Case Study 2-The Universal Motor Company Aquires Semiconductors
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Dec 6, 2023
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1
The Universal Motor Company
Andre Conyers
Webster University
PROC 5830: Pricing
Professor Doug Mowczko
THE UNIVERSAL MOTOR COMPANY
2
1.
Major Facts
Universal Motor Company manufactures automobiles and trucks.
Universal was among the top manufacturers affected by the emissions standards
introduced in the US in the late 1970s.
The new vehicle emission and fuel consumption standards created technical problems for
the auto industry.
2.
Major Problem
The US government introduced vehicle emission standards and fuel consumption targets for
vehicles sold in the US to reduce air pollution. However, the new standards could not be
achieved immediately with the existing technologies in the auto industry. The auto industry was
required to design engine control computers according to the new standards. The critical problem
is that manufacturing the new engine control systems requires new semiconductors. The new
standards disrupted the initial supply chain management procedures and policies. The technical
issues compelled Universal to develop and implement innovative approaches from the 80s to
manage the acquisition of semiconductors effectively and remain competitive.
3.
Possible Solutions
A. Make Semiconductors
The management of Universal was confronted with the problem created by the new standards
demanding new approaches to acquire semiconductors while remaining competitive in the auto
industry. The management had to choose to make or buy decisions that affected all six strategic
areas, including designing, sourcing, and pricing. Universal moved swiftly to conduct an
environmental analysis of the semiconductor industry to comprehend the issues and find long-
THE UNIVERSAL MOTOR COMPANY
3
term solutions. The study was conducted by a diverse team of professionals, including engineers,
quality specialists, supply, and manufacturing experts. An environmental scan in 1982 identified
various problems, including a short supply of semiconductor design engineers and packaging
technologies inefficiencies. One of the suggested solutions to address this solution was to make
the semiconductors in-house. However, Universal’s capacity to operate a technology-driven
semiconductor facility efficiently was questionable.
B. Acquire Ready Semiconductors
The alternative solution to this problem was for Universal to buy semiconductors directly from
manufacturers. Technology leadership was the main issue that drove the company to buy
semiconductors. The company thought technology leadership would boost its competitiveness in
the automotive industry. The company considered it a strategic advantage for the future to own
technologies incorporated in the circuits.
4.
Possible Solutions
Advantage A: The environmental analysis conducted by a multidisciplinary team from the
Universal company showed that the decision to make or buy the semiconductors had various
interrelated sub-issues. However, despite issues such as the lack of technologies, the decision to
manufacture chips in-house had multiple benefits. One primary advantage is that the company
would ensure quality by manufacturing the chips in-house (Frieske & Stieler, 2022). By
manufacturing the semiconductor, the company would also manage packaging efficiency
problems.
Disadvantage A: Despite the benefits, manufacturing semiconductors is expensive. The company
must advance its capacity and technologies to efficiently manufacture quality chips for vehicle
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THE UNIVERSAL MOTOR COMPANY
4
manufacturing. Universal would spend over $50 million to produce a significant volume of
semiconductors. Concerns were also raised regarding the company’s capability to operate high-
tech semiconductor facilities. According to Manley, Alonso & Nassa (2022), the disruptions
caused by the pandemic affected the capacities of semiconductor companies globally. The
inability of the companies to meet increased demand, especially in the auto industry, led to an
increase in car prices. Semiconductor companies delayed completing the capacity and changing
production lines (Manley, Alonso & Nassar, 2022). As a result, automakers reduced revenue
expectations due to a lack of semiconductors. Consequently, these challenges triggered by the
pandemic show the complexities of manufacturing semiconductors.
Advantage B: Acquiring ready chips in the market would enable Universal to avoid the cost
required to adjust supply chain procedures and processes. The company would also find it
affordable to purchase semiconductors instead of producing them expensively. Acquiring from
manufacturers would also prevent cultural conflicts between the auto and semiconductor
industries. Frieske & Stieler (2022) investigated how the disruption of the supply chains during
COVID-19 affected the supply of semiconductors for various industries, including the auto
industry. For instance, in the 1
st
and 2
nd
quarters of 2020, automotive production was reduced by
9.6% due to the shortage of semiconductors (Frieske & Stieler, 2022). Therefore, by
manufacturing chips in-house, companies like Universal would avoid such losses due to
disruptions in the supply chain.
Disadvantage B: Buying the semiconductors would limit the company’s technological leadership
prospects. Universal considered that the ability to manufacture chips in-house would enable them
to patent the technologies and gain a strategic advantage in the future (Manley, Alonso & Nassar,
THE UNIVERSAL MOTOR COMPANY
5
2022). As a result, the company cannot own the technologies by buying from suppliers. Besides,
the company does not have control over the quality of semiconductors sourced externally.
5.
Choice and Rationale
The best solution to address the semiconductor crisis is to acquire quality chips from established
manufacturers. The dominating players in the semiconductor industry include Qualcomm,
NVIDIA, TSMC, and Samsung Electronics. For instance, TSMC manufactures 92% of chips for
the auto industry (Ramani, Ghosh & Sodhi, 2022). Acquiring from such manufacturers
guarantees quality and cost-effective semiconductors compared to in-house manufacturing.
6.
Recommendations
Universal must implement innovative procurement and sourcing procedures and strategies to
acquire semiconductors cost-effectively from competitive and established suppliers. The
company should assemble a multidisciplinary team to acquire quality chips in the market
(Frieske & Stieler, 2022). The team should include procurement, engineers, quality assurance,
and design professionals. The team should ensure that adequate and quality semiconductors are
acquired cost-effectively. Finally, the team should consistently communicate with the top
management to review the sourcing policies and compliance with vehicle emission standards.
THE UNIVERSAL MOTOR COMPANY
6
References
Frieske, B., & Stieler, S. (2022). The “semiconductor crisis” as a result of the COVID-19
pandemic and impacts on the automotive industry and its supply chains.
World Electric
Vehicle Journal
,
13
(10), 189.
Manley, R. L., Alonso, E., & Nassar, N. T. (2022). Examining industry vulnerability: a focus on
mineral commodities used in the automotive and electronics industries.
Resources
Policy
,
78
, 102894.
Ramani, V., Ghosh, D., & Sodhi, M. S. (2022). Understanding systemic disruption from the
Covid-19-induced semiconductor shortage for the auto industry.
Omega
,
113
, 102720.
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