Policy Brief (SNAP) @HifsaShaukat

Source: Adapted from Ellet, W. (2018). The case study handbook, revised edition: A student's guide

Case: “General Motors: Packard Electric Division”

Question: What should David Schramm do?

David Schramm of Packard Electric (PE) must decide about the RIM grommet, a new and

innovative part for automobiles. He has three options: (1) Go exclusively with the RIM grommet

for the 1992 model year; (2) Add a RIM production line for parallel production of the IHG and

RIM, (3) Stick to the older IHG grommet and continue development of the RIM. Schramm should

recommend that PE go exclusively with the RIM grommet for the following reasons: it meets

customer needs, brings cost savings, improves the Packard Electric production process, and fits

the company’s overall strategy. The four criteria for the decision are: (1) Customer needs; (2) Cost;

(3) Production process; and (4) Company strategy

Customer Needs

The RIM needs to fulfill critical customer needs. If it does not, there is no point in committing to

it. PE’s main customer for the RIM wants it badly. They are already unhappy that the project has

moved so slowly. The customer is unsatisfied with the IHG because of its tendency to crack,

resulting in water leakages. Attempts have been made to solve the cracking problem, but all have

failed. It seems to be inherent to the design. The RIM has much less tendency to crack, is smaller

than the IHG, which is important in the cramped spaces where car wiring is installed and makes

possible a substantial increase in electrical content with a low investment in engineering. The

customer has even indicated that they are not price sensitive about the RIM. The reason might be

that the new part will be used in high- end automobiles and reliability in that type of car is more

important than the price of components. Overall, the last thing the company should do is back out

of its commitment to have the RIM ready for 1992, even if the Packard Electric engineer who

made the commitment was not authorized to do so. Delaying production of the part could

permanently damage the relationship with the customer, hurt Packard Electric’s reputation for

reliability, and possibly motivate the customer to find another source for a RIM version of the old

part.

Cost

The RIM will save PE money. There are two major categories of savings: redesign costs and

engineering change orders. The RIM costs more than 75 percent less to redesign than the IHG and

doesn’t need to be redesigned as often because its passthrough areas can easily double its capacity.

It can save 370 hours of engineering time every year. Also, this flexibility makes it suitable for

different model cars, resulting in more engineering savings. Due to its flexibility, the RIM will

reduce the number and costs of engineering change orders (ECOs) dramatically. Reducing the cost

of ECOs is a major goal at Packard Electric. ECOs consume 50 percent of the time of 500 engineers

each year. The cost of engineering time is $50. The RIM can reduce ECOs by 25 percent per year

or an astonishing $12 million a year. There are no numbers in the case to estimate the cost of

maintaining the inventory of 45,000 spare parts that ECOs require. With fewer ECOs, fewer spare

parts will be needed, reducing the inventory costs. The savings could be substantial.

Production Process

The RIM introduction will bring production process improvements. Instead of the five major steps

required to produce the IHG, RIM production requires only three. This will decrease both idle and

Source: Adapted from Ellet, W. (2018). The case study handbook, revised edition: A student's guide

labor times and improve the reliability of the process. The changes will eventually make PE more

efficient and therefore more competitive.

Company Strategy

An innovative product that requires significant investment must be consistent with the company’s

strategy. The RIM fits PE’s strategy because it will make PE more competitive; help its largest

customer, General Motors, to be more competitive; and diversify PE’s customer portfolio so that

it isn’t so dependent on GM. The RIM improves PE’s efficiency and boosts the competitiveness

of the parent company and its largest customer, GM. GM is losing market share to Japanese

companies and must make its vehicles more attractive to buyers. One way to do that is to introduce

more electrical content into its vehicles, which the RIM facilitates. Another way is to improve the

quality of its vehicles. The RIM contributes to that goal by reducing the rate of water leaks in GM

vehicles. Finally, the RIM should be attractive to other manufacturers of high- end automobiles,

which supports PE’s effort to expand its customer base.

Risks

However, there are some risks of committing to the RIM. The project progress has been slow and

might not meet the deadline. RIM production is new and more technologically complex, and there

is no guarantee the process will be ready in time. Also, there is a risk that the Mexican plant will

not perform this complex production process properly. If something goes wrong, it could put

customer operations at risk. Finally, the manufacturing division is opposed to the RIM and could

undermine its production. These risks can be reduced or eliminated with specific actions included

in the action plan. However, every new product carries some risk. The RIM is not unique in that

respect.

Action Plan

The goal of the action plan is to successfully transition to the RIM and mitigate the risks.

Short Term

• Make the decision to go with the RIM and announce it to everybody. Emphasize that there is no

going back to the old technology. Also, communicate that the RIM decision has revealed major

problems with the product development process that disadvantage manufacturing and other

stakeholders and need to be fixed as a long- term goal.

• As soon as possible, organize a dedicated team of product development and manufacturing

engineers to complete the RIM project, above all, working out the production process. Shift other

resources to the team, as necessary, to meet the customer’s deadline for the 1992 model year.

• Organize workshops for manufacturing division managers and engineers to explain the benefit

of the RIM for customers and PE. Be candid and tell manufacturing that the product development

process has put undue pressure on them. At the same time, make clear that the goal of

manufacturing is not product design but timely and excellent quality production.

Long Term

• Use savings from switching to the RIM to establish a group of all stakeholders charged with

redesigning the product development process so that it’s representative of all stakeholders, stays

on schedule, has adequate resources, and is tailored to the customer’s need.

• Improve the RIM process to make it more efficient, reliable, and less costly.