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IN 1981 THE PORTABLES DIVISION of Tektronix faced a problem that is familiar to many U.S. companies; the Japanese had entered Portables’ market for electronic meaurement instruments, creating intense competitive pressures. The Japanese priced their products substantially below the prevailing market. They were able to capture market share despite limited quality and performance.
The Japanese appearance was seen as a threat to the business of the entire company. The immediate competition was limited to Portables’ low-priced products, but it seemed likely that competition would spread to Portables’ higher-priced products and eventually to the products of other Tektronix divisions. After all, the Japanese had entered other U.S. markets in a similar fashion and had succeeded in severely diminishing the role or presence of competing U.S. companies. Clearly the beachhead had to be contained, and Portables was the front line.
Portables’ charge was to “stop the Japanese, and it’s okay if you lose money doing so.” They did so by matching prices and thus denying the Japanese a price advantage. Portables was able to slow down the loss of market share, but only at the cost of heavy financial losses.
It was questionable whether this strategy would work over the long term. Portables’ costs were clearly higher than the prices they were now charging for their instruments, and probably higher than the costs of the Japanese who had established the new price level. The rest of the company was profitable and was willing to carry Portables—but for a limited time only. The Japanese were improving the quality of their products and moving up to the middle of Portables’ product range. Clearly something had to be done—and quickly.
In 1983 Portables adopted a program of continuous improvement designed to blunt the Japanese competitive threat. The results were immediate and dramatic. By 1987, cycle time had dropped from an average of twenty-five weeks to seven days. Inventory levels had dropped by 80 percent, while sales had increased. The number of instruments in work-in-process had dropped from 1,500 to 125. Floor space occupied by the division had dropped by more than 50 percent. Five products that had previously been built on separate lines were now built on one line. The number of vendors had dropped from 1,500 to fewer than 200. Quality was up, and more than 70 percent of sales were delivered within two days of the customer order.
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1. See H.T. Johnson and R.S. Kaplan, Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press, 1987).
2. For a description of the impact of transactions on overhead, see J.G. Miller and T.E. Vollmann, “The Hidden Factory,” Harvard Business Review, September–October 1985, pp. 142–150.
3. This problem was solved by the parts burdening system described later in the paper.
4. An engineering change order is an example of what Miller and Vollmann call a change transaction in “The Hidden Factory,” p. 146.
5. For a discussion of the impact of product proliferation on complexity, and the failure of traditional cost systems to reflect the cost of this complexity, see R. Cooper and R.S. Kaplan, “How Cost Accounting Systematically Distorts Product Costs,” in Field Studies in Management Accounting and Control, W. Bruns and R.S. Kaplan, eds. (Boston: Harvard Business School Press, 1987).