Marketplace and Competitive Effects

As of 1984, Peerless saw a number of improvements in their operations, and some significant changes in their market as well. In 1979 they had a 14-week delivery lead time. Part of the reason for this was that 25 percent of their orders had to be renegotiated with the customer because the old tooling couldn't handle the job. This slowed down the work tremendously. With

26 CHAPTER 1 / PROJECTS IN CONTEMPORARY ORGANIZATIONS

the laser cutter this has been reduced to just three weeks, heat treating being the bottleneck (two full weeks).

Though they weren't making any blades that could Hot be made in 1979, their product mix changed considerably. In 1979 they made primarily 8-, 10-, 12-, and 14-inch saw blades. With the new capabilities of the laser cutter they were now making a much wider variety of blades, and more complex blades as well. As a matter of fact, they were producing the more difficult blades now, and at less cost. For example, with the laser cutter, it took one-seventh the amount of time to cut a blade as it did previously, and one-eighth the number of machine operators. The resulting average cost saving was 5 to 10 percent per blade, reaching a maximum of 45 percent savings (on labor, material, and variable overhead) on some individual blades. Although cost savings allowed Peerless to cut prices on their blades, more significantly, they had an improved product, faster lead times, and more production capability.

Production capability was of particular importance. Peerless found that the ability to do things for customers that simply couldn't be done before changed the way customers ordered their blades. Because of their new capability, they were now seeing fewer repeat orders (although the batch size remained about the same) and considerably more "creativity" on the part of their customers. Orders now came to them as 'The same pattern as last time except. . ." Customers were using Peerless' new capability to incrementally improve their saw blades, trying to increase capacity, or productivity, or quality by even one or two percent, based on their previous experimentation. Peerless had discovered, almost by accident, a significant competitive advantage.

Ted was intrigued with the way the laser cutter had revived Peerless. He stated that, based on payback or return on investment (ROI) criteria, he could not have justified the investment in the laser cutter beforehand. But more significantly, if he were to go through the figures now, after the tremendous success of the laser cutter, he still would not be able to justify the cutter on payback or ROI grounds. The point was, the new technology had changed the market Peerless was selling to, although the customers remained largely the same. The laser cutter in fact "created" its own market, one that simply could not exist prior to this technology. It filled a need that even the customers did not know existed.

Despite the increased speed of the laser cutter, it was not necessary to lay anyone off, though some employees' jobs changed significantly. The laser system was purposely packaged so that the existing employees could work with it and contribute to its success, even though they may have only had high school educations.

Ted continued to push the concept of a small, quality, technologically advanced business staying ahead of the same foreign competition that was wrecking havoc on the major corporations in America.

Ted summarized the benefits the new technology brought as:

• Decreased product cost

• Increased product quality

• Ability to use a sophisticated technology

• Ability to do what couldn't be done before, more responsive to the market

• An inspiration to visiting customers

• A positive image for the firm

• Adds "pizzazz" and "mystique" to the firm

• Allows entry into new fields

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