Structuring Drivers: Power Integrations, Inc - Case Study Example

Management of structuring drivers: the case of Power Integrations, Inc Executive Summary In order to survive in modern commercial markets, firms needto develop a powerful supply chain that will effectively respond to the needs of the firm and its clients. Particularly with a reference to the business strategy, it has to be noticed that supply chain management is a fundamental part of the corporate activities having a significant influence on the design of the corporate plan. From the aspect of its position in the firm’s priorities, supply chain management is considered to follow the new product strategy and the marketing strategy. This ‘chain’ can be explained as follows: ‘Products reach customers through a chain of retailers, distributors, wholesalers, manufacturers, and component suppliers; supply chain management is intended to accelerate the flow of goods, information, and capital in both directions, along the chains entire length, and to help companies monitor that flow’ (Agrawal et al., 2001, 22). The role of supply chain management to the development of business performance should be therefore considered as significant. In the particular paper the above role of supply chain management will be examined with reference to a particular company, Power Integrations, Inc., a leading supplier of high-voltage analog integrated circuits used in power conversion. The specific issue under examination is whether the company would possibly need to improve its strategic drivers in order to develop its performance. Introduction The role of supply chain management in the business performance is crucial. For this reason, Krishnan et al. (2001, 259 supported that ‘supply chain management has become an important part of strategic planning in both large and small businesses since the 1990s as firms increasingly choose outsourcing as an externally-driven strategic growth path’. In order to identify and evaluate the role of supply chain management within a particular business environment it is necessary to examine primarily the whole firm’s operational activities trying to locate any possible barriers that can cause delay on the firm’s development. In this context, Baker et al. (2005, 43) found that ‘the term "operations" has evolved to denote all activities involved in bringing products and services to customers, and businesses have been applying the techniques of operations management to the entire spectrum of business operations; Enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM) all provide an opportunity to enhance existing processes and serve as a catalyst for operational innovation’. In other words, supply chain management is considered to be a tool of major importance for the enhancement of the firm’s processes in all its sectors. However, in order for supply chain management to develop the corporate activities, it has to be based on a detailed plan which can be differentiated for each firm in accordance with the demands of the market involved and the firm’s strengths and weaknesses. Towards this direction, Ciscel et al. (2005, 429) claimed that ‘‘several variables play parts in the transition from a manufacturing-based production system to that of a flexible, logistics-based system while the changes in the system of production can be traced to globalism, outsourcing, and retailing power’. In this context, it is often necessary for a firm to apply ‘a new type of supply chain management, where the firm views the supply channel as a whole system instead of concentrating of each part of the process; the company focuses on all efforts, from the procurement of raw materials to the distribution of the finished product, and how each effort relates to the others; this allows more communication to exist within the pipe and problems to be more easily identified’ (Ciscel et al., 2005, 429). In accordance with the above views, the major tools of supply chain management are the following: making and keeping relationships, implementing new technology in the supply channel, the use of forecasting to increase supply chain effectiveness, outsourcing to increase efficiency, and cost management as a strategic weapon’ (Cook et al., 2001, 14). However, in order for the above tools to lead to the desired target, it is necessary that specific ‘sectors’ of the firm will be analyzed and evaluated as of their performance. These sectors are mainly the following ones: facilities, transportation, inventory and information. The performance of the above sectors will be examined in accordance with their role within the particular firm and mainly the support offered towards their development. Body of Report I. Power Integrations Inc. – Company overview Power Integration Inc. founded in 1988. The company is a leader in its sector. More specifically, the company is a supplier of ‘high – voltage analog integrated circuits (ICs) used in power conversion’ [1]. The company has been a unique innovator in its market, with more than U.S. patents and 82 foreign patents. Innovation is one of the leading business aims, and is achieved through the continuous production of unique electrical equipment of all types (from lightweight power supplies to cell phone chargers and home appliances) [1]. The performance of the company in 2006 has been impressive. More specifically, in accordance with the results of the fourth quarter of 2006 ‘preliminary net revenue for the fourth quarter was, $41.3 million, an increase of 9 percent from the year-ago quarter and a decline of 7 percent from the third quarter of 2006; preliminary full-year net revenue for 2006 totaled $162.4 million, an increase of 13 percent compared to 2005; cash and investments totaled $132.7 million as of December 31, 2006, an increase of $4 million during the quarter [1]. In accordance with the above results, the company’s performance has been increased comparing to 2005. Moreover, it seems that the company has a stable and continuous growth (see Figure 2 in the Appendix section) which has been achieved through the introduction and application of an advanced corporate strategy that promotes innovation and appropriate evaluation of market’s opportunities. II. Strategic drivers of supply chain management ► Facilities Power Integrations has created a unique network of facilities in order to ensure that its customers will have an effective and continuous support regarding the firm’s products. In the company’s website it is noticed that the firm ‘is committed to helping customers shorten design cycles and accelerate time to market’ [1]. One of the main methods used for the achievement of the above target is the provision of ‘hands-on design support’ by the company’s engineers in all firm’s branches internationally. An indicative example of this support is the ‘Design Accelerator Kit’ (DAK) which offers ‘reference designs that include working power supplies, product samples and complete documentation; PI ExpertTM design software automatically determines the critical components in an optimized supply based on a designer’s input and output requirements; PI FACTSTM provides quick, relevant design information through a simple, Web-based interface’ [1]. Generally, the firm’s customers can enjoy a continuous and effective support through a series of ‘data sheets, application notes, design ideas, and information on energy-efficiency standards for any application’ provided through the firm’s website. It seems that the main priority for the company is ‘to help customers accelerate time to market’ (firm’s website) [1]. Indeed, the company provide to its clients a detailed list of its products, a series of documents involved in the products’ technical characteristics and a network of engineers available in all firm’s branches around the world [2]. ► Transportation The transportation of the firm’s products in customers around the world is taking place mainly through the firm’s branches internationally. More specifically, the firm has developed its global presence and a series of branches in most countries around world ensure that the customer will be satisfied regarding the time of delivery and the quality of product delivered to him. In this context, it has been found that ‘Power Integrations maintains a global presence to match the worldwide needs of the power supply industry; the companys application-support labs are strategically located throughout Asia, Europe and North America.Long-standing alliances with established, world-class foundries and assembly subcontractors ensure a reliable supply with outstanding on-time delivery performance; an ISO 9001-certified company, Power Integrations is committed to maintaining the highest levels of quality throughout its processes; a global presence, combined with an emphasis on high quality and product availability, has made Power Integrations the supplier of choice for market leaders around the world’ [2]. It should be noticed that there is no specific reference to the methods that the company uses for the transportation of its products. However, the existence of numerous firm’s branches around the world can lead to the assumption that the speed and the quality of transportation in the specific company are quite effective. ► Inventory In order to ensure that its products will be updated in accordance with the needs of the market and that they will be checked regularly as of their condition, the company uses a series of lists with products available to the customers. These lists are being updated often and the customer can be informed on the quality of the particular product, its technical characteristics and its performance. The stock available to customers can be also checked using the lists included in the firm’s website. ► Information The company’s website provides information on all firm’s products. More specifically, they are lists with all products available while a specific textbook is also available to potential customers in order to check the structure of its product and its use. The particular structuring driver should be considered as developed at an extremely high level. A similar explanation of products offered is very difficult to be found in the market. Most of the companies prefer to present just lists of their products (often incomplete ones) and avoid any reference to their particular characteristics. In the specific company, the description of the product’s technical characteristics is followed by a detailed image which helps the customer to understand the function of the product but also to evaluate its use regarding the customer’s particular needs. Figure 1 in the Appendix presents one of the features used by the company in order to inform its customers on its products. A series of similar features is available to customers in the firm’s official website [1]. III. Proposals for development of current strategic drivers ► Facilities The company has developed a unique strategy for the enhancement of customers’ satisfaction. More specifically, as already analyzed above a series of useful material is offered to the firm’s customers in order to ensure that they will be appropriately informed on all product’s qualities and technical characteristics. On the other hand, the support offered by the firm’s engineers is valuable for the resolution of any problem related with the operation and the performance of the firm’s products. In this context, the support provided by the company regarding its products should be considered as sufficient and for this reason any attempt for differentiation would not have any particular importance. ► Transportation The quality and the speed of transportation of firm’s products around the world have been ensured through the establishment of a series of branches available to customers internationally. For this reason, it should be stated that there is space for potential suggestions regarding the improvement of the particular structuring driver. A possible suggestion could be only this of the insurance of the products transferred. More specifically, in the firm’s website there is no reference to the protection of firm’s products transported in various places around the world. For this reason, a relevant insurance scheme should be considered as necessary in order to protect the firm from a potential negative event during the transportation of the firm’s products. ► Inventory The inventory held by the company regarding its products has the form of a detailed ‘book’ available in its website. This ‘electronic book’ contains details for the technical characteristics of all firm’s products as well as a few guidelines for their use. It should also be noticed that there is an option for ‘check for stock’ which offers to the customer the chance to check online the availability of a particular product by simply sending to the system the characteristics of the product involved. From another point of view the above ‘facility’ can be used in order to notify the company for any product which is ‘out of stock’. In fact, it can be characterized as a stock-alert. In this context, it can be stated that the company has used all possible plans for the control over its products and as a result there could be no suggestions for further improvement. ► Information As already explained above, the particular structuring driver of the company has already been developed at a high level. There could be no other tool for the provision of information to the firm’s customers apart from the ones already provided by the company. Of course, one could state that the information provided is related with the company’s website, i.e. there could be an issue related with the firm’s customers that do not have access to the Internet. However, because the particular sector involves on products of technology, it can be assumed that the potential customers would all use Internet as their main tool for market research on specific products. Even in case that it could be supposed that there are customers with no Internet access, the provision of information to them could easily be done through a newsletter or other business leaflet containing information on the firm’s products. In any case it has to be noticed that such an initiative would be only supplementary to the primary procedure followed already by the company for the provision of information to its customers. The difficult part, which is the design and the operation of a complex online system that can offer detailed information on the business products, has already completed. The design, the production and the distribution of leaflets containing information on the business products should be regarded as operational activity of ‘secondary’ importance if compared with current business online presence on the market. Conclusion and Recommendations The development of a firm’s structuring drivers can lead to the enhancement of its performance usually on a long term basis. However, because of the complexity involved in the relevant procedure, the above task can be really challenging. More specifically, because the business policies related with the firm’s daily operational activities are set in the beginning of the corporate life, it is rather difficult to be replaced – at least this procedure should be consuming as time consuming. However, in most cases this effort is worth because it can lead to the development of the firm’s performance at a significant level. In order for this initiative to have more chances to success it is necessary that a specific procedure will be followed. In this context, it has been stated by Agrawal et al. (2001, 23) that ‘companies should decide which elements of the chain could produce the greatest efficiencies and then choose the exchange most likely to promote them. Identifying ways to capture true supply chain benefits from exchanges thus comes down to basic supply chain management; companies shouldnt let the hype and excitement of the exchange phenomenon make them neglect their off-line supply chain operations--from demand-planning algorithms to logistics management’. An indicative example of the above procedure is the case of GE Aircraft Engines. The above organization was focused on (Baker et al., 2005, 44) ‘the increase of throughput and productivity by decreasing inputs to the system’. In this case the target required has been achieved through the application of the following process: ‘1. Layout analysis; 2. Routing analysis; 3. Bottleneck identification; 4. Bottleneck management and 5. Work-in-process (WIP) management’ (Baker et al., 2005, 44). In case under examination (Power Integrations Inc.), the development of the firm’s structuring drivers should also follow a specific route: 1. Identification of current status of firm’s structuring drivers – checking for possible barriers on the performance of the above drivers, 2. Development of a feasible plan for the development of the above drivers, 3. Application of the relevant plan using firm’s existing resources in order to reduce the relevant cost and 4. Close monitoring of the plan’s effectiveness – comparison between current and previous business performance. The application of the above steps cannot guarantee the increase of the firm’s performance because there are many issues that can intervene in the relevant procedure for which there can be no specific provision (i.e. appropriateness of existing employees for the application and the development of the specific plan, unexpected expenses, turbulences of the market and so on). However, the existence and the application of a well designed plan (see Figure 3) can ensure the enhancement of the business ability to react appropriately in the challenges of the market and to identify the opportunities offered. In other words, even if the particular plan will not manage to improve the status of firm’s structuring drivers, at least it will help towards the improvement of the firm’s performance from a long term perspective. References Agrawal, M., Pak, M., (2001). Getting Smart about Supply Chain Management. The McKinsey Quarterly, 22-24 Baker, G., Maddux, H. (2005). Enhancing Organizational Performance: Facilitating the Critical Transition to a Process View of Management. SAM Advanced Management Journal, 70(4): 43-47 Ciscel, D. H., Smith, B. E. (2005). The Impact of Supply Chain Management on Labor Standards: The Transition to Incessant Work. Journal of Economic Issues, 39(2): 429-437 Cook, J. S., Debree, K., Feroleto, A. (2001). From Raw Materials to Customers: Supply Chain Management in the Service Industry. SAM Advanced Management Journal, 66(4): 14-23 Krishnan, H., Park, D. (2001). Supplier Selection Practices among Small Firms in the United States: Testing Three Models. Journal of Small Business Management, 39(3): 259-269 www.powerint.com [1] Power Integrations Inc., Corporate brochure http://www.powerint.com/PDFFiles/CorporateBrochure.pdf [2] Appendix Figure 1 - Product Selector Guides and Data Book (Source: firm’s website, http://www.powerint.com/selectorguide.htm)   Features Download Product Selector Guide - AC-DC Products Product Features and Benefits Product Selector Guide Cost Savings Comparison vs Discrete Designs Summary of Design Tools Product Selector Guide - DC-DC Products Product Selector Guide Cost Savings Comparison vs Discrete Designs Product Features and Benefits Power over Ethernet Information Summary of Design Tools 2007 Data Book and Design Guide Product Selector Guide Data Sheets Application Notes Reference Designs and Design Tools Quality and Reliability Package & Assembly Information   Figure 2 – Power Integrations Inc. – Annual Revenues (Source: firm’s website, http://powerint.investorpass.com/Profiles/Investor/Investor.asp?BzID=1306&from=du&ID=30541&myID=4141&L=I&Validate=3&I=) Figure 3 - Power Integrations Inc – Key Growth Drivers (Source: firm’s website, http://powerint.investorpass.com/Profiles/Investor/Investor.asp?BzID=1306&from=du&ID=30541&myID=4141&L=I&Validate=3&I=) Read More