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Phoenix Electric

2004 4th Porter Prize Winner Electric Light Bulb and Tube Manufacturing
Provision of flexibility in product design and the assurance of high quality at a low cost to customers, through the establishment of a unique system for allocating responsibility among its customers and manufacturing partners, despite having a highly specialized technological product ? a super-high-voltage mercury lamp used in projectors and large-screen rear projection TVs, which requires exact matching and customization to fit other components, such as an electric power stabilizer.

Executive Summary

Phoenix Electric is an electric lamp manufacturer specializing in projector lamps. With sales of ?6,570 million yen at the end of fiscal 2003, (ended March 2004), it was less than one-tenth the size of its major competitors, and yet it had far outpaced competitors in terms of profitability.

Unique Value Proposition

Phoenix Electric focuses on super-high-voltage mercury lamps for projectors and rear-projection TVs, which account for 80% of total sales. The markets for both projectors and rear-projection TVs have grown rapidly, driven by the simultaneous pursuit of technological innovations and price reductions. The projection lamp is one of the key components in both products, and the customer (appliance set manufacturers) expects not only enhanced functional performance but also a low price. (The other key component is an image element, such as a LCD panel, and both the projection lamps and image elements largely determine the performance of a completed set.) Target customers of Phoenix are companies which aim to differentiate themselves in terms of function, and the use of Phoenix's superior lamp would enable them to develop a unique set product. To this end, Phoenix attends fully to its individual customers with flexibility and speed, undertaking product development, production and after-sales service. As a result, customers will have more options for the products they purchase from Phoenix, and achieve more freedom in design with the technological support in set product development. Furthermore, Phoenix sets its prices lower those offered by the industry leader, which sells standardized products and does not customize products for individual customers. Phoenix has a low cost structure, while maintaining high profitability, and provides its services at a relatively low price.

Unique Value Chain

Product development
Phoenix Electric develops high-performance products using proprietary technology. Long before any of its competitors, Phoenix had developed new technology specifically for rear projection TVs at a time when other companies were simply modifying existing projector lamp technology to convert their lamps for use in rear projection TVs. As a result, Phoenix products achieved significant differentiation through the inclusion of distinctive features, such as the complete enclosure of the lamp to prevent an explosion (no other company offers this product feature), a lower voltage start-up (at 2,500V, compared with the 50,000V needed for competitors' products), variable output according to ambient brightness (in the range of 100 - 150W), and an instant restart.

Marketing and sales
Phoenix engineers participate in its customers' product development process from the early stage of set design. They cooperate and provide technological assistance, so that Phoenix lamps can achieve the maximum performance when built into the customer's set, by testing and evaluating the condition of lamp usage in the completed set. (This high-performance special lamp is exposed to extremely harsh usage conditions, and the lamp can not perform at its best, and may even explode or experience a reduced useful life if the required correct usage conditions are not met in terms of air-cooling capacity and the compatibility with the voltage stabilizer, and the optical system of the set.)

As Phoenix carries out sales through close involvement in the customer's product development process, it does not rely on intermediaries but sells directly to its customers. Customers highly appreciate this close working relationship. Phoenix is also selective in its choice of customers, targeting those who do not possess strong price bargaining power. It constantly seeks new customers, and consequently serves a larger number of customers than its competitors.

Manufacturing
Phoenix has developed its own unique production method (with a number of patents registered), and is able to realize high-performance products that offer high quality and a much higher yield than its competitors (Phoenix achieves a yield of 65 - 70%, compared to the 50 - 60% of other competitors.)

Phoenix develops and designs all of its production facilities and equipment, which combines cell production methods with conveyer methods. As a result, Phoenix can produce as little as a single unit of any given model from among a variety of different models. It can also conduct small-lot multiple-model production on its production line. As a result, it can accept small-lot production orders of as few as 80 pieces. Furthermore, it also has achieved a very short delivery time of 10 days, completing everything from materials procurement to production completion in that time. (Competitors' delivery times range from 1 to 3 months.)

Phoenix's production process structure is based on an allocation of responsibility through a division of labor. Phoenix supplies light bulbs to its manufacturing partner in China, which assembles the final component. Because of the lower level of profit margin demanded by the partner, Phoenix is able to offer the final assembled component at a lower price than would be possible if it were to completed the whole process (through assembly) on its own. In contrast, other competitors who produce in China have not been able to achieve much cost savings by merely taking advantage of the lower labor cost.

Procurement
Phoenix actively seeks new supply sources overseas. For most of the suppliers Phoenix appoints, Phoenix is their first export customer in Japan.

Quality assurance
Given the extremely hard usage conditions to which super-high-voltage mercury lamps are exposed, it is not unusual that problems occur. However, difficulties most often arise as a result of problems with the set or mishandling by customers. When encountering such a situation, Phoenix does not simply find fault with the set or with the customer's handling, but makes efforts to solve the problem by collaborating with the set manufacturer. If the set manufacturer cannot solve the problem on its own, Phoenix would go as far as to redesign the lamp. Phoenix also provides direct customers and set manufacturers with all product information for each individual component, including in-house quality test results for each step of the manufacturing process, as well as performance data, so that set manufacturers can go back to their production process and verify the quality information on their own.

Human resource management
Phoenix implements a stock option program for all of its employees. This program was introduced while Phoenix was going through a turn-around, and it was the first company in Japan to implement a stock option program as part of its turn-around action plan. Phoenix distributes 6.6% of its operating profit as a bonus at the close of its financial year, on top of the semi-annual bonuses.

Fit among Activities

The super-high-voltage mercury lamps in which Phoenix Electric specializes are prone to problems, such as a failure to perform as intended, explosions, and shortened lives, possibly caused by insufficient air cooling, or a mismatch with either optical systems or set designs. In other words, the lamp is a component that must be integrated into the completed set. To meet this requirement, Phoenix provides support and assistance to both the set manufacturers and production partners to ensure the deliverance of completed sets which meet performance specifications and quality standards, and Phoenix produces in-house only the high value-added parts.

Since Phoenix has selected as its target customers assembled set manufacturers, it was imperative that it develop an activity structure that would allow for product flexibility and maintain functional integrity with the set as a whole.

As outlined above, Phoenix Electric achieved a perfect fit across its target customer, product architecture and activities through unique means not found in any other company.
(Please refer to the attached "Activity System Map" for a more detailed account of the relationship between these activities.)

Innovations that Enabled Strategy

  • Phoenix delineates its product boundaries in unconventional ways. While competitors assemble the light tube, light bulb, reflector, and stabilizer and sell the product as a complete set to the customers for quality assurance purposes, Phoenix manufacturers sells only the lamp assembly unit. In order to ensure the high performance of its lamps, Phoenix openly discloses the required specifications of the power stabilizer that matches its products. Thus, customers can exercise a choice in sourcing, either by manufacturing the stabilizer themselves or by procuring a stabilizer from one of the specified stabilizer manufacturers.
  • Phoenix has established a unique way of allocating responsibility in its production flow through a division of labor. Phoenix only manufactures light tubes, the most profitable part requiring high precision and state-of-the-art technology, while its production partner in China handles final assembly. Phoenix ensures manufacturing efficiency and enhanced quality by providing in-house developed manufacturing equipment, as well as by offering training in manufacturing technology to its partner in China. These activities also reinforce a relationship of mutual dependency between Phoenix and its production partner. Phoenix tests the quality of the final assembled units, and guarantees the quality of the finished product. For the set-manufacturing customers, the sourcing of Phoenix products enables the lower pricing of their sets, while Phoenix can enjoy and maintain a high level of profitability.
  • Phoenix has developed and patented a unique method for manufacturing its lamps using a double sealing structure. With this technology, Phoenix can manufacture high-performance products at low cost, as it enables higher wattage and greater durability with a much improved manufacturing yield.
  • Phoenix also has developed a quality management system (a trace-back system) that enables quality assurance even in cases of small-lot, multi-model production.

Consistency of Strategy Over Time

In November 1995, Phoenix Electric filed for Chapter 11 bankruptcy protection in Japan and experienced de facto bankruptcy. Prior to this unfortunate event, Phoenix was a large-lot, narrow product-line manufacturer with a focus on halogen lamps for general lighting use, metal halide lamps, and halogen lamps for bicycles. Although most of these products were sold in large quantities, the profit margin was thin.

After filing for bankruptcy, Phoenix made a major shift in its strategy. Phoenix selected projector lamps as its target market, a market in which it could differentiate itself from its competitors primarily by taking advantage of metal halide arc lamps. Ever since, it has consistently been focusing on improving customers' convenience by cultivating close working relationships, and by conducting flexible and speedy small-lot production of multiple models, focusing on high value-added activities.

Trade-offs

  • Phoenix Electric concentrates on lamps for projectors and rear projection TVs as its target product, and does not expand its product range.
  • Phoenix does not compete on prices.
  • Phoenix does not offer standard products in large volume.
  • Phoenix does not compete to win the customers served by major competitors, such as Philips, Ushio Electric, Matsushita Electric, and Iwasaki Electric.
  • Phoenix does not compete on prices to win a supply contract with major projector manufacturers.
  • Phoenix has developed a direct sales channel through the maintenance of a close working relationship with the customer, and therefore, it does not sell its products through a third party, such as a trading company.
  • Phoenix does not sell auxiliary parts to which it cannot provide any value added, such as power stabilizers, as a set together with the lamp assembly unit.
  • Phoenix does not produce parts that can be manufactured either by its customers or by other manufacturers. Phoenix has already shifted production of such parts to its production partner or to its customers.
  • Phoenix does not seek solely to maximize the size of its sales or profit. Instead, it seeks to maximize sales per employee and profit per employee as more important targets.

Profitability

Phoenix Electric consistently surpasses the averages of the lamp manufacturing industry in both return on invested capital and return on sales, and its superiority in these indices are even showing an upward trend.

Return on invested capital (ROIC)   (Unit = percentage point)
Difference from industry averag
over 5 year period
Difference from industry average, by year
1999 2000 2001 2002 2003
15.0%P -2.6%P 8.6%P 8.4%P 23.4%P 20.0%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)   (Unit = percentage point)
Difference from industry average
over 5 year period
Difference from industry average, by year
1999 2000 2001 2002 2003
8.6%P 3.3%P 8.2%P 6.1%P 11.3%P 10.4%P
Return on sales =Operating income / Net sales

Activity System Map

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