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MIDEC

MIDEC Working Together to Achieve Excellence We have selected IBM as a prospective buyer for Nidec’s spindle motors. For the past several months, Nidec has been the sole supplier of cooling fans for the production of IBM’s servers. Using this strong relationship as a base, we will present three main reasons for IBM to use Nidec as a supplier for spindle motors as well. First, Nidec is able to charge a lower price than competitors. This feature is possible because Nidec’s 70% spindle motor market share allows the company to achieve economies of scale. Second, Nidec is committed to pursuing a double-win philosophy with its customers. IBM can count on Nidec to provide the best solution to its many design and production problems. Nidec will work with IBM and IBM’s suppliers to facilitate the design and production of new products. Finally, Nidec places primary focus on the quality of its products from design to delivery. With one of the lowest DPPM’s in the industry, Nidec has demonstrated its ability and dedication to maintaining a high level of consistency and reliability. We are scheduled to give a presentation to a commodity manager and commodity engineer from IBM’s hard disk drive department on February 22, 2000. This presentation will be persuasive in nature. It has one primary objective: closing the sale! By “closing the sale,” we mean securing a two-year agreement with IBM to purchase spindle motors exclusively from Nidec. If this objective cannot be met, we are confident that we will at least be able to secure a visit to Nidec’s site in San Jose. A plant visit would surely convince IBM that Nidec offers the best solution. IBM is the world’s leading information technology company. From its beginning in 1890, the company has had a history of providing innovative solutions to complex problems. One of the more recent of IBM’s innovations is its server technology. IBM is widely known for producing high quality and powerful servers for a variety of businesses, including retail, manufacturing, finance, distribution, health, legal, transportation, insurance and education (www.ibm.com/servers/). IBM produces dozens of different types of servers comprising five separate categories: AS/400, Netfinity, NUMA-Q, RS/6000, and S/390. These servers are sold in more than 120 countries and can run on over 49 different languages (www.ibm.com/servers). They are adaptable to multiple platforms, and are compatible with thousands of software programs. During the past several years, IBM has spent billions of dollars incorporating the most advanced technological capabilities into its servers. IBM prides itself on its reputation for providing powerful and versatile servers that are reliable and easy to use (www.as400.ibm.com/overview/tourebiz.htm). We will begin the selling process at Stage 2: Determining Customer Needs. In this scenario, Nidec has been selling cooling fans to IBM’s server division for several months. In the process of servicing the cooling fan sale, we will discuss the current industry environment with the decision makers at IBM and determine if our spindle motors can help IBM solve its development and cost problems. IBM’s main challenge is to accelerate the development process of servers and lower the cost of this process. For the past three years, IBM has struggled to maintain market share in the server industry (see Figure 1). During this time, Seagate has consistently brought new servers to market two quarters before IBM introduces comparable products. Seagate is also able to introduce its servers at a lower price, usually 20 percent lower than IBM. Engineers at IBM blame this problem on a disorganized design process, which results in high development costs. For example, hundreds of different components made by hundreds of different suppliers are needed to produce a single server. Before production can begin, all components must be manufactured to a certain specification. At present, IBM is not efficient at communicating these specifications to suppliers. The constant changes inherent in this process make it difficult for IBM to update and educate suppliers about the most recent product specifications. (Stevens, interview). Source: Commodity Review - HDD Mechanical 12/99 (IBM Internal Document) In order to regain its position in the marketplace, IBM must overcome Seagate, its most powerful competitor. Not only is Seagate beating IBM to market and doing so at a lower price, Seagate’s profit margins are almost double that of IBM’s (Stevens, interview). Evaluative Criteria and Their Weighing There are three main criteria IBM uses to select a supplier: price, quality and technological capabilities. Price is the single most important determinant of the supplier IBM will select. If the other two evaluative criteria are satisfactorily met, but price is still too high, IBM will purchase elsewhere (Stevens, interview). When evaluating the factor of price within the buying equation, IBM also considers shipping costs, volume discounts and terms of payment (Demas, 2). It is important that the supplier agrees to work proactively to lower the price of the commodity as the company rides down the experience curve and is able to produce each component at a lower cost. The next most important evaluative criterion is quality. Quality encompasses several factors, including defective parts per million (DPPM), responsiveness to quality issues, timeliness of deliveries, and lead-time (Demas, 3). DPPM - While up to 4% DPPM is often considered acceptable, zero is ideal. Responsiveness to Quality Issues - This means providing a liaison that can be reached at any time to discuss current or potential issues that could result in a line shutdown. In addition, if acceptable DPPM levels are exceeded, the supplier must agree to replace them within 24 hours at no charge. Timeliness of Deliveries - Suppliers must have the capability to send all deliveries by the date specified. Not only do deliveries have to be on time, they cannot be more than two days early. Early deliveries inflate warehousing costs. Lead-time - Depending on the specific component, lead-times should fall between two and four weeks. If promised lead-times go beyond this timeframe, IBM will not be able to effectively work with the supplier. Technological capabilities are comprised of the supplier’s ability to smoothly and efficiently incorporate IBM’s technology on their production lines. While an important factor, this criterion has the least emphasis because IBM expects there to be some sort of training involved with the suppliers. It is not uncommon for IBM to send an engineer to a supplier’s plant for weeks at a time to help the supplier set up a line and oversee initial production (Demas, 7). Needs/Motivation Power/Influence Technical Knowledge Communication Style Commodity Manager - Price most important - Performance reviews based on the savings that can be secured from suppliers - Makes final sourcing decision - Ranges from low or high. Some CMs have extensive engineering backgrounds - Tends to be Director style (M&R, 272) - Determined to get the highest quality at the lowest price Commodity Engineer - Same needs and motivations as the commodity managers - Limited power and influence - Provides technical support for the commodity manager - High - Tends to be Reflective style (M&R, 273) - Scientific in evaluating suppliers Buyer - Need strong commitment from supplier to be available for communication at all times - Locates potential suppliers - Performs preliminary analysis for CM - Responsible for placing orders - Limited - Varies At this stage, the buyer completes a Request for Proposal (RFP). An RFP analyzes all of the criteria discussed in the Evaluative Criteria section. The buyer then selects the top three suppliers according to the criteria and submits a report to the commodity manager. At this point, the buyer’s input into the selection process ends. After reviewing the report, the commodity manager contacts suppliers that he/she feels can satisfy IBM’s requirements. Negotiations typically take place at IBM’s San Jose site. Present in these negotiations are the commodity manager, the commodity engineer, and at least one representative from the prospective supplier’s firm. At the initial meetings, the evaluative criteria are reviewed and design specifications are discussed. The supplier is expected to bring product samples for inspection by IBM’s Precision Manufacturing Inspection department (PMI) (Stevens, Interview). There are three reasons why IBM would be interested in purchasing spindle motors from Nidec: price, quality and technological capabilities. These three capabilities are consistent with IBM’s evaluative criteria. Price - Since 1985, Nidec has been in the business of manufacturing spindle motors. This vast amount of experience has enabled Nidec to achieve economies of scale, producing each motor at a cost lower than competitors. Currently Nidec has a 70 percent world market share of the spindle motor market (http://www.nidec.co.jp/english/topics/index.html). In addition, Nidec is continuously working to reduce the cost of manufacturing its motors in order to pass savings on to customers. Quality - Spindle motors must meet rigorous requirements for precision, and Nidec has this capability. Not only does DPPM consistently hover around zero, the quality of each component exceeds that of the competition. Construction of dust-free, mist-free SPM (spindle motor) assemblies is strictly controlled by inspection throughout the manufacturing process. Final assembly of an SPM is performed in a Class 100 clean room (the highest classification), and strict measures are taken to prevent the presence of dust during manufacturing. Dust is the primary cause of head disk crashes and start-up defects. These malfunctions are expensive to repair and convey a low quality image (www.nidec.co.jp/english/product). These features help IBM because they are consistent with IBM’s reputation for providing a high quality product. Technological Capability - Nidec has had a long history of proactively innovating products to meet customer needs. Currently, Nidec is working with customers to improve the quality of its spindle motors, increase rotational speed, reduce noise, miniaturize components, increase shock resistance, lower power consumption, and strive for a higher level of cleanliness. Nidec also has a high level of line flexibility to adapt to IBM’s production needs. This means that Nidec will be able to respond to sudden changes in order quantity within a matter of hours (www.nidec.co.jp/english/product/index.html). The following is an excerpt taken from Nidec’s 1999 Annual Report. This excerpt summarizes Nidec’s commitment to providing the type of value IBM is looking for in a supplier. Nidec focuses on customizing products that meet customer needs for high quality at low cost. In addition, we emphasize speed in the identification of market needs, the development and commercialization of products, and final delivery to our customers. Nidec’s sales and marketing network concentrates on quickly acquiring critical marketing information and communicating this information to development and manufacturing operations. Nidec is able to leverage its core competencies in motor technology and harness development and manufacturing resources to create high-quality, competitive products that meet growing demand in markets around the world. This integrated marketing system is a key factor in differentiating Nidec from its competitors (http://www.nidec.co.jp/english/topics/index.html). IBM’s primary need is to speed up the hard disk drive development process and introduce products more quickly at a lower price. The following is our proposed solution to this problem: Decrease development cycle time from six months plus to less than four months To achieve this ambitious goal, suppliers must work together to develop an integrated hard disk drive. Both suppliers and IBM engineers should be simultaneously involved in the design process. IBM suppliers can collectively use their specialized knowledge to provide input in the design process. IBM engineers can provide detailed specifications and monitor the design process. Meetings in centralized locations should be used to accomplish this task. Nidec is extremely flexible in this respect because there are Nidec facilities in North America and Asia, where IBM suppliers are concentrated (see Appendix, Exhibit 1 for world map). Nidec even has the ability to facilitate this entire process. Currently, Nidec has working relationships with over 90 percent of IBM’s hard disk drive suppliers, including Kenseisha, Greenleaf and Sumitomo. These suppliers have expressed interest in working with us at Nidec to develop innovative solutions (we will bring written correspondence as a proof device to the presentation). Nidec can develop a partnership with IBM, working closely with their engineers to expedite the development process. Nidec will also perform the function of liaison between IBM and its other suppliers. This solution helps IBM design new products more quickly with less effort involved. Lower cost of spindle motors and other components by 50 percent over two years To decrease the price of its products, IBM will have to decrease the price of its inputs. Spindle motors are a major cost in the manufacture of a hard disk drive. More than 40 parts go into the production of a drive, and spindle motors alone make up more than 10 percent of this cost (Stevens, interview). Selecting Nidec as a supplier will automatically lower IBM’s cost 12 percent with successive decreases in the future. As IBM steps up production and orders more motors, the price will drop at least 50 percent over two years (see next page for detailed cost plan). In addition, Nidec’s cooperation with other IBM suppliers will enable them to lower costs as well. The result benefits IBM by providing a long-term plan to cut costs. Buying Condition Proof Device Feature Benefit Confirmation Question Agreement to lower motor prices over time Proven history of partnering with the customer to provide high quality products at low cost DPPM must not exceed .5% Production line consistent with IBM’s specifications of cleanliness and quality See Figure 2, which outlines a plan for price reductions See page 9 above specifying Nidec’s commitment to partnerships See Appendix, Exhibit 3 for ISO certificate See Annual Report page 12 (currently not available to be turned in) Economies of scale allow Nidec to offer lower prices Nidec takes a partnership approach in dealing with its clients Nidec’s DPPM is at .3% Nidec uses a Class 100 clean room for SPM manufacturing Lower costs will help IBM compete in the industry Decreases product design time Scrap rate for IBM will improve IBM will receive SPM’s that are higher in quality Is an agreement to lower costs by 50% over two years satisfactory? Are we correct in concluding that you would like to decrease the time involved in your design process? Is this rate of DPPM acceptable for you? Does this meet your specifications? The objective of this sales presentation is to close the sale in one visit. Ideally, our close will entail convincing IBM to agree to use Nidec as its sole spindle motor supplier for at least two years. If we are unable to secure this type of commitment in a single visit, we would at least like to schedule an appointment for a commodity engineer and commodity manager from IBM to tour Nidec’s San Jose facility. Our presentation strategy will be persuasive in nature. IBM is already familiar with spindle motor technology, negating the need for an informative presentation, and both the commodity manager and the commodity engineer have the technological expertise to recognize a superior spindle motor manufacturer. Our strategy is to persuade IBM that Nidec is superior in this respect. The following are key aspects of our strategy adapted from pages 235-237 of Selling Today: Solidify the relationship already developed with IBM - In our scenario, Nidec has had a history of selling cooling fans to IBM. Using our established relationship with IBM, we will attempt to increase our product offering. We will demonstrate how both IBM and Nidec will benefit from this relationship. IBM will better be able to meet its goals of faster design and lower production prices. Nidec will benefit from the hundreds of thousands of spindle motors that IBM would order. - In the process of solidifying this relationship we will emphasize Nidec’s commitment to the double-win philosophy. Demonstrating this commitment will encourage IBM to agree to a new venture with Nidec. By agreeing to perform the service of a liaison between IBM and its HDD suppliers, we will show our commitment to the attainment of IBM’s goals. It is out of the ordinary for suppliers to voluntarily assume this responsibility, but we will emphasize that this type of cooperation helps ensure the survival of the industry by cutting costs, and therefore increasing profits. Sell benefits and obtain customer reactions Nidec’s long term cost-cutting philosophy IBM will save money and be a more effective competitor against Seagate 24 hour support for IBM’s production process IBM will be able to minimize the amount of time a line is down Product features such as miniaturization, increased rotation speed, fluid dynamic bearings and increased density IBM’s products will reflect this superior quality, enhancing the company’s reputation Nidec’s DPPM is approximately .3% IBM will save money by scrapping fewer motors Class 100 clean room IBM will receive higher quality parts, free of loathsome dust particles Minimize the negative impact of change - Nidec understands that the solution we are proposing is different from traditional solutions. IBM may be reluctant to trust a supplier to become so involved in the design process of hard disk drives. At first, IBM will likely fear that involving all suppliers puts trade secrets and other proprietary information at risk. By increasing IBM’s trust, Nidec will be able to assure decision makers that IBM’s secrets are safe. It is not in Nidec’s interest to allow secrets to leak, so Nidec will make sure this does not happen. Place the strongest appeal at the end - The approach described above cannot be mentioned too early. We must convince IBM of other Nidec qualities before broaching such an extreme topic. When we are convinced that IBM is interested in the possibility of Nidec as a spindle motor supplier, we can discuss the actual details of the arrangement. - Three important words stand out in the mind of IBM commodity managers and engineers: money, quality and technology. Throughout our presentation, we will continuously use these words to point out Nidec’s features and describe how they will benefit IBM. Our textbook mentions several other key words that will be prevalent in our presentation, such as “you,” “save” and “partnership” (236). We will use persuasive vocabulary to achieve our objective of closing the sale. - We have identified a key story to use in our sales presentation to IBM. We have named this story “A Whisper’s Worth a Thousand Words.” This story is about a diligent design team at Nidec who worked day and night to develop the most innovative spindle motor in the world. In the amount of time it usually takes to design a simple variation of a conventional motor, this team designed a motor that was .25 inches in diameter (industry standard is 2.5” and Nidec’s standard is 1”), with a maximum noise level of 20 decibels. This noise level is the equivalent of a whisper (www.nidec.co.jp/english/topics/index). Location - Meeting room building 28 at San Jose, Ca site. This location is close to Nidec’s San Jose design facility. This building also houses the offices of all IBM commodity managers and commodity engineers from the HDD division (See Appendix, Exhibit 2 for map of location). Conference Room Specifications (See Appendix, Exhibit 4 for diagram) - Equipment - laptop equipped with PowerPoint and Internet connection - Furniture - large round table, comfortable rolling chairs, many windows - Refreshments - fruit, bagels, cookies, coffee, tea, soda, waterOutline and Timetable - Approximate time 30-40 minutes We will bring a sample motor to show IBM in the presentation. Due to the complexity of the product and the degree of components involved, we will not be able to demonstrate the motor in action. However, we will be able to illustrate features such as size and density. In order to illustrate the features of Nidec’s spindle motors and show how they benefit IBM, we will bring diagrams of the spindle motor architecture (see Appendix, Exhibit 5). These diagrams will help us illustrate the improvements Nidec has made with motor technology over the competition. Seeing the internal workings of the motor will aid IBM in appreciating Nidec’s technology. We are in the process of securing the November 23, 1998 issue of Business Week. In an article about the top 100 IT companies in the world, Nidec was ranked number 53. The article says that Nidec is the ultimate in spindle motor manufacturing. Our presentation will consist of a variety of graphs to help illustrate the ideas we are trying to present to IBM. One chart we are considering using compares Nidec’s motor specifications to IBM’s current supplier, Bantel (See Appendix, Exhibit 6). The bulk of our presentation will be executed using PowerPoint slides. These slides are flexible and easy to understand if done correctly. We pledge to make PowerPoint an aid in our presentation, and not use it as a crutch. We understand that we must engage our customers to maintain a positive relationship and close the sale. Negotiating Buyer Resistance and Closing Anticipating Sales Resistance Negotiating Sales Resistance Type What IBM Might Say Methods What Nidec Will Say and Proof Devices Time Price Source Product “I need a few days to review your proposal.” “Yes, your price is reasonable, but I’m uncertain you can reduce your price over time. Is it a better value than I’m currently buying?” “I need to confer with my superiors.” “I’m concerned about the long-term reliability of your product.” Direct Denial Question, Superior Benefit Indirect Denial Direct Denial “As I understand it, time is a critical issue for IBM. If we can get a contract in force today, our engineering team can get started next week. “Yes, we provide high quality products, and we will work with you to lower prices.” Proof device ISO certificate and Figure 1. “I understood from our previous conversation that you had buying authority.” “Our product is sound and meets the more stringent quality levels.” Refer again to ISO certificate. Closing and Confirming the Sale Worksheet Verbal and Nonverbal Closing Clues Method of Closing What You Will Say and Proof Devices Agreement with each benefit Agreement after an objection to price, time, or source Appears enthusiastic and impatient Agreement with all benefits but will not, under any circumstances, go over budget Agreement with all benefits except closing today Trial close attempt. Summary of the benefits and direct appeal Trial Close Assumption Special Concession Negotiate the Single Problem “You appear interested. Shall we proceed to the sales agreement form?” “Let’s review what we have talked about … May I get your signature?” “Since we have sorted out your concerns, and you do not seem to have any other matters to discuss, may we assume you would like to place an order?” “What do you say to locking in this contract now and catching an early lunch?” “As we understand it, you are willing to purchase if we can help you stay under budget? We can offer you a 2% discount for signing today.” “Let’s set up another meeting Wednesday to allow you to get all the necessary approvals.” Responsibility Distribution Among Team Members All team members were responsible for writing the paper and conducting research. For the presentation, three of our group members will represent Nidec’s selling team, and one group member will work as an IBM commodity engineer to assist Dr. Tietje, the commodity manager, in the technical aspects of making a buying decision. Contingency Plan for Unexpected Occurrences Mark Twain used to say that it took him about four hours to prepare a good impromptu speech. By clearly knowing the roles and the lines of all involved, we hope to create the same type of mystique. Our presentation will be battletested, and our people will be ready for the barrage of question that reasonable decision makers will be likely to ask. Each member’s role will have a purpose in the overall strategy of Nidec’s presentation to IBM. If any problems happen to arise, we will also have the following prepared: backup transparencies in the event of a PowerPoint failure or other computer glitch. If a team member is unable to attend because of his/her own funeral, job stress resulting in mental ward “supervision,” or a thermonuclear disaster, our team will have practiced enough to split the absentee’s role among the remaining group members. Any other surprises will be handled in a way that reflects our lightning-fast reflexes. Exhibit 1 - Nidec production facilities Exhibit 3 - ISO 9003 Certification THE INTERNATIONAL CERTIFICATION NETWORK Holds the Management System Certificate for the scope specified thereon and for standards Klaus Petrick Validity of the certificate: Thomas Zainer Dr. Klaus Petrick 20.09.1998 to 19.09.2001 Thomas Zahner President of IQNet Managing Director SQS Exhibit 5 - Cross Section of Nidec Spindle Motor Supplier Motor Diameter Error Tolerance Bearing Type Noise Tolerance NIDEC 1 inch .1 Microns Fluid Dynamic 20 dB BENTAL 2.5 inches .15 Microns Solid 25 dB Smaller diameter allows for faster rotation, decreased raw material needs Smaller tolerance creates more efficient rotation with decrease in power consumption Fluid Dynamic Bearings are more shock resistant and reduce friction Decreased noise is beneficial to the sale of the end product Demas, Christine. Request for Proposal Guidelines. IBM Internal Document. July, 1998. IBM. IBM Servers Homepage. 14 Jan. 2000*http://www.ibm.com/servers/*. IBM. What Can AS/400 Do For You? e-business and Web Serving. 16 Jan. 2000. *www.as400.ibm.com/overview/tourebiz.htm*. Manning, Gerald L., and Barry L. Reece. Selling Today: Building Quality Partnerships. New Jersey: Prentice Hall, 1998. Mapquest. Find a Map. 2 Feb. 2000. * http://www.mapquest.com/cgi-bin/ia_find?link=ia-map-form&uid=u7g884v8qg.9v0rj:as0fynl68&no_map=true&banner=select&random=794*. Nidec. Nidec Home Page. 29 Jan. 2000 *http://www.nidec.co.jp/english/product/index.html*. Nidec. 1999 Annual Report. 31 Jan. 2000. *http://www.nidec.co.jp/english/topics/index.html*. Stevens, Gregg - Commodity Manager, HDD/SSD division. Personal Interview. 17 Jan. 2000. Bibliography:

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