Class Case Study Supply Chain Segmentation Powerdrive Motors Tom Cross took over as Managing Director at Powerdrive Motors in South Africa three years ago. At the time, the company was an established manufacturer of small electric motors with a strong reputation for product reliability and technical leadership. On the downside, it was also regarded in the trade as having high prices and variable delivery. Market Segmentation Tom's first task was to tackle the huge product variety on offer. He saw this as an opportunity in streamlining design and production. The product range was replaced with a new generation of designs based on a few modules', which could be assembled in many different combinations to give variety at low cost. This meant the loss of some customers, who had gone to Powerdrive because they could rely on the company's technical leadership to produce designs that suited their needs. This was not considered important because the combined sales volume of such customers was under 5%. Using the new designs, Tom was now able to reorganise the factory into cells that produced major sub-assemblies such as rotors and stators. The work flow was transformed, and manufacturing time was reduced from 6 weeks to just 4 days. Cost improvements meant that average price reductions of between 10 and 15% could be offered. Customer Service Policy Powerdrive's customer service policy was re-drafted to offer quotations within a maximum of one hour of any enquiry, and for deliveries of finished product to be made within one week. If 'old' customers wanted special designs that were no longer in the range, the sales staff were instructed to explain Powerdrive's new policy and to politely decline the order. At first, business soared. Impressed by the lower prices and short delivery times, customers flocked to Powerdrive and sales jumped by 50%. But then things began to go sour. Negative impacts of market segmentation 1. The factory could no longer cope with the demands being placed on it. The addition of a large order for lawnmower motors blocked out a lot of production capacity. Order lead times slid back to former levels. 2. A Brazilian supplier spotted the opportunity to enter the market with prices that undercut Powerdrive by 20%. While only half of the product range was covered by this new entrant, it was the high-volume products that were especially threatened. Further, the new competitor offered 3-day lead times. 3. Some of the former customers, who could no longer obtain their special designs from Powerdrive were complaining within the industry that Powerdrives technical leadership had been sacrificed. Although small in number, such customers were influential at trade fairs and conferences. Questions 1. Evaluate the changes that took place in the segmentation of Powerdrive's market. 2. Should Powertrain use logistics network planning using distribution centres and warehouses along with market segmentation? 3. How will you conduct logistics planning (draw a flow diagram) for Powertrain? 4. How do you propose to model Powertrain's logistics planning? a