, which supplied a large majority of the manufacturing industry with electronic sensors for their products. In late 2009, the Securities and Exchange Commission (SEC) broke up Sensors, Inc. due to its monopoly of the U. S. market. (Capsim, 2010) The SEC released a statement which justified their move by stating, “We cannot allow monopolies of this sort to impact an entire industry! The customers that utilize these sensors are being held hostage. ” (Capsim, 2010) Sensors, Inc. was dissolved into six smaller organizations: Andrew, Baldwin, Chester, Digby, Erie and Ferris companies. A Fresh Start After Sensors, Inc.
was dissolved, the assets and liabilities of the company were divided by the six new companies with each company controlling 16. 67% of the market. In 2010, over two-thirds of the sales for the new companies came from the low end and traditional segments of the market (see fig. 1). A break out star from the beginning, Andrews, Inc. saw a clear need to restructure their organization and focus on their attention on other, less crowded segments of the market. Under a new management team, the first mission for Andrews was to decide on a strategy that would allow them to be the standout in the market.
Andrews decided to focus on a hybrid strategy that incorporated a broad approach to the market while focusing on three key segments to increase revenue in: Low End, High End and Performance. By focusing on three markets in the industry, the company was able to reduce marketing cost and focus attention their attention on the performance and high end segments which require significant amounts of RD and automation. Andrews sought to gain market share in their target segments by strategically positioning two products in each of their markets.
Able (traditional) was to be moved to the low end segment, Agape (size) was to be moved to the high end segment, and a new product, Avenge, was to be added to the lineup in the performance segment. By 2011, Andrews, Inc. was able to establish a dominant presence in two of the three key markets. Focus on Innovation and Quality One of the key strategies for Andrews, Inc. was early and frequent innovation and automation. Because the company focused much of its attention on highly specialized segments of the sensor market, R & D played a very import role in the strategic vision of the company.
Given the nature of the industry, it is essential for the company to stay on the cutting edge of technology, especially for their high end and performance products. In the high end segment, ideal performance increased by 0. 9 units and size decreased by 0. 9 units each year. Buyers in the high end market value ideal product specifications as the most important factor in their decision to buy a product (43%). Buyers also value the age of a product (29%) when making their decision (Capsim, 2010). For the performance segment, ideal performance increased by 1. 0 units and size decreased by -0. 7 units each year.
Buyers in the performance segment value a high reliability rate (43%) and ideal product specifications (29%). (Capsim, 2010) The buyers demand for a high quality product made it necessary to focus a large amount of their resources in those products. The company’s decision to focus on three markets, instead of the original five, allowed them to make the necessary changes without severe financial consequences. Andrews, Inc. also heavily invested early on in automating their factories which allowed the company to save money on labor because of the reduction in the production time for each product as the automation levels increased.
(Capsim, 2010). The savings in labor cost helped reduce total variable cost which increased contribution margins. Although the company addressed their labor cost, their materials cost remained higher than the industry average. NamePrimary SegmentMaterial CostLabor CostContr. Marg. Automation Next Round AbleLow$4. 88$6. 4819%6. 0 AcreLow$4. 20$5. 8739%7. 0 AdamHigh$14. 11$5. 1942%8. 0 AftPfmn$13. 30$6. 8632%7. 0 AgapeHigh$11. 48$6. 4825%7. 0 AvengePfmn$14. 24$6. 8633%7. 0 In order to address the higher than average materials cost, the company began to invest in Total Quality Management (TQM) and Process Management initiatives.
The company initially invested in CCE (Concurrent Engineering) and 6 Sigma Training, Continuous Process Improvement (CPI) Systems, and Vendor/ Just in Time (JIT) inventory which helped reduce material costs and labor costs as well as administrative overhead. Over the next two years the company sought to use TQM and Process Management initiatives to streamline and improve other areas of their operations. Andrews, Inc. was able to significantly reduce admin cost and R & D cycle times by investing these initiatives.
Process Mgt Budgets 2015TQM Budgets 2015Cumulative Impacts Channel Support Systems$1,500Quality Function Deployment Effort$1,500Material Cost Reduction7. 16% Concurrent Engineering$1,500CCE/6 Sigma Training$1,500Labor Cost Reduction8. 41% UNEP Green Programs$1,500 Reduction R&D Cycle Time38. 31% Reduction Admin Costs43. 11% Demand Increase13. 49% Challenges After two successful years in business, Andrews, Inc. hit a wall. Other firms in the industry were gaining sales and market share while Andrews seemed to be running in place.
One of the challenges Andrews faced was transitioning their products into their new segments. The company struggled to find a place for their Able product to be successful. As the differences in the segments began to grow, the company waited too long to definitively move the product into the low end segment. While the company’s original strategy of positioning the product between the low end and traditional segments was successful, having a product that didn’t quite fit into either segment negatively impacted sales and let to inventory carrying charges.
Andrews also struggled to keep pace with the necessary R& D changes necessary to compete in the high end market. The company unsuccessfully tried for three years to position their Agape product in the high end segment. Because the high end segment demands constant R & D changes to keep the products up to date, the company wasted millions of dollars on a product that would ultimately never reach the company’s goal. The funds used for Agape would have been put to better use in R & D for other products, stock buyback or long term debt repayment. Andrews ran into an issue with was the timing of the production of products.
In 2014, Andrews made the mistake of allowing their R & D projects to run through the final quarter of the year, leaving little time to produce most of their products. This oversight cost Andrews sales and market share and wasted funds on marketing. Another challenge for the company, and possible the most important was the large amount of long term debt the company owed. At the end of 2015, Andrews owed over $87 million in long term debt and roughly $12 million in short term debt. If the company continues to operate as it has, their credit rating will decline and stock prices will fall.
Having such large debt is a liability and shows stockholders that the company’s funds are being mismanaged. In addition to large debts, Andrews, Inc. has oversold its stock. Andrews is in such a vulnerable position that there is a great risk of a corporate takeover. The company must immediately take steps to ensure that they retain ownership of their company. Restructuring Campaign While Andrews, Inc. is still a viable company, there is much to be done if it is to succeed in the future. The first option available is a merger with Baldwin, Inc. After the dissolution of Sensors, Inc. Baldwin struggled to gain its footing in the industry.
The company refocused its strategy and gained some traction in 2014. A merger between Andrews and Baldwin would be beneficial because together because their strengths and weaknesses complement each other which would make for a powerful super company. One example of their complementary assets is Andrews highly automated factories and Baldwin’s lack thereof. By condensing factories, AB Sensors, Inc. would be able to cut labor cost and sell off the excess capacity. NamePrimary SegmentMaterial CostLabor CostContr. Marg. Automation Next Round BakerTrad$8. 81$8. 4536% 4. 0 BeadLow$4. 94$6. 5738% 6. 0
BidHigh$13. 97$9. 6635% 3. 0 BoldPfmn$13. 44$10. 5323% 4. 0 BuddySize$11. 25$11. 7528% 4. 0 Another complementary area for Andrews and Baldwin is their market share. Andrews has a strong presence in the Low End, High End, and Performance segments. Baldwin has focused its efforts on the Traditional, Size, High End and Performance segments. By combining their efforts, AB Sensors, Inc. would have control almost 50% of the Low End, Performance and High End segments. Andrews Market ShareBaldwin Market Share Another option for Andrews, Inc. is to hire an external consultant in order to shore up their finances.
The company needs to repay its $88,850,000 long term debt and by back at least 50% of the stock issued in order for the firm to increase shareholder value and achieve an higher credit rating. The company should also set aside cash reserve to make capital improvements and eventually be able to pay dividends. I anticipate that the company would be able to achieve these objectives while still growing their presence in the industry over a seven year period. By following either of the strategies, the company will continue to provide highly specialized products to their customers and regain its position at the top of the market.