MANAGING INNOVATION AT

NYPRO, INC. (A)

MAY 14, 2014

BY – GROUP E
Table of Contents

1. Executive Summary ............................................................................................................................... 2

2. Introduction .......................................................................................................................................... 3
3. Case Analysis ......................................................................................................................................... 3
3.1. Current Situation............................................................................................................................... 3
3.2. Available Options .............................................................................................................................. 3
3.3. Assumptions ...................................................................................................................................... 4
3.4. Evaluation of Available Options ........................................................................................................ 4
4. Recommendation.................................................................................................................................. 6
5. Exhibits .................................................................................................................................................. 7

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1. Executive Summary

This report examines and provides analysis of the options available to Gordon Lankton, president and
majority owner of Nypro Inc., for incorporating a new implementation process using the new NovoPlast
machine.

The analysis takes into consideration a lot of factors such as the pros and cons of each option, the past
experiences of implementing new technologies (MRP2), the organizational culture, and the way
innovation is perceived and rewarded in the organization.

All the three options were analyzed carefully alongwith an option of not testing Novaplast at all and
finally the recommendations are as follows – use a hybrid solution of options 2 and 3. The focus is on
piloting the integration of the new technology successfully at a few plants – Clinton and approx 3-4
more plants so that the test is comprehensive and covers different markets. Thus, we would optimize
the capital investment; ensure that the new technology is tested fairly well by competing teams and in
different markets.

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2. Introduction

Nypro Inc. started out as a small molder. Its new General Manager, Gordon Lankton changed its strategy
in 1962 to target large-scale molding jobs with demanding and technologically progressive customers.
Its customer count dropped from 700 to 50 large customers but per customer revenue jumped from
$60000 to $4 million.

Its strategy was to operate close to customers, hence its decentralized location and maintain high
quality and delivery timelines. Its production processes were designed to to efficiently produce high
volume low variety jobs and low volume high variety jobs were contracted out to third parties.

Nypro was very Innovation Centric organization. It believed in ‘Innovation through Competition’
amongst its various plants. Nypro applies the 7Rs to influence and shape the innovation. Nypro locates
the plants near the customers to avoid delays and reduce the lead time and cost. Nypro manages
customer relationships by implementing integrated teams (Nypro engineers and engineers from the
client company) known as the Development Team. To reconfigure the existing processes Nypro develops
Continuous Improvement Teams and so on and so forth.

However, there was a feeling of gradual shift in competition at Nypro. Nypro’s marketer’s felt that they
needed to reduce delivery time significantly to hold onto its market share as well as acquire new small
players. This was a shift in their business strategy again – initially they were catering to large number of
customers, then changed to few high-volume customers and presently they felt they needed to upgrade
their production capabilities to capture the new market.

Lankton, on one of his annual trip, came across the machine Novaplast which could handle variety of
molds in a very short time. Lankton perceived its utility in Nypro, and was considering how and where to
disseminate the revolutionary molding machine, NovaPlast, across the company.

3. Case Analysis

3.1. Current Situation

Nypro is a profit-making organisation (refer exhibit 1). Its business strategy is to product high-volume
outputs for small number of customers. However, it is but felt the shift in market competition. To be
able to capture new markets, it had to improve upon the delivery times drastically.

Lankton, wanted to test the new machine he had come across, Novaplast, in his plants. He wanted to
understand if it was the answer to the market requirement of high variety low volume jobs and was
analyzing various options for the same.

3.2. Available Options

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 I. Build a new plant that would employ only Novaplast machines

II. Install two or three machines in each of Nypro’s plants

III. Do not roll Novaplast out across the company, but focus on making it successful at a single plant

IV. Do not adapt Novaplast machine

3.3. Assumptions

1. There was sufficient market demand for high-variety, low-volume goods in the market

2. There would be expertise built in Nypro for piloting the integration of the new machine with the
plants

3. Nypro’s internal innovation wave would ensure that the new machine, if proven successful, is
adopted in other plants and there was no push required from management to adopt the same

4. Different locations had differing customer requirements for parts and hence the new machine
had to be tested in more than one location for the test to be comprehensive

3.4. Evaluation of Available Options

Comparison Option I - Build a Option 2 - Install Option 3 - Focus on Option 4 – Do

Attributes new plant for only two/three machines making the Novaplast nothing
Novaplast machines in each of Nypro’s successful at a single
plants plant

Against
Decentralization Yes No No No
policy

Focus on Customer No Yes Yes Yes

Production Yes Yes Yes No

Risk Multifold Multifold Limited NA

Initial Capital Very high Very high Less NA

Smooth Integration NA No Yes NA

Promoting internal
No Yes Yes NA
competition

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Detailed Analysis of the options:

I: Build a new plant that would employ only Novaplast machines

Pros

1. Most popular with senior management

2. Management can closely track the progress of the integration of the Novaplast machine in a
single plant
3. Knowledge & Expertise around the machine & its integration can be concentrated in a single
plant, hence learning curve is steep within the plant

Cons

1. Goes against the company’s decentralization policy of having plants closer to their customer
2. The segment, for which the machine is being targeted, is time sensitive and if Nova-plast
machine is installed in a single plant then the transportation cost and time would be too high.
This would ultimately defeat the purpose of procuring the machine
3. Customer focus would be lost as the plant would not be closely situated with the customer

II: Install two or three machines in each of Nypro’s plants

Pros

1. Multiple teams would work competitively to integrate the Novaplast machine. This may lead to
better utilization of the machine and faster integration of the machine
2. Closer to the customer and hence may help in acquiring new customers

Cons

1. Initial capital investment would be high

2. All plants may not be willing to accept the technology at its face value. Hence, there may be an
initial resistance in the company-wide acceptability of the new machine
3. Expertise on the machine needs to be replicated across all the plants
4. Risk is multi-fold. If the machines prove to be a failure then the capital cost invested for
installing these machines would be a complete sunk cost

III: Do not roll Novaplast out across the company, but focus on making it successful at a single plant

Pros

1. Testing and proving the integration of machine at a single plant may instil confidence in the
other plants to replicate the new technology
2. Initial capital investments would not be high

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 3. Expertise can be concentrated to a single plant initially, which can be replicated across all the
locations once the new machine is proven to be successfully integrated
4. Risk would be limited as the new machine would be tested in a single location
5. The company can spread awareness, about the improved and faster processes, among its
customers. This would give it time to get customer orders whilst implementing the new machine
in the other plants

Cons

1. There would be a delay in rolling out the technology at different locations if the new machine is
proven to be successful
2. If the testing is unsuccessful at Clinton plant, then the entire implementation would be stopped
without the machine’s integration being tested in other locations

IV: Do not roll-out Novaplast at all in Nypro

Pros

1. Nypro’s business strategy was to cater to high volume low variety requirements. It would need
to shift its business strategy if it wanted to use this machine

Cons

1. The market demand was low volume high-variety parts. If Nypro did not adapt itself to the
changing market, then it would lose its position as one of the market leaders

4. Recommendation

Our recommendation after doing an analysis of the various options is to use a combination of options 2
and 3. The focus is on piloting the integration of the new technology successfully at a few plants –
Clinton and approx 3-4 more plants spread across geographies.

This hybrid approach brings the following benefits:

1. Rigorous Testing by multiple plants

2. Testing with customers from diverse geographies. Customers from different geographies have
different needs
3. In this case, test failure at one plant does not impact its testing and implementations at other
locations
4. Success at a few plants leads to testing and implementation at other plants too, leading to
maximization of overall benefits.

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If the new technology – Novaplast machine, emerges successful then the other plants will also be
encouraged to use it because of the ingrained virtues of internal competition at Nypro. The fact is that
“Nypro’s internal market had a great track record at spotting winning innovations”.

5. Exhibits

Exhibit 1 : Balance Sheet Year Ended

($ in 1000s) July 2 1994 July 3 1993 June27 1992 June 29 1991
Net Sales 165893 135829 119856 100201
COGS 126512 104810 93832 78215
Gross Profit 39381 31019 26024 21986

Expense
Selling 7244 6826 5978 5546
General and admin 16807 11481 9972 8035
Research and development 2705 2415 1793 1005

Operating Profit 12625 10297 8281 7400

Other Income 1699 1001 1114 1616
Interest Expense -1502 -846 -978 -1216
Interest Income 450 260 417 515
Equity 605 464 202 -864
Minority Interest -77 -97 -13 152

Income before taxes 13890 11700 9508 7603

Net Income 10826 8506 6506 5153

Exhibit 2 : Relative Costs of Nestal and NovaPlast, Indexed at 100

Conventional
Machine NovaPlast
Capital
Cost 100 50
Tooling 100 25-30
Set up
time 100 <1
Run Time 100 50
Staffing 100 20