Summary of Key Issues
* OXO has been outsourcing product manufacture and design to other companies and achieved growth through successfully managing the partnerships using strategic agreements that benefitting the company. * However, Smart Design, the only design company that takes charge of all the product development process, may create some risk for OXO. * OXO’s new line of product is now in the needs of large capacity of 3D-CAD modeling and engineering, which Smart Design can’t meet with the current royalty-based fee. * Option 1: Establishing its own in-house design department at OXO. * Option 2: Continuing to work only with Smart Design, while pay a non-royalty based design fee. * Option 3: Outsourcing design to firms with strong engineering capability in Chicago. * Option 4: Outsourcing design to small and new New York based Firms, while contract with outside engineering firms.
OXO is a successful example of the how company could become successful through identifying opportunities, organizing the resources and building up partnerships strategically. One of the key of OXO successes depends on the concept the company is built upon: to develop everyday tools with improvement on quality, comfort, safety, design with affordable price. To develop product fulfilling these qualifications, Sam Farber, the founder of the company, created a lists of steps for design innovation process: 1. Identify the needs of consumer
2. Research the market
3. Analyze the results of the research in relation to your original goals 4. Present the first conceptual design to the project team 5. Develop the design
6. Approve final design
7. Develop the marketing plans
There is a lot of effort devoted into understanding customers’ need. The team carefully analyzes the current competitive products and tests hundreds of model carves out of cheap Styrofoam.
In addition to its product concept, I think the most important factor of OXO’s success is strategically outsourcing the process and carefully choosing partners. OXO chooses manufacturer with low cost and high quality. Because the design of the tool is the core of OXO, it uses several small manufacturers to prevent leaking the designs to competitors. To monitor the shipment and check quality of the manufacturer, it uses agents with a cost of 5-10% of the product cost. It also works with warehousing service on a variable expense basis. By late 1996, 10 manufacturers in Taiwan and 10 manufacturers in China found by one agent in Taiwan and three agents in Hong Kong had worked with OXO. Different parts of the products may be produced in different factories, and factories vary from big ones with 500-600 workers to small garage-like structures factories. These Asian factories provide OXO with cheap labor. Also, the manufacturers in China absorb tooling change costs for OXO, reducing the cost while consuming more time on communication of specification of tools.
Among all the partners, Smart Design adds the core competence to OXO. After OXO decides on a product, all product development was done at Smart Design, a company located near OXO’s headquarters. Smart design not only works for...