Assessing Corporations management

Comtrend operations

Operations Management Group Project

Julie Lehmann, Verena Rivera, Thrissa Skala

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Agenda
Introducing the company ........................................................................................................... 3 Comtrends strategy ................................................................................................................... 3 Key internal factors:................................................................. Error! Bookmark not defined. Human Resources ................................................................ Error! Bookmark not defined. Facilities and Equipment ...................................................... Error! Bookmark not defined. Financial resources............................................................... Error! Bookmark not defined. Customers ........................................................................................................................... 5 Products and services .......................................................... Error! Bookmark not defined. Technology ........................................................................... Error! Bookmark not defined. Suppliers .............................................................................................................................. 8 Comtrends product design ........................................................................................................ 7 Comtrends strategic capacity planning ..................................................................................... 9 Comtrends process selection and Facility layout ....................... Error! Bookmark not defined. Comtrends design of work systems ........................................... Error! Bookmark not defined. Location planning and Analysis ................................................... Error! Bookmark not defined. Management of Quality and Quality Control............................................................................. 5 Supply Chain Management ......................................................... Error! Bookmark not defined. Aggregate Planning, MRP and ERP ........................................................................................... 10 Lean Operations ....................................................................................................................... 10 Project Management................................................................................................................ 10 Propositions to solve the problems ......................................................................................... 10 Quality issues ........................................................................................................................ 10 Delivering delays ................................................................................................................... 10 Design ................................................................................................................................... 11 Bibliography.............................................................................................................................. 12 Annexes .................................................................................................................................... 13

Overview of Comtrend
Brief Introduction Comtrend () is an international company established in Taiwan in 1990. Comtrend designs, produces and sells advanced networking equipment such as -top boxes, IPTV boxes or power line carriers integrating ADSL, ADSL2+, Bonded ADSL2+, VDSL2, VOIP, IP STB Multimedia, Residential Wi-Fi, Auto Configuration Systems, Digital Signage Applications and High-Speed PLC technology. As stated on the company website, Comtrends vision is bringing people together through technology and continues to realize this vision through a focus on innovation and superior service. The company initially began as a manufacturer; creating products that met the requirements published by another company whose brand the products would bear. It later expanded its activities to designing and selling products branded with its own name outsourcing manufacturing to independent factories in China. In addition to its headquarters in Taiwan, Comtrend currently operates in 7 other countries with offices in North America, South America, Europe, and China. In recent years, Comtrend has been gradually acquired by Edimax, another international networking solutions company based in Taiwan, with 43.66% stake in Comtrend transferred to Edimax in 2011. Like Comtrend, Edimax has several office locations worldwide, however lacks presence in the South American market as Comtrend does. Edimax has thus far chosen to maintain the Comtrend brand. Comtrend Issues Despite the companys boasted success of recent growth and sales revenue, the company is facing several issues. After an overall analysis, of the company, we narrowed down issues within the company to three main issues: 1. Poor product/service quality: Comtrend employees reported that malfunctioning products are a common occurrence. As we shall address later on, this may be due to poor supply chain management. 2. Lack of human resources: Comtrend has a small number of permanent employees worldwide most of which are under-trained. 3. Poor R&D management: Out of the entire company there are only 3 engineers responsible for developing new product. Most products has undergone little to no redesign or modification. 4. Low flexibility: Due to the extensive order process, it is very difficult for Comtrends clients to make changes to their orders. Comtrend offers little to no customization of orders.

Comtrends strategy Comtrend clearly implements low cost strategy to compete with competitors. According to Vincent Bocl, former sales manager of Comtrends French office, when asked about Comtrends strategy, his response was that Comtrends products are among the cheapest in their respective markets. Despite the reputation of low quality and recurring late deliveries, their clients were still turning to them thanks to their low pricing strategy. How does Comtrend maintain this low cost strategy? How does the implementation of this low cost strategy affect the Comtrends overall performance?

Offices and Service Regions Comtrends administrative headquarters are located in New Taipei City, Taiwan but there are 7 international offices. There other Asian office is located in Kunshan, China, which mainly aims at getting closer to most of the suppliers. Three other offices are in the Americas, one for North America established in the USA (Irvine, California), one for Central America established in Mexico, and one for South America established in Sao Paulo, Brazil. The European head office is located in Madrid, Spain, but the European region is still divided into two regions: the Central European region and the Eastern European Region. The Eastern European region is managed by the Czech office in Prague. The Western European Region, however, is further divided into 3 sub-regions: the Western European Region serviced by the office in Paris, France, the Latin European region, serviced by the Spanish office, and the United Kingdom managed by the office in London, England. (Comtrend Corporation, 2008). Africa and the Middle-East are supposed to be dealt with by the Taiwanese headquarters, but most European offices also tried to appeal to these markets. The company also has a Research and Development Centre located in Hsinchu, Taiwan, where most of the companys engineers work both on developing new products and on solving technical problems from all the offices world-wide. Distribution As mentioned in the company overview, Comtrend no longer owns any of its own production or storage facilities, and outsources all production to Chinese manufacturers. After products are finished in China, they are then transported by plane or ship to the countries of the orders prospective regional office. By plane shipment to respective countries requires about 3 to 5 days by plane and 5 to 6 weeks by ship. Despite this big difference in required for delivery from China, Comtrend more times than not opts to have products transported by ship rather than plane. It does this to, again, reduce the cost. Surprisingly, Comtrends customers would rather wait the long period of transport time as it reduces the cost to them.

Rather than handling shipping and shipment inventory, Comtrend outsources these services to local logistics companies. Once a shipment reaches the respective destination country, the shipment is pick-up by the logistics company and transported to the companies warehouse which has been rented by Comtrend. The shipment stays in the warehouse until the scheduled date of delivery on which the shipment is sent to the costumer. Comtrends customers leave little flexibility regarding shipment time; in fact, some clients have only a 15 minute window for their shipment to be delivered. Should a logistics company miss the time window for delivery, Comtrend would be subjectable to late fees, as pre-arranged in the contract with their clients. Customers The company is for the most part in the Business-to-Business market, however most of Comtrends clients are national internet providers (e.g.: Swisscom or Orange) providing internet to the general public. Usually, this kind of contract includes the lending of a set-top box to their clients, meaning the general public would be the end users of Comtrends products. One of the companys largest accounts has been Telefonica, a Spanish private telecommunications company operating in over 23 countries across North and South America and Europe, making up more than 80% of Comtrends global turnover. Thus, it is then understandable that Telefonica gets a special treatment from Comtrend. They have assigned to the Telefonica account a technical team of 5 people whose sole job is to work on Telefonicas account in order to foresee its needs and solve any technical problems that should arise. This also implies, however, that other clients are less of a priority for Comtrend. When an important order comes from Telefonica, all other order are put on hold until the Telefonica order has been filled, which leads to delays on other clients orders.

Quality Issues
Comtrend products are cheap and comprise the whole chain of internet provision, from creating the internet connection to spreading it. But their products are also infamous for frequently meeting technical problems. This raises concern regarding Comtrends quality control both internally and externally in regards to manufacturers. Quality Control Management Quality is definitely an issue for Comtrend. In order to maintain their low price strategy, the company does not often put an effort towards quality control. According to Kelly Lu, a logistics manager at the headquarters in Taipei, even though Comtrend plays a part in acquiring raw materials, there is no source quality management and the usual quality 5

control consists of the manufacturer testing a few finished goods from a ready-to-ship batch. When the finished goods happened to in transit by the French office, the sales manager would usually process to the same test.

Supply Chain Suppliers Although Comtrend outsources manufacturing to Chinese companies, Comtrend still plays a part in the acquisition of raw materials. For some raw materials such as wires, boxes, or printed circuits, Comtrend will seek out suppliers, quite often seeking several different suppliers who would supplement these raw materials to the manufactures who acquire the rest of the need raw materials. This process is illustrated in the map below. Map of Comtrends Up-stream Supply Chain

Manufacture

Comtrend

????

???

Wire supplier

Box Supplier

By participating in the selection process of raw materials, Comtrend has the opportunity to control the quality of the product and select quality materials, however criteria for selected materials is usually based on how fast materials can be provided and who can provide the cheapest price to keep costs low.

Manufacturers An evident weakness in Comtrends quality control is rooted in the companys relationship with its manufactures. Comtrend finds itself in a very frustrating position experiencing a high defect rate in the product, as well as production delays which can affect downstream operation, and little control over its manufacturers to prevent these problems. As one former Comtrend intern described, to Comtrend knowledge, very little is done by the manufacturing to test quality on final products. Because of this sales people in the regional offices will test a few models of the final product themselves before being shipped to customers to make sure the shipment is not defective. Defective products that do make their way to the customer then have to be serviced or replaced (which Comtrend is notorious for resisting to do).

As mentioned in the previous, paragraph Comtrend also has problems with manufacturer scheduling and delays. Because Comtrend have rents a warehouse space from local logistics companies, and are given a small window for delivery by the customer, it is imperative that orders do not experience manufacturing delays as they will incur late fees with clients, and are not delivered to early, as they would incur more cost on storing inventory in the warehouses for a longer period of time. Aside from the consequence of incurring higher cost, it also hinders Comtrend ability to provide quality customer service to their clients. Product design Design is an issue for Comtrends products. As the core strategy is to produce low price products, it is no surprise that company limits its spending on product design. According to Comtrend employees, most products have under gone little if any modification or redesign. In fact many products have hardly been modified in 10 years (e.g.: modems still look like the first generation). In order to reduce structural cost-drivers of complexity in the production process, the company utilizes a similar design for its range of products. For instance, Comtrend will design their products to use a certain box size for several different products, regardless of how much space is needed. Their set top boxes are as big as the competitors, but with fewer options than their competitors (e.g.: no CD/DVD player, no USB driver). Therefore some products are unnecessarily bulky. While pursuing low costs, it seems Comtrend does little to consider the costumers needs when making modifications or designing the products, e.g.: It was brought to the attention of Comtrend by one customer that a light thats function was to signal that the set top box is working was too bright and disturbing the clients sleep. Rather than redesigning the set top box to have a dimmer light, Comtrend simply gave its client a magnet to put on the box and cover the light. Post-sale service With low pricing also comes mediocre service. As a matter of fact, in order to avoid post-sales technical problem solving, the company encourages their sales manager to offer an additional 10% free product shipment with every order, meaning if the client ordered 1,000 boxes, Comtrend would include an additional 100 boxes with the original order in case any should behave defects or malfunction. Should an important technical problem arise, the intervention of the engineers from Hsinchu technical centre would often be required. In this case, the process of transferring communication from clients to the regional offices to the engineers in Taiwan would be very time consuming, and would require much time before the problem could be solved. Oddly enough, the company would hardly ever agree to exchanging a nonfunctioning product with a new one. Only one client from the French office had a product 7

exchange agreement (Swisscom) with Comtrend, however the sales manager was asked to renegotiate. Considering the proportion of malfunctioning goods, the customer would not agree to the new terms proposed by Comtrend. Swisscom even expressed that they would be likely change suppliers if the agreement were to be altered.

Human Resources
In order to minimise costs, the company hires a lot of interns who are not, by definition, here to stay but here to learn. In other words, students are recruited to do internships with Comtrend without much prospect of being hired in the future. Although recruiting fresh interns could be regarded as a good way to promote innovation within the company, in the long-run, it is in turn very time-consuming and costly to keep educating newly recruited interns rather than hiring the ones that have already been invested in with training and are already familiar with the company. This cycle of constantly bringing in new interns also creates issues when handling client accounts. Most of Comtrends clientele is made up of reoccurring customers who have an established history with the company. New interns servicing these accounts wont have the understanding of the clients history with the business and the product. As we can imagine, it could also be frustrating for the client to be contacted by someone new and unfamiliar with the clients and their needs. In addition to the issue of constantly recruiting and training new interns, a problem arises with the training of the permanent employees themselves. The company utilizes the Oracle ERP system, adopted in 2010, to make managing clients order information quicker and easier. However, there is one problem: Comtrend employees dont know how to operate the system. Despite the systems many advantages to make the company run more efficiently in information management, Comtrend does not invest enough in their employees to provide them with the necessary training to fully utilize the system and its benefits. With the acquisition by Edimax, new cuts have been set to be put into place; At least half of Comtrends global workforce is scheduled to be laid-off. As for the foreign offices, should there be an Edimax office already in place in the same country, offices will be consolidated with only the bare minimum number of employees to be retained (e.g.: in France, the original staff of two sales managers, two or three engineers, one finance and logistics manager and one managing director would be reduced to only one sales manager and one technical engineer).

Research and Development /Product Design A surprising feature of Comtrend, especially considering it is a NTIC company, is the underdevelopment of the R&D department and the lack of concern for developing new products (See Figure 4: Organisational Chart - New Product Strategy). A surprise in the efforts to reduce costs can be noticed in the level of education in Comtrends employees, more specifically, in their development division. It was surprising for a new technology company to have so few Doctorate level employees in their development division (Figure 2).

Flexibility Issues
Flexibility is not one of Comtrends strengths, partially due to their pre-production order processing procedure and partially due to the companys wide range of products with little customisation. Order processing Before an order is sent to the manufactures it must go through an extensive process. After an order is received by a sales representative is it sent be verified by a long chain of managers and other sales reps after which it is sent back to the original sales rep

Comtrends strategic capacity planning

Production on order Internal ordering process takes from 3 to 10 working days, production may require up to 10 weeks and delivery takes from 5 days by plane to 6 weeks by boat + customs clearance

Aggregate Planning, MRP and ERP

Each international branch use to have their own system to manage sales but in 2010, Oracle, the ERP from Oracle Corporation, was implemented worldwide. Thanks to this new system, European and American offices could process purchase orders and forecasts with the aim of making order management easier and quicker. However, the implementation and the use of this ERP have not been performing so far. The first issue was the clear lack of training as only some employees from the headquarters received some training. These few people designed a protocol for foreign offices to use and were designated as referent for Oracle issues. Another issue is that an order has to be checked and approved by not less than 10 people before it comes back to the person who actually processed it for him or her to approve it again before another 3 people have to approve it. Despite this, it often happens that foreign offices are asked to change an order which has been completely approved (by about 15 people). This constitutes an important loss of time, especially if we consider that the order is taken into account only when it is completely approved and forecasts are hardly taken into account at all.

Lean Operations

Project Management

Propositions to solve the problems

Quality issues
Not reasonable to aim at a 0% default good but a little bit more control over the suppliers may substantially decrease the cost of technical issue (and of over shipment?) More flexibility may help

Delivering delays
More relationship suppliers: so the lead times and late fee penalties can be negotiated Ease the procedures to order and to alter orders Update sales manager on the production schedule so they can agree on an actually possible date of delivery

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For the most sold products or recurring orders, dont wait for the order to be processed

Design
Would deserve some redesign: To save on raw materials and on cost of shipping (smaller = more per carton). To change the image a low quality, old products (their modem still look like my first modem ever) To meet new requirements (see Product design) May allow to decrease the number of suppliers and the quality issues

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Bibliography
Comtrend Corporation. (2008). Company. Retrieved 05 14, 2012, from Comtrend Corporation: http://www.comtrend.com/company.htm Comtrend Corporation. (2008). Office. Retrieved 05 14, 2012, from Comtrend Corporation: http://www.comtrend.com/office.htm Edimax plans to acquire 43.66% stake in Comtrend. (2010, 12 24). Retrieved 05 15, 2012, from Telecompaper: http://www.telecompaper.com/news/edimax-plans-to-acquire-4366stake-in-comtrend Telefonica. ( ??) Retrieved 05 29, 2012 from Telefonica http://www.telefonica.com/en/home/jsp/home.jsp

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Annexes

Figure 1 : Manpower (by division)

Figure 2 : Education attainment breakdown (Development Division)

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Figure 3: Organisational Chart - Overview

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Figure 4: Organisational Chart - New Product Strategy

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