1. MTC.03 Jack Aerospace Technologies (JAT) researches, designs, manufactures, delivers, and services numerous product part components to the world's largest aircraft companies. JAT produces approximately 120 aircraft products using numerous processes and many employees. In recent years, JAT's profitability has suffered, which can be attributed to increased competition, customer dissatisfaction, and regulatory pressures. Noela, president of JAT, called a meeting to consider ways to improve profitability. She labeled the meeting a strategic planning session and invited the following officers: Katerina, environmental manager; Francisca, head of research and development; Misato, vice president of production and quality; Sakari, vice president of finance; and William, marketing vice president. Noela: "You all have received the quarterly financial reports for the past two years. The trends are negative. We are losing market share, profits are decreasing, and our costs seem to be increasing. We need to take actions to increase sales, reduce costs, or both, and we need to do so as quickly as possible. Given our research strengths, it seems to me that our best bet is to grow revenues by introducing new products with proprietary rights. As far as costs are concerned, we need to improve our performance on that dimension as well. Lower per-unit costs for new and existing products are needed. Any suggestions?" Francisca: "For our products, our ability to control costs resides in development-my area-rather than manufacturing. We probably need to pay more attention to product and process design issues if we are to successfully lower costs. Revenues also are affected in this stage. Once we patent a new part or component, the clock begins to tick, and we need to reduce time to market. Significantly, reducing time to market will allow us to generate revenues for a longer period of time than we currently are experiencing. For example, reducing the cycle time spent to convert new ideas into working engineering and other processes would help to improve time to market and also to increase revenues. Finally, we can grow revenues by increasing the volume of new products." Misato: "While there is a lot of merit to the observation that the majority of our cost reduction opportunities reside in product development, significant cost reduction opportunities also involve manufacturing as well. For example, we might be able to reduce our manufacturing cycle time of converting raw materials into finished product. Furthermore, as you know, the Federal Aviation Administration (FAA) and other delegated authorities play a critical role in our business, as they must approve all our aircraft products. After more than a decade in our research lab, we recently received regulatory approval for a number of new state-of-the-art flight-critical engine parts, such as the bearing housings in the turbofan engine of maritime patrol aircrafts that navies use for patrol and search-and-rescue missions. This new manufacturing technology uses additive manufacturing, which often is referred to as 3D printing. Traditionally, many of these parts have been complicated to manufacture, which has made their replacement very costly for customer operators because of the low quantity of orders placed and the need for expensive molds for holding molten metal. However, with 3D printing, we can print such parts more quickly, in smaller quantities, and without the need for expensive tools as components are manufactured using layers of powdered metal fused together with a laser. Finally, for some parts, our new 3D manufacturing technology has drastically reduced our lead time from nearly two years to only two weeks." Francisca: "Given that the FAA must approve all changes in our manufacturing process, we have been reluctant, historically, to engage in process improvement or reengineering. However, given our recent performance and regulatory success involving our new 3D printing manufacturing technologies, I wonder if we shouldn't reconsider this long-standing policy. We might be able to build on this success by expanding considerably on this line of product offerings. Some of the quality problems we have experienced could be corrected by changing some of our existing processes, and the costs saved might exceed any cost incurred from seeking FAA approval. I think our quality costs likely are significant and represent an opportunity for improvement." Sakari: "Recent groundings of specific aircraft types for which we supply parts also has hurt our earnings. As a result, from a risk perspective, I wonder if broadening our customer base so that our parts and components are used on a greater number of different aircrafts might help reduce our concentration risk and help the limit sales revenues that usually accompanies specific aircraft groundings." Katerina: "I agree that cost reduction-both in the product development stage and the manufacturing stage-should be a key strategic theme. The environmental area might offer some very good opportunities. A recent Pollution Prevention Act passed by the legislature requires that we monitor and report on the carbon emissions (across different Scope levels) of our products. We also have begun to calculate the costs of generating hazardous substances for each process. This Act was the push weeded to begin developing an environmental cost management system. The results so far indicate that environmental costs are much more than we realized. They are estimated to be in the range of 20 to 25 percent of total operating costs. Environmental costs can be reduced by such things as utilizing lighter yet strongering the use of hazardous chemicals and other materials in production, advancing product designs that foster more efficient landings, reducing water usage throughout the environmental impact while simultaneously reducing costs if more attention is paid to environmental issues during product development. However, I'm not sure if the financial numbers would support this assertion." William: "I like what I am hearing because I think that it also affects our ability to increase market share and revenues. I know our incentive system focuses primarily on rewarding innovative new product designs with unique performance features. For example, environmental impact is one of our major concerns. Some aviation industry stakeholders increasingly pay particular attention to carbon footprints (and other environmental footprint impacts), and right now we are not competing well. Our environmental image is negative and needs to be improved. I am convinced that doing so will allow us to increase market share. Quality is another important matter. For example, many of our parts are considered "safety-critical" or "flight-critical" by the FAA, which means that they must function properly on every flight. Malfon failure of these parts poses major threats to safety and potentially could cause considerable aircraft damage. We have had to recall two batches of products during the past two years due to poor quality, which has hurt our image. Improving the processes to avoid these kinds of problems will save us a lot of grief. Product image and reputation are essential to increasing customer satisfaction and market share." Noela: "Typically, we have tried to improve financial performance by investing more heavily in innovative research and development initiatives in an attempt to increase revenue. However, as mentioned earlier, perhaps it would be prudent to give more attention to cost management. So far, we have some very good suggestions to help achieve these two objectives, but I have some concerns. First, do we have the talent and capabilities to improve quality and environmental performance? Francisca, do your professionals really understand what they need to do to improve process and product designs so that we can see the desired quality and ental improvements? Also, how can we reduce the cycle time for products and the time to market once patented?" Francisca: "Let me answer those questions in order. First, we probably are lacking the understanding on the design issues. We will need to do some training to help our research scientists understand the consequences. We may need to hire additional specialty engine manufacturing business lines if we decide to move in that direction. Second, we may need to make cost efficiencies, and other cost controls, significant performance measures and reward our people for actions that reduce those measures. Our employees need to align their interests with those of the company. If we can achieve these steps, we should see more profit produced per employee." Noela: "Good. Now, Misato, tell us about production and quality. Do our manufacturing engineers and production workers need help with environmental and quality issues?" Misato: "Well, I certainly consider our efforts around inspection to be quality related in nature. A less obvious but potentially important quality-related effort regards our waste production, which occurs both because of quality deficiencies in various facility areas and certain environmental challenges. Without question, training will be needed. Moreover, I really need to hire several quality engineers." Katerina: "I also think that we need an environmental engineer with experience in aerospace manufacturing processes." Noela: "Good. We certainly shouldn't ignore the necessary infrastructure to bring about the needed changes. Sakari, you have been relatively quiet; what do you think about all this? Do you have any suggestions?" Sakari: "Infrastructure is important. If these changes are going to work, timely and accurate information will be needed. It is hard to design products and processes with cost being a significant issue without providing the right kind of cost information. We are in the process of revamping the cost management information system so that it is activity based and we can provide quality and environmental cost information. After listening to the comments made here, I might also suggest that we need to costing to help manage costs during product development. To help you all understand the importance of good information, I have assembled some activity data relating to two new products (FLI 4HY and FLI 2LW) currently under development. The data are organized into resource, activity, and cost object modules with an accompanying list of activity drivers to facilitate the use of an ABC software packaqe recently acquired by JAT." Risk Table *Measured as a probability ( 0% to 100%). ** Measured by a composite score that includes financial, regulatory, business interruption, time horizon, and reputational impact. Resource Module (Projected General Ledger Costs of Manufacturing Process Associated with the Two Products) *Secondary activity whose costs are assigned to primary activities in proportion to the labor time used. List of Activity Drivers *Capacity is flexible (i.e., acquired as needed, and always matches usage). Capacity for other activities is acquired in advance of usage. For example, setups are acquired in units (steps) of 950 hours. Projected usage for setups equals practical capacity. Cost Object Module (Products and Projected Activity Usage) Required: 1. Use the comments from the executive meeting to evaluate the three elements of JAT's strategic-based control system, including any recommended changes that would improve the system. Sakari is wise in noting late in this planning session meeting that JAT reevaluate its strategic-based control system. As Noela notes at the beginning of the session, JAT's quarterly financial reports over the past two years indicate trends in market share, profits, and costs. 2. Use the data in JAT's Risk Table to construct a risk plot of JAT's inherent risks. Please choose the appropriate graph below. a. b. Based on this inherent risk plot, identify and briefly discuss JAT's three most important risks. From the plot, risks seem to be the three most important risks for JAT to consider as these three risks appear in the upper right-hand corner of the plot. represents a concern over quality. . represents a concern over employee talent. Finally, represents a concern over environmental breakdowns. 1. MTC.03 Jack Aerospace Technologies (JAT) researches, designs, manufactures, delivers, and services numerous product part components to the world's largest aircraft companies. JAT produces approximately 120 aircraft products using numerous processes and many employees. In recent years, JAT's profitability has suffered, which can be attributed to increased competition, customer dissatisfaction, and regulatory pressures. Noela, president of JAT, called a meeting to consider ways to improve profitability. She labeled the meeting a strategic planning session and invited the following officers: Katerina, environmental manager; Francisca, head of research and development; Misato, vice president of production and quality; Sakari, vice president of finance; and William, marketing vice president. Noela: "You all have received the quarterly financial reports for the past two years. The trends are negative. We are losing market share, profits are decreasing, and our costs seem to be increasing. We need to take actions to increase sales, reduce costs, or both, and we need to do so as quickly as possible. Given our research strengths, it seems to me that our best bet is to grow revenues by introducing new products with proprietary rights. As far as costs are concerned, we need to improve our performance on that dimension as well. Lower per-unit costs for new and existing products are needed. Any suggestions?" Francisca: "For our products, our ability to control costs resides in development-my area-rather than manufacturing. We probably need to pay more attention to product and process design issues if we are to successfully lower costs. Revenues also are affected in this stage. Once we patent a new part or component, the clock begins to tick, and we need to reduce time to market. Significantly, reducing time to market will allow us to generate revenues for a longer period of time than we currently are experiencing. For example, reducing the cycle time spent to convert new ideas into working engineering and other processes would help to improve time to market and also to increase revenues. Finally, we can grow revenues by increasing the volume of new products." Misato: "While there is a lot of merit to the observation that the majority of our cost reduction opportunities reside in product development, significant cost reduction opportunities also involve manufacturing as well. For example, we might be able to reduce our manufacturing cycle time of converting raw materials into finished product. Furthermore, as you know, the Federal Aviation Administration (FAA) and other delegated authorities play a critical role in our business, as they must approve all our aircraft products. After more than a decade in our research lab, we recently received regulatory approval for a number of new state-of-the-art flight-critical engine parts, such as the bearing housings in the turbofan engine of maritime patrol aircrafts that navies use for patrol and search-and-rescue missions. This new manufacturing technology uses additive manufacturing, which often is referred to as 3D printing. Traditionally, many of these parts have been complicated to manufacture, which has made their replacement very costly for customer operators because of the low quantity of orders placed and the need for expensive molds for holding molten metal. However, with 3D printing, we can print such parts more quickly, in smaller quantities, and without the need for expensive tools as components are manufactured using layers of powdered metal fused together with a laser. Finally, for some parts, our new 3D manufacturing technology has drastically reduced our lead time from nearly two years to only two weeks." Francisca: "Given that the FAA must approve all changes in our manufacturing process, we have been reluctant, historically, to engage in process improvement or reengineering. However, given our recent performance and regulatory success involving our new 3D printing manufacturing technologies, I wonder if we shouldn't reconsider this long-standing policy. We might be able to build on this success by expanding considerably on this line of product offerings. Some of the quality problems we have experienced could be corrected by changing some of our existing processes, and the costs saved might exceed any cost incurred from seeking FAA approval. I think our quality costs likely are significant and represent an opportunity for improvement." Sakari: "Recent groundings of specific aircraft types for which we supply parts also has hurt our earnings. As a result, from a risk perspective, I wonder if broadening our customer base so that our parts and components are used on a greater number of different aircrafts might help reduce our concentration risk and help the limit sales revenues that usually accompanies specific aircraft groundings." Katerina: "I agree that cost reduction-both in the product development stage and the manufacturing stage-should be a key strategic theme. The environmental area might offer some very good opportunities. A recent Pollution Prevention Act passed by the legislature requires that we monitor and report on the carbon emissions (across different Scope levels) of our products. We also have begun to calculate the costs of generating hazardous substances for each process. This Act was the push weeded to begin developing an environmental cost management system. The results so far indicate that environmental costs are much more than we realized. They are estimated to be in the range of 20 to 25 percent of total operating costs. Environmental costs can be reduced by such things as utilizing lighter yet strongering the use of hazardous chemicals and other materials in production, advancing product designs that foster more efficient landings, reducing water usage throughout the environmental impact while simultaneously reducing costs if more attention is paid to environmental issues during product development. However, I'm not sure if the financial numbers would support this assertion." William: "I like what I am hearing because I think that it also affects our ability to increase market share and revenues. I know our incentive system focuses primarily on rewarding innovative new product designs with unique performance features. For example, environmental impact is one of our major concerns. Some aviation industry stakeholders increasingly pay particular attention to carbon footprints (and other environmental footprint impacts), and right now we are not competing well. Our environmental image is negative and needs to be improved. I am convinced that doing so will allow us to increase market share. Quality is another important matter. For example, many of our parts are considered "safety-critical" or "flight-critical" by the FAA, which means that they must function properly on every flight. Malfon failure of these parts poses major threats to safety and potentially could cause considerable aircraft damage. We have had to recall two batches of products during the past two years due to poor quality, which has hurt our image. Improving the processes to avoid these kinds of problems will save us a lot of grief. Product image and reputation are essential to increasing customer satisfaction and market share." Noela: "Typically, we have tried to improve financial performance by investing more heavily in innovative research and development initiatives in an attempt to increase revenue. However, as mentioned earlier, perhaps it would be prudent to give more attention to cost management. So far, we have some very good suggestions to help achieve these two objectives, but I have some concerns. First, do we have the talent and capabilities to improve quality and environmental performance? Francisca, do your professionals really understand what they need to do to improve process and product designs so that we can see the desired quality and ental improvements? Also, how can we reduce the cycle time for products and the time to market once patented?" Francisca: "Let me answer those questions in order. First, we probably are lacking the understanding on the design issues. We will need to do some training to help our research scientists understand the consequences. We may need to hire additional specialty engine manufacturing business lines if we decide to move in that direction. Second, we may need to make cost efficiencies, and other cost controls, significant performance measures and reward our people for actions that reduce those measures. Our employees need to align their interests with those of the company. If we can achieve these steps, we should see more profit produced per employee." Noela: "Good. Now, Misato, tell us about production and quality. Do our manufacturing engineers and production workers need help with environmental and quality issues?" Misato: "Well, I certainly consider our efforts around inspection to be quality related in nature. A less obvious but potentially important quality-related effort regards our waste production, which occurs both because of quality deficiencies in various facility areas and certain environmental challenges. Without question, training will be needed. Moreover, I really need to hire several quality engineers." Katerina: "I also think that we need an environmental engineer with experience in aerospace manufacturing processes." Noela: "Good. We certainly shouldn't ignore the necessary infrastructure to bring about the needed changes. Sakari, you have been relatively quiet; what do you think about all this? Do you have any suggestions?" Sakari: "Infrastructure is important. If these changes are going to work, timely and accurate information will be needed. It is hard to design products and processes with cost being a significant issue without providing the right kind of cost information. We are in the process of revamping the cost management information system so that it is activity based and we can provide quality and environmental cost information. After listening to the comments made here, I might also suggest that we need to costing to help manage costs during product development. To help you all understand the importance of good information, I have assembled some activity data relating to two new products (FLI 4HY and FLI 2LW) currently under development. The data are organized into resource, activity, and cost object modules with an accompanying list of activity drivers to facilitate the use of an ABC software packaqe recently acquired by JAT." Risk Table *Measured as a probability ( 0% to 100%). ** Measured by a composite score that includes financial, regulatory, business interruption, time horizon, and reputational impact. Resource Module (Projected General Ledger Costs of Manufacturing Process Associated with the Two Products) *Secondary activity whose costs are assigned to primary activities in proportion to the labor time used. List of Activity Drivers *Capacity is flexible (i.e., acquired as needed, and always matches usage). Capacity for other activities is acquired in advance of usage. For example, setups are acquired in units (steps) of 950 hours. Projected usage for setups equals practical capacity. Cost Object Module (Products and Projected Activity Usage) Required: 1. Use the comments from the executive meeting to evaluate the three elements of JAT's strategic-based control system, including any recommended changes that would improve the system. Sakari is wise in noting late in this planning session meeting that JAT reevaluate its strategic-based control system. As Noela notes at the beginning of the session, JAT's quarterly financial reports over the past two years indicate trends in market share, profits, and costs. 2. Use the data in JAT's Risk Table to construct a risk plot of JAT's inherent risks. Please choose the appropriate graph below. a. b. Based on this inherent risk plot, identify and briefly discuss JAT's three most important risks. From the plot, risks seem to be the three most important risks for JAT to consider as these three risks appear in the upper right-hand corner of the plot. represents a concern over quality. . represents a concern over employee talent. Finally, represents a concern over environmental breakdowns