similar principle to the vibratory bowl feeder, with the special-purpose tooling being replaced by a vision system. Within certain geometrical and size limitations, this device is highly flexible; using a vision system to identify part orientations. The programmable belt feeder uses special-purpose pushers and gates, activated by a vision system or sensors, mounted above a general-purpose belt.  Product changeover is achieved by using a different vision system computer program or by replacing the pushers and gates.

PARTS CLASSIFICATION FOR FEEDING

It’s important to be able to classify or describe the features of a part so that particular part shapes can be identified.  Firstly, a part can be classified according to it's basic shape, i.e. rotational or non-rotational. Each rotational or non-rotational part has a certain aspect ratio that allows it to be classified as being a disc, short cylinder, long cylinder, flat, long or cubic. Secondly, the amount of symmetry that a part possesses can be quantified. The amount of symmetry is determined by defining how often an orientation is repeated when the part is rotated through three mutually perpendicular axes. Thirdly, the amount of symmetry that a part possesses can be identified. The asymmetrical feature or features are those that cause the part not to have symmetry about an axis or axes.  Fourthly, the bulk properties of a part can be identified to estimate the loss in performance of those feeders which deliver parts from bulk random orientation.  Properties such as overlapping, tangling, nesting or stickiness reduce the feed rate and may even prevent feeding, depending upon the magnitude of the adverse property.  Lastly, the physical properties of a part can preclude it from being handled by certain automatic feeders.  Other properties, such as abrasiveness or a delicate surface finish, may cause problems with different feeder designs.

PERFORMANCE OF FEEDING DEVICES

Each robot assembly handling device has its own performance characteristics. A given device is able to handle a limited number of parts within a certain size range and geometry class.  The orientation efficiency of a feeder, for parts with no adverse physical properties, is unimportant for robot assembly because the relatively long cycle time means that the demand rate for parts is low. The orientation efficiency for automatic feeders which sort out parts with adverse physical properties from bulk random orientation can be extremely low or zero if the adverse physical property is severe. Parts with severe adverse physical properties cannot be sorted from bulk random orientation and other methods of handling must be chosen. A typical solution to this problem is to present the part on a horizontal pallet transfer system. These handling devices are loaded manually or, preferably at the point of manufacture, using pick and place devices.

ROBOT ASSEMBLY HANDLING CHARTS

The required attitude of a part, on insertion, influences the choice of handling device and it also affects the number of robot degrees of freedom required.  A particular feeding device, if it can handle the part under consideration, may be able to present a part in only one unique orientation or it may be able to present the part in a number of unique orientations. The orientation(s) of the part at the feeder exit are determined by considering the design of orientation tooling that is required.  For vision system controlled feeders, knowledge is required of whether or not the part's orientation can be deduced by the vision system. If the attitude of the part at the feeder exit is the same as that required for insertion then a minimum number of degrees of freedom are required from the robot arm.  If the attitude of the part at the feeder exit is different from that required for insertion then extra degrees of freedom are required. Parts which need to be re-orientated from the horizontal to vertical position require an extra roll or pitch axis and parts which are required to be turned end-to-end need an extra yaw axis. Additionally, certain parts may require that final orientation from the feeder is accomplished using a robot with limited sensory capability to define the orientation.  This is applicable to feeders which present the part in a limited number of known orientations. This knowledge can be collated to form a database from which it is possible to predict handling and dexterity requirements for the robot assembly system.  Various organisations have created database software applications for this design process.

ROBOT ASSEMBLY HANDLING EXPERT SYSTEM

It must be possible to describe a part being analysed so that the most appropriate feeding device can be selected.  A standard parts coding system is used to describe a part, as mentioned previously.  The sequence of questions which are asked to describe the part is very important. The response to certain questions may create a need for further questions to fully describe the part.  Alternatively, no further questions may be required. Additionally, a particular response to a question may dictate that only one handling device is appropriate, even before the part has been fully classified. Anybody using the 'selection of parts presentation device technique doesn’t want to be asked a lot of irrelevant questions and so a decision tree has to be developed to ask the minimum number of questions. Statements are presented in a structured format and these statements can be either true or untrue for a particular part. Branching forward only takes place when a particular statement is true, otherwise alternative questions are presented until a correct statement is chosen.  Questions are structured so that if a particular set of statements are untrue then the previous true response to a statement must have been incorrect and that statement is once again presented to the user. By this method, the minimum number of questions are needed to classify a part in terms of its handling suitability.

PRODUCT AND SYSTEM DESIGN FOR ROBOT ASSEMBLY SOFTWARE

The presentation of parts for robot assembly is one section of a product and system design for robot assembly computer software application. It operates on eight screen pages. The first screen page allows the user to enter part numbers and descriptions to the application. The last three screen pages contain economic information and they provide the user with calculated information. The middle four screen pages are all concerned with defining the handling, and to some extent the insertion, requirements of the part under consideration. These four screen pages are displayed consecutively for each part and, when all the parts have been defined, the remaining three screen pages are displayed. In the handling section, the first screen page deals with adverse physical properties of the part. The second screen page deals with the geometrical symmetry features of the part. The third screen page deals with the geometrical asymmetry features of the part. The fourth screen page is used to define the insertion direction of the part and to determine if the part is potentially redundant.

DATA ACQUISITION FOR ROBOT ASSEMBLY SEMINAR

A series of product design for robot assembly seminars were held at a UK university.  They were well attended and the object of these seminars was to encourage industrialists to analyse their products, using a product design for robot assembly computer software application.  The results of these studies were then investigated by university staff so that handling, gripping and insertion requirements for robot assembly could be recommended. These seminars were funded by the ACME directorate as a means of forging closer links between universities and industry. The results of the studies also gave direction to future research work at the university in the field of robot assembly.  Interested parties were given a copy of a computer software application.  Industrial product data was stored in standard ASCII files and this was easily manipulated by staff at the university.  Statistics were produced that indicated trends in parts geometry and the physical properties of parts.  These statistics showed the relative importance of various pieces of assembly automation for a cross-section of industrial products and they gave indicators for future assembly hardware development.

FUTURE WORK

I strongly believe that industry will only demand products and services if there is a genuine need for either. For this reason, my direction is heavily influenced by the continuously changing needs of my clients. Product information (available to clients) and calculated information (demanded by clients) is monitored through my consultancy contracts.  My approach to the presentation of parts for robot assembly is changed to best suit the needs of the majority of my current clients and future clients. The results of the previously mentioned data acquisition seminars influenced the range of handling devices included in the database. It was necessary to include other devices to cater for particular categories of parts, that were thought to exist in smaller numbers than in reality. The findings also affected the handling expert system format. The sequence of questions was altered so that the minimum amount of information was required for the majority of parts.  Later, a consortium of six companies was being formed to interface the product design for robot assembly software with a conventional CAD system.  The object of this work was to allow a product designer, using a CAD system, to have the benefit of product design for assembly running in the background, which only became active when adverse robotic assembly properties were evident.

CONCLUSIONS

The presentation of parts is a topic often neglected by those considering robot assembly and yet it accounts for the majority of the cost for an installation. It is important to be able to describe the features of a part by the use of a parts classification technique that is sufficiently comprehensive to fully describe the part, without involving undue effort, or understanding, from the user.  Parts presentation devices for robot assembly should have a high general-purpose content and a low special-purpose content.  The orientation of the part during insertion affects the choice of handling device and the number of robot degrees of freedom. The classification of a part for handling can be a tedious process and it is important to only define features that are relevant for the selection of handling devices. This is best achieved by using an expert system approach and decision trees.  The complex process of handling device selection can be carried out by computer software applications, thus eliminating the need to manually carry out many iterative calculations. The types of handling devices which best suit the needs of industry can be chosen by asking current and potential industrial users to specify their particular handling requirements.  Most of the information relating to the design features of products, for robot assembly, can be extracted from a CAD system database.

I originally presented this article, "Design for Robot Assembly", as a guest speaker at the UK's 2nd National Conference on Production Research ...

SUMMARY

The design of products and systems for robot assembly requires a new approach to that used for manual and automatic assembly.  Robot assembly is only effective if the robot’s flexibility is used to best advantage.  Additionally, peripheral devices supporting the robot must also be adaptable to handle a wide variety of products and product parts.  This is achieved by using equipment that is not designed specifically to handle a particular type of part with minor modifications to tooling, or the use of a different software application, the robot assembly system can be quickly adapted to assemble a different product or product style.  By this method, robot assembly can be economically justifiable in many situations where it would otherwise have been precluded.

This article discusses the development of robot assembly systems and describes how product design plays an important role in the design of the equipment.

INTRODUCTION

There are three categories of system used in product assembly.