PRIDE Industries was established in 1966 with an aim of providing employment for people with a wide range of physical, and emotional disabilities. The company provides support, training, and opportunities to people with disabilities by creating jobs through its business enterprise, and by partnering with other organizations in the community. Since its establishment, the company has diversified its businesses to offer manufacturing, supply chain, and facilities service solution to companies and government agencies. The company works under PRIDE Industries and PRIDE Industries One Inc. PRIDE Industries offers employment to people with severe disabilities while PRIDE Industries One Inc employs people with a wide range if disabilities. The organization operates two major division including Manufacturing and Logistic Service (MLS) and Integrated Facilities Services (IFS) to deliver its services. PRIDE has proved to be a successful company, and as at 2012, the company had about 47000 employees including 26000 with disabilities, making it the largest nonprofit organization with people with disabilities (Wright, 2014).
Most Important Facts Surrounding Pride Industries
One of the business operations that have helped pride to become successful is the surface mount technology business. Surface mount technology (SMT) involves the construction of the electronic circuit by mounting small electronic components, such as capacitors and resistors directly on the service of printed circuit boards (PBS). The technology replaced traditional circuit boards that used through-hole mounting traditions. For years, there has been an aggregating demand for surface mount devices, thus creating huge opportunities for the company. However, PRIDE faced a big challenge in advancing its SMT operations since their machines were becoming outdated and could not handle small electronic component that the customers required. Several companies wanted to do business with PRIDE, but they were not interested in the existing SMT technology at the company. Nevertheless, despite the outdated machine and equipment, PRIDE saw a big opportunity in the SMT technology. The revenue in the electronic segment in the financial year 2011 doubled as compared with that of 2010, and it was expected to increase by 20% per year if the company purchased new machines.
To maximize its efficiency, PRIDE decided to redesign its operations by improving committing to the electronic contract manufacturing business since it provided more jobs for people with disability especially the SMT line. One of the proposals for the company to improve its SMT technology was to acquire new SMT machines for $2.6 million. Initially, the company had budgeted for $1.3 million of the amount, but the company decided to install two line of production that would serve as a backup for each other in case of breakdown and hence the cost doubled. Although the capital expenditure was a huge expense to the company, PRIDE believed that it would offer several potential rewarding opportunities that are in line with company’s mission of providing jobs for people with disabilities. Nevertheless, there were several inherent risks associated with the investment decision but the management felt it should continue. The timing of the investment was favored by the onshoring trends where most companies preferred carrying out their production activities onshore rather than offshore (Wright, 2014). There was also a growing trend in the US where customers preferred things that have been assembled in America than those assembled offshore (Wright, 2014).
Problems Facing the Company
Despite its success in both MLS and IFS operations, PRIDE Industries has been facing several challenges in recent years. One of the major challenges is the outdated machines in the SMT technology. The old machines are incapable of meeting the growing needs of the customers. Most companies believed PRIDE was a good company to partner with, but their aging equipment created concerns compared to other prime manufacturing partners hence the company lost most of its business to its competitors. The company had purchased old SMT machines that were 15 to 20 years old from Singapore and Mexico. Although the machines performed adequately, they were considered to be of inferior quality.
In consumer products, electronic components were shrinking to allow manufacturers to increase their capability without increasing the size. As a result, there was a need to reduce the size of components such as capacitors and resistors to accommodate more components on a small chip. PRIDE technology had limited capability of mounting small electronic components and had relatively low yield.
Another major problem that faced the company was the operation management. For years, the company operations have served some customers well but the company failed to invest in the operation. As a result, the company was overtaken by its competitors for lagging behind in terms of technology. The company later hired Weatherfield as a director of operations to help in re-energizing the operations. The company also suffered from a lack of offshore production. The offshore production offered low production cost to most of its competitors due to cheap labor in offshore countries, such as China and other countries in Asia. Despite knowing the economic reality, the company was confident in onshore production despite the high cost.
Alternative Course of Action
PRIDE Industries has been performing well in the business despite the existing issues. It is evidence that there are several rewarding opportunities if the company re-design its operations and address the underlying issues. There are several ways that PRIDE can apply to maintain its profitability and achieve its mission of providing employment to people with disabilities. One of the alternative courses of action is to invest in new SMT machines. It is projected that the new SMT machines would cost the company $1.2 million, but it will offer several opportunities to the company by increasing production as well as the quality of its products. The company could also invest $5.1 million in IFS business to acquire new equipment and purchase office equipment, pickup trucks, and vehicles among others. The new equipment would help the company to expand the contract with a major military base and improve service delivery.
The other available option that could be applied by PRIDE is to extend its operation offshore. Like other manufacturing contractors, the company could start its production in China and other Asian countries where there is cheap labor. The company should also redefine its operation process to improve its efficiency.
Evaluation of Alternatives
As indicated, one of the alternatives for PRIDE Industries is to invest in new SMT technology. The technology will cost the company $1.2 million, which will be used to acquire new equipment. The investment will help the company to improve its production by enabling it to produce smaller mounted electronic components that are in high demand. The quality of production will also improve, and the company will be able to handle huge production units. The new investment will enable the company to have two line of production that will act as a backup to each other in case of machine breakdown. This would increase the confidence of several partnering companies hence more businesses to the company. However, the investment is highly risky for the company to realize the desired outcome. Currently, the company is depending on future predictions in the electronic product market to make the investment decision, and this can be affected by economic, political, and environmental changes.
Investing $5.1 million in IFS is a viable option to the company. In this line of business, the company offers it services to the federal government and its agencies hence the investment will be supported by the contracts from the government. Hence, pride industries should invest in the business due to low risk of investment. The investment will also help the company realize its mission of hiring people with disabilities.
In moving its production operations offshore, the company is likely to reduce the cost of operation due to cheap labor offshore. However, the current trend in manufacturing contracts is predicting that most companies will return their operation in trend in USA (Schmeisser, 2013). Most companies are slowly returning their operations from offshore to US. Customers also prefer products manufactured in America hence it is highly risk for the company to take its operations offshore. Producing offshore will also be in contracts with company’s mission of providing employment to people with disabilities (Wright, 2014).
Recommendation for the Best Course of Action
From the evaluation of alternatives, I recommend PRIDE Industries to invest in the IFS technology since the investment is profitable, and the risk of investment is very low. The investment will be supported by federal government contracts, and the company offers most of its services to government agencies, such as the military base. Thus, the return on investment will be high, and the business will be profitable in future. The company should also invest in the SMT technology despite the high risk on investment. The company already has potential contracting partners that believe in its products. The payback period of the investment is also very low, and the company anticipates a positive revenue growth of 20% for the next five years. Lack of investment in SMT technology would see the company experience a significant drop in sales as well as lose its existing customers. PRIDE Industries should avoid investing offshore since it would be costly in the long term and it will be against the company’s mission of job creation to people with disabilities (da Silveira, 2014).
Da Silveira, G. J. (2014). An empirical analysis of manufacturing competitive factors and offshoring. International Journal of Production Economics, 150, 163-173.
Schmeisser, B. (2013). A systematic review of the literature on offshoring of value chain activities. Journal of International Management, 19(4), 390-406.
Wright, L. (2014). Is training the solution? A qualitative study exploring an innovative approach to address the skilled craft workforce shortage at PRIDE Industries (Doctoral dissertation, Colorado Technical University).