The Various Issues and Challenges MDCM, Inc - Assignment Example

The Various Issues and Challenges MDCM, Inc. Introduction Today's complex business environment requires fast responses and flexibility to better respond to market changes. The competitive environment has gotten fiercer with rival firms on the lookout for anything that can give them the upper hand against their competitors. It is a lasting advantage when other industry players cannot match a firm's expertise on one area like being a low-cost player (either as a focused low-cost player or an over-all low-cost leader) by using modern business information systems (Thompson & Strickland 204). The key is having the right information at one's fingertips that can help in making appropriate business decisions if and when needed. Time is of the essence in today's fast-paced environment and the business information system of a firm plays a very crucial role in its long-term success. The use of digital information systems provides a lot of data-based information readily available for decision making and removes much of the guesswork. Many managers are often frustrated because the lack of accurate data can stifle giving the right answers sometimes to even very simple questions and secondly, they can be made accountable for things beyond the control of anybody. A good BIS should also be aligned to a firm's business strategy and long-term corporate planning processes. This will ensure there is a congruence between investment in IT resources with the firm's overall business strategy. Investments in BIS or IT projects are to take into account all the costs involved and justify its business case through an analysis of the expected benefits (cost-benefit ratio) although there are some things which are very hard to quantify in a very specific manner. Examples of the expected long-term but often intangible benefits include new or emerging business opportunities, improved customer relationship that ensures loyalty, better goodwill and stronger supplier tie-ups (Leon 41). Discussion This paper examines the various issues and challenges MDCM, Inc. has been facing lately. There are many problems it has to tackle, some very urgent and others requiring a more long-term outlook. The firm had been on a rapid expansion phase in the previous years due to its avowed strategy of growth by acquisitions. However, this fast-paced externally-orientated growth strategy brought with it a lot of problems when the industry it is in face some changes brought about by certain forces outside its control. The key issue in this case study is what are the options available to MDCM, Inc. to halt its slide in terms of financial performance. A firm like MDCM, Inc. is a major industry player (54% market share as of 1985) and yet its profits had started to erode due to internal and external factors (Jeffery & Norton 3). Two main problems facing the top management of MDCM, Inc. are what are proper responses to industry changes that had turned its previously profitable operations into losses and adopting an appropriate IT strategy which will make sense of all its varied activities into one coherent and integrated corporate strategy in terms of competitive pressures. With the ways things are going on at the company, this is the right time to pause and take a hard look at its various options to improve its performance rather than pursue growth for its own sake. The firm had been on a fast-track growth strategy but its high market share did not produce profits. The end result of this fast-paced growth was a conglomerate or an amalgam of firms which often do not communicate very well with each other and MDCM has just suffered its fifth consecutive quarterly losses of some $33 million on gross revenues of $1.12 billion for the second quarter of fiscal year 2002 (ibid. 1). There is clearly something wrong with how its strategy had worked out because increasing sales should have brought about higher profits but the reverse is true in this case. The firm had been operating in a very chaotic way and even its top management people have a hard time in keeping track of certain things themselves. Short Background of the Case – MDCM, Inc. is the biggest industry player in contract manufacturing of medical devices. As such, it does not engage in any research or any product development on its own but purely contract manufacturing services for its clients. The firm is into medical device manufacturing and assembly, clean-room devices injection molding and as an ancillary service, provides clients with its design and fabrication of specialty assembly equipment. These kinds of activities can be considered its core competencies acquired over thirty years of experience. It has highly skilled staff and prototype machinists in this aspect of its manufacturing prowess and works in close coordination with its clients in the search for the best manufacturability (a process in the search for a design that lends itself to an easier manufacturing process) for parts design. Its key success factor is its ability to produce highly customized versions of medical equipment for very specific unique applications. It achieves this by partnership arrangements with clients that promote very close cooperation. Since its founding back in 1972, MDCM, Inc. had grown to be the biggest player in its industry and now comprises more than twenty different independent subsidiaries both locally and abroad in such diverse countries as Japan, Germany, UK, Poland, France and Malaysia. The early years of its existence saw growth mainly from several small acquisitions and by the geographical expansion of its offices throughout the continental United States primarily to be closer to its clients and hence improve customer relationships. The latter years saw a different pattern of growth which was fueled mainly by overseas acquisitions of larger companies. The first of this major acquisitions occurred in 1987 with the purchase of Sentrex in the UK and then followed by other similar purchases in other countries. These purchases made MDCM a truly global business enterprise which grew in parallel with its own clients which had by now grown global too in operations. However, the various subsidiaries were all allowed to operate independently to make them more responsive to client needs within their respective areas. Overall Strategic Goals (SMART) – the primary goal of MDCM, Inc. today is to return itself to profitability because of two factors: increasing costs and erosion of its pricing power due to the consolidation in the industry. A secondary goal towards attaining overall corporate objective of profitability is to adopt an integrated IT strategy that is congruent with its overall corporate strategy. Because of its chaotic internal environment, MDCM, Inc. largely incurred so much unnecessary costs such as ordering raw materials in a rush manner. When this is due to poor inventory controls, the end result is that production runs are sometimes stopped due to materials running out and this has resulted in some plants being idle while other plants had to work overtime. There was no effective materials resource planning in the company and orders which have to be rushed cost more to ship than in the ordinary course of things. For example, when there is a rush order to prevent production from being disrupted, supplies might need to be shipped by air which is more expensive than being sent by ship or truck delivery. Specific – there are already moves to rationalize the way MDCM, Inc. makes it orders. One specific way to achieve streamlining its ordering and purchasing processes is to reduce the number of its suppliers from the thousands to just a few hundreds which are accredited to ensure they comply with certain criteria such as price, quality, volume and timely deliveries. CEO McMullen had initiatives to aggregate materials purchasing (ibid. 4) precisely to avail of volume discounts in purchase price as well as reduce spending almost three times what it will cost normally to ship, according to COO Michael Shed (ibid. 1). Measurable – reducing the number of suppliers from the thousands to just hundreds or even fewer is a good step in the right direction. This will allow the firm to take advantage of certain benefits like price discounts due to higher order volumes per supplier, improved times in deliveries (by avoiding rush orders), greater predictability in its production scheduling and this will inevitably result into on-time deliveries of finished products by MDCM to its clients. Attainable – reducing the number of suppliers can be done gradually so as not to cause any abrupt disruptions in the firm's relationships with its various suppliers. For example, big orders can be canvassed to the bigger suppliers who can supply these materials on time and in the right quantity, quality and price. All the other smaller suppliers should be eliminated so the firm will have an easier time in its ordering process and can better monitor its raw supplies. It is easily achievable in maybe a shorter period of time, from perhaps six months to one year. Realistic – integrating its supplier list is a realistic objective because maintaining so many suppliers is not necessary in the first place. Buying so many similar parts and supplies all over the globe is not a very economical way of purchasing its requirements. Additionally, MDCM, Inc. can leverage its leading industry position to demand some concessions from its bigger suppliers in terms of volume discounts due to its very large order volumes. The best move is to order its requirements from suppliers closest to its manufacturing plants so that transportation expenses are minimized. This will also prevent rush orders which are costly. Time-Bound – the target date for reducing its number of suppliers can be achieved in a year or even less, based on its production cycles. This means smaller suppliers will be weeded out in each succeeding production cycle so that only big suppliers are retained to supply its requirements for the next production runs. The foregoing discussions were aimed at addressing one particular internal problem in the company which was its high costs of production. It had lost its low-cost advantage due to the disorganized way it made raw materials purchases resulting in high expenses with delivery of these materials. This was the complaint of its COO Mr. Shed and this was the cause of the erosion in its operating and profit margins. Another beneficial effect of this integrative move over its suppliers is that manufacturing plants can better schedule their production activities that will not result in either overtime work (paying additional work premiums) or shutdowns. Competitive Business Environment (5 forces analysis) – the external environment of MDCM, Inc. had changed considerably due to the globalization process of business operation. It now had to contend with various external factors which it cannot fully control and this had partly been responsible for its losses in market share and profit margins. The factors that had influenced this trend in the company's financial performance are discussed below. Industry Rivalry – smaller but more efficient rivals already existing in the industry had been able to offer lower prices which MDCM, Inc. had a hard time to match due to its high internal costs as already mentioned earlier. The company's move was to close older and less efficient plants and expand the newer and more efficient manufacturing plants in an attempt to regain its cost advantage. Smaller rivals had become more aggressive such that MDCM, Inc. had lost four of its ten biggest clients between 1998 – 1999 alone (ibid. 3). It was an alarming development that required a drastic response in terms of manufacturing strategies. Threat of New Entrants – according to Professor Michael E. Porter, what attracts new entrants into an industry is the level of competition in it and the potential returns that can be had by industry participants. This was the case in the medical devices manufacturing industry in which there are now several foreign competitors which had global manufacturing facilities that MDCM, Inc. found difficult to match (ibid. 3). The increased number of industry players had resulted in a higher manufacturing capacity resulting further to lower prices and reduced market share (Applegate, Austin & McFarlan 146) which was what happened to MDCM, Inc. Bargaining Power of Buyers – an interesting development in the medical devices field resulted in the consolidation of just a few big players such as giant pharmaceutical companies which had acquired smaller firms engaged in the supply of medical devices. This resulted in a few players who can bargain effectively by leveraging their purchasing power, which resulted in fewer but bigger customers for MDCM which had eroded its pricing power (ibid. 3). Bargaining Power of Suppliers - in this arena, it can be said that MDCM, Inc. is on an equal footing with its eventually reduced number of suppliers because it is an industry leader and has a lot of purchasing leverage. In this regard, it can effectively bargain for lower prices by asking for volume discounts, improved delivery times and better quality of supplies. It can ask for many better terms such as longer credit periods in which to pay its accounts payable. It has all the maneuvering room that it needs because it is a giant industry player itself. Threat of Substitutes – the proliferation of manufacturing technology in the making of medical devices has resulted in lower margins because some of these devices had become in a way similar to commodities. Another development in the medical devices industry is the new technologies can replace older medical devices by making them obsolete and the tendency of manufacturers of specific devices is the loss of customers for life (Valacich & Schneider 100). Critical IT Objectives – the overriding or sole objective of its IT initiative is to have an integrated approach to all its operations. MDCM, Inc. needs to align its IT investment into its larger corporate objectives of regaining competitive advantages such as low-cost advantages, faster reaction times to market developments and improving its manufacturing efficiencies. It needs to employ an enterprise resource planning (ERP) system to give more accurate and the timely information it needs regarding such areas of operations as production, sales, marketing, improved communications between various business units and even customer feedback. The other objectives are to realize the supposed synergies that could have accrued when the firm went on a buying and acquisition binge during the 1990s by incorporating all various legacy information systems into only one global platform. As of now, MDCM, Inc. has customized and highly different IT systems in its subsidiaries which resulted in bloated costs and flawed practices. The chaotic set-up resulted in 80% of IT budget just for maintenance alone but also in significant time-gaps in the information flows between departments, suppliers and logistics. Conclusion At the start of their high-level planning session, the original intention was to cut the IT budget to attain cost reductions that will somehow improve profit margins. This is, however, a wrong move considering that IT strategy plays a very big part in the firm's corporate strategy. It is a knee-jerk reaction that will in turn cause more or even worsen the problems facing the company such as inaccurate sales forecasts, production scheduling headaches and the bloated inventory everywhere. IT should be viewed as the one measure that will save the firm from its current predicament by improving communications among all its functional areas like sales, production and materials sourcing that will give it tighter coordination in its operations. IT and ERP can help MDCM, Inc. attain its business corporate objectives because it is a very potent tool in today's highly-competitive environment. It is a great enabler of business strategy to attain long-lasting competitive advantages because other firms might not be able to make the huge investments required for a top-notch business information system. This is what business analytics is all about which is making critical data-derived information available to all decision makers when they need it to make accurate or precise business decisions. In fact, ERP today is viewed as the necessary link for a business to transform itself to a successful e-commerce entity. Although the ERP was originally designed to link all functional departments such as procurement, production, inventory, sales, marketing and distribution, the rise of the Internet positioned ERP at the right place and at the right time by making putting up a Web site much easier to do (Schniederjans & Cao 107). For example, the IT strategy of MDCM, Inc. should include putting up a Web site where customers can interact with its many departments but primarily with the sales and marketing departments. This was what its VP Pat Perry had voiced out (Jeffery & Norton 1) when he mentioned that some tasks can be better performed by the customers themselves such as ordering (or some type of self-service tasks). Works Cited Applegate, Lynda M, Robert D. Austin and Warren F. McFarlan. Corporate Information Strategy and Management: Text and Cases. Homewood, IL: Irwin, 2007. Print. Jeffery, Mark and Joseph F. Norton. MDCM, Inc. (A): IT Strategy Synchronization. Kellogg School of Management (KEL170). Evanston, IL: Northwestern University, 2006. 1-9. Print. Leon, Alexis. Enterprise Resource Planning. New Delhi, India: Tata McGraw-Hill, 2007. Print. Schniederjans, Marc J. and Qing Cao. E-Commerce Operations Management. River Edge, NJ: World Scientific, 2002. Print. Thompson, Arthur A. and Alonzo J. Strickland. Strategic Management Concepts and Cases. Homewood, IL: Irwin, 1995. Print. Valacich, Joseph and Christoph Schneider. Information Systems Today: Managing the Digital World, 4th ed. Upper Saddle River, NJ, USA: Prentice-Hall, 2009. Print. Read More