3 DSD designs, makes and supplies medical equipment to hospitals and clinics. Its success was based on their research and development culture. Although around 50 per cent of manufacturing was done in-house, their products were relatively highly priced, but customers were willing to pay for their technical excellence and willingness to customise equipment. Around 70 per cent of all orders involved some form of customisation from standard ‘base models’. Manufacturing could take 3 months from receiving the specification to completing assembly, but customers were more interested in equipment being delivered on time rather than immediate availability. According to their CEO, ‘manufacturing is really a large laboratory. The laboratory-like culture helps us to maintain our superiority in leading edge product technology and customisation. It also means that we can call upon our technicians to pull out all the stops in order to maintain delivery promises. However, I’m not sure how manufacturing, or indeed the rest of the company, will deal with the new markets and products which we are getting into’.
The new products were ‘small black box’ products that the company had developed. These were devices that could be attached to patients, or implanted. They took advantage of sophisticated electronics and could be promoted directly to consumers as well as to hospitals and clinics. The CEO knew their significance.
‘Although expensive, we have to persuade health care and insurance companies to encourage these new devices. More problematic is our ability to cope with these new products and new markets. We are moving towards being a consumer company, making and delivering a higher volume of more standardised products where the underlying technology is changing fast. We must become faster in our product development. Also, for the first time, we need some kind of logistics capability. I’m not sure whether we should deliver products ourselves or subcontract this. Manufacturing faces a similar dilemma. On one hand it is important to maintain control over production to ensure high quality and reliability; on the other hand, investing in the process technology to make the products will be very expensive. There are subcontractors who could manufacture the products; they have experience in this kind of manufacturing but not in maintaining the levels of quality we will require. We will also have to develop a ‘demand fulfillment’ capability to deliver products at short notice. It is unlikely that customers would be willing to wait the 3 months our current customers tolerate.
Nor are we sure of how demand might grow. I’m confident that growth will be fast but we will have to have sufficient capacity in place not to disappoint our new customers. We must develop a clear understanding of the new capabilities that we will have to develop if we are to take advantage of this wonderful market opportunity.’
What advice would you give DSD? Consider the operational implication of entering this new market.