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Group 4Olympus Optical CompanyBrief History of OlympusWas founded in the yr 1919 (as Takachiho Seisakusho), as a producer of MicroscopesOlympus was adapted as companys name in 1946Firms product lines included:CamerasVideo CamcordersMicroscopesEndoscopesClinical AnalyzersMicrocassette tape recordersLaser-optical pickup systemsIndustrial lenses

Brief History of Olympus contdOlympus had six divisions and a headquarter facility:Consumer ProductsScientific equipmentEndoscopesDiagnosticsCorporate researchProduction engineeringHQ looked after corporate planning, general affairs, personnel and accounting & financeConsumer Products DivisionThis division included 35mm cameras, video camcorders and microcassette tape recorders. Cameras being the firms most important Consumer product, accounting for 62.6 Bn in revenues.This division had 6 departments (division planning, quality assurance, marketing, product development, and overseas manufacturing). They were Focused primarily on firms main camera production facilityStrategic Change at OlympusIn 1987 management at Olympus decided to reconstruct the camera business by:recapturing lost market shareimprove product qualityreduce production costsRecapturing market shareNew strategy to rapidly produce and introduce new 35 mm SLR and compact camerasStrived to differentiate its products by the use of innovative technologyRapid introduction of new models and hence reduction of the time taken to introduce compact camerasThe new products to be introduced were identified by means of a product plan, which identified the camera product portfolio mix which was considered to be in jive for the new 5 yearsThere were 6 major inputs to this product plan.Input I : Corporate PlanThe corporate plan which served as a charter for the top management provided them with

The future mix of business by major product lineThe desired profitability of each the corporation and each division role of each product line in developing the image of OlympusInput II: Technology reviewFirstly, the review consisted of a survey of the effect of current and future technologies on the camera business.The review also determined whether Olympus had developed any technology which could be used as a competitive advantageInput III: Business environment analysisIt indicated how changes in the environment would affect the sales and hence profitability of the businessForeign exchange rates, how cameras were sold and the role of other consumer products were determined as major environmental factors.Input IV: Quantitative informationThis information about the world 35 mm camera market was collected from 3 sources

Export & domestic statistics which gave the number of units and dollar sales for each camera type in JapanStatistics on industry shipments which captured the number of units and dollar value of each camera type shipped to overseas marketThird party surveys, conducted to measure the retail sales by type of camera in each major market

Input V: Qualitative information Qualitative info about product performance and future trends were gathered from:Demographic information of recent customersGroup interviews in each major marketSurveys in Roppongi district to predict future lifestyle trendsProfessional photographers for insights about product features feedback from key salespeople regarding product competitivenessPlanning staff who researched the reaction of consumer and dealersPlanning staff who attended industry fairs and conferences to judge industry trends

Input VI: Competitive AnalysisThe analysis was based on information about the current and future plans of its competitors

Used to predict the type of products its competitors would introduce in the short as well as the long term and the marketing strategies which they would employ to do so

Recapturing market share : Inputs collaboratedThe inputs from the different sources was used to form the product plan which served as an input to the product planning section

This plan which was a part of the marketing and sales department was used to balance the demand of the market with the realities presented by the R&D and production departmentsThe plan once completed was subjected to extensive review to ensure its practicalityImproving product qualityFocused on the areas of new product development and manufacturing process

Olympus was above average in quality standards, but decided to achieve the aim of highest quality standards so as o recapture its market shareAlso these improved quality standards would reduce production costs through reduced disruptions in the production flowReducing Production Costs5 objectives to reduce high production costsDesign products that could be manufactured at low costReduce unnecessary expendituresImprove production engineeringAdopt innovative production processesShift significant percentage of production overseasDesigning high quality products at low costEstablish the right target costExplore the right price pointsMost new products price point already establishedActual selling price depended on distribution channelExact price point determined by its differentiating featureThe price point at which a camera sold reduced with time owing to improvement in technologyDesigning high quality products at low costTypically a camera was maintained at a price point by adding functionalityNatural outcome of this process generated new price points at the low levelSimplest camera $150 in 87 and $80 in 95High end technology also created new price points Improvement in technology allowed Olympus to launch compact cameras at $300 levelsDesigning high quality products at low costGrowing no of price points required camera manufacturers t expand product linesJapanese customers trade up over timeOlympus decided to introduce multiple models for some price pointsMarket share was clustered around some price pointsNew strategy of identification of large clusters and introduce models at these price pointsDesigning high quality products at low costOnce price point was identified, FOB price was calculatedFOB calculated by subtracting margin of dealers and US subsidiary + import costsTarget costs = FOB - Products target margin Target cost ratio = Target cost / FOB priceRatio set in accordance with divisions 6 month profit planDesigning high quality products at low costTarget cost system was improved and made more aggressiveNo of parts in each unit to be reducedExpensive, labour intensive and mechanical processes eliminated wherever possibleMetal and glass components replaced with plasticAnticipated cost ratio monitored frequently during designTarget cost reviewed if FOB price changed >10% during design phase Designing high quality products at low costTarget cost based on price point for distinctive featureR&D iteratively finalized the features and identified ways to reduce cost of production through redesign or process improvementsIf estimated cost was greater than target costPrice was increased, if possibleLife cycle profitability analysis was performed (potential cost reductions over the entire life)May retain the product for strategic reasons (full product line)Designing high quality products at low costAfter design approval evaluated at Tatsuno for production Where and how to produceDetailed blueprint developedCosts re-estimated using blueprintIf estimated costs were high, additional analysis was doneMinor changes in designIf changed price points returned to R&DEstimated production cost was expected cost of production, 3months after it went into production

Reducing unnecessary expendituresAnalysis of fixed expenses and curtail unwanted expendituresFocused primarily on removing labour, material and some overhead costs from productsCost reduction standards set every six monthsCost reduction target monitored using variance analysisReducing unnecessary expendituresAnalysis and improvement of procedures for new product launch to reduce costsFocused on reduction of costs of defective productionDefect costs target set for each production groupIf a group did not meet target, group leader was called for an explanationReducing unnecessary expendituresReduction in cost of purchased parts by widening source of procurementImproved capacity utilization by setting targets Focused on reducing overhead costs (support and admin, depreciation etc)Monthly budgets of these expenses made taking into account production volume and new product launchesReducing unnecessary expendituresVariances were calculated for all the targets and documented in a reportThis report provided division management with important insights into the success of the cost control programImproving Production Engineering3 phase approach (Shortened production lead times)Batch sizes halved to reduce inventoryImproved communications between sales and manufacturing Office automation improved administration support provided by sales and marketingAdopting innovative manufacturing processFocused on increasing level of automation in assembly, lens production, electronic parts mounting and moldingThe program initiated 23 different automation projectsShifting to overseas ProductionCost reduction further augmented by shifting manufacturing to lower cost areasPotential savings of about 15%Facilities opened in Taiwan, Hong Kong, China and KoreaAnticipated offshore production to reach 10 billion yen by 1991New cost reduction efforts The program in 1987 was successful in achieving most of its objectivesThe firm recapture its lost market share through new product launches : camera sales rose from 50 billion Yen to 70 Billion YenThough the plan was successful for compact cameras , the SLR product line didnt succeed and kept losing market shareThe results of the cost reduction program were impressive: Overall production increased by 50%, production cost ratio fell by 20%, the production value per employee raised by 70% and the WIP inventory reduced

New cost reduction effortsIn spite of these results the management reckoned cost reduction in the futureThe increased proliferation in products to satisfy consumer demand, shortening of life cycle and reduced selling prices were putting up a pressure on the firms future profitabilityThe idea of a new program was partly put up because of the reduction in the savings which had resulted from the 1987 plan

New cost reduction efforts : Two part plan The plan consisted of Innovation in technology Functional group managementThe use of new innovative technology to promote ambitious projects reasonable evaluation by the managementThe functional group management plan consisted of dividing the production processes into 10 autonomous groups with each group acting as a independent responsibility center and as well as a cost centreThese measures would in turn reduce costs and improve profitabilityThank-You