Group Syndicate 2 – GM10:


•  Christian Ebenhezer
•  Christian Surjadi
•  Christine Yezzie
•  Derida Lazuardi
•  Faisal Akbar
•  Faisal Angga
 Company Profile – Daikin Industries, Ltd.
q Founded by Akira Yamada in 25th October 1924
q Mainly operates in Japan, China, Australia, United States, India,
South East Asia, Europe, Latin America.
q An Innovator in the split system air conditioning market.
q Daikin’s Business
Division:
q  Air Conditioning q  Oil Hydraulics
q  Chemicals q  Defense Systems
q  Air Filtration q  Electronic Business

As of 31st March 2019. There are 76.484 Employees working

globally for Daikin
Main Company Issues –
Daikin Industries Ltd.
Main Issues:
q In June 1998, Mr. Toshinari Oka has a gloomy news about the
forecast of a “Cold Summer”, meaning a less warm summer.
q Daikin had large quantities of Finished Goods in inventory.
(wrong sales forecast).
Main Background Issues:
q Daikin Sales of residential air conditioners are really affected by
Summer temperatures.
q Even on an optimal temperatures, Daikin is barely making profit.
q Toshinari Oka has two weeks to decide on how to proceed after
hearing this grave news.
 Market Industry’s
Condition
At this time, 1998, There are 10 Players on the
market:
q  Matsushita (Panasonic + National), q Sharp,
q Mitsubishi, q Sanyo,
q Hitachi, q Fujitsu General.

Ø Industry demand in recent years had been static

due to Japan’s lengthy recession.
Ø I ndustry Players focused their efforts on
increasing their share of “Replacement Sales”
due to the near zero growth market.
Ø Residential Air Conditioners has an MTBF of 10
– 12 Years.
Market Industry’s Condition – Cont.
Residential Air Conditioner market shares for the case:

Manufacturer Market Share (%)

Matsushita 18.0
Mitsubishi Electric 15.0
Toshiba 11.0
Hitachi 10.5
Sanyo 10.0
Daikin 9.0
Others 26.5
 q Daikin had 600 Combinations
of options and functionalities
q D aikin’s Products design
c h a n g e s e v e r y y e a r , s o
i n v e n t o r y p r o d u c t i o n i s
determined to be enough only
for that year to avoid carrying
over.
q Daikin had sold about 180.000
units by the end of May 1998.
q Daikin served the domestic
market through 21 regional
sales company

Daikin Industries q Sales Companies use “Pre-PO”

that can be cancelled within 1
month before requested
Supply Chain delivery date.
Daikin Industries
q Products were shipped by
Supply Chain – Cont. truckload from the factory
directly to retailers' warehouse
nationwide once a week.
q Deliveries took two days and
Retailers have and control their
own regional warehouses.
q During peak season, additional
mid-week deliveries were made in
response to urgent orders from
retailer warehouses.
q Small retailers that do not have
much inventory space, only stock
what they expected to sell over
the weekend, plus a safety
margins.
 Daikin Industries
– Factory &
Assembly
Daikin only have one production base for residential
Air Conditioners. Located 20 miles from Daikin’s
Corporate HQ in Osaka, Japan.
Daikin has approximately :
•  100 components in each product.
•  20 components were varied to produce 600 different
products
•  80 components were common across the model.
•  Assembly divided between interior and exterior units.
•  Indoor unit: produced on four automated lines before
merging into the final assembly
•  Outdoor unit: mostly produced automatically.
Daikin Industries –
Human Resources
•  330 permanent employees
•  600 temporary workers at the peak
Hourly workers paid slightly more than the
wages that were paid to full-time.
Permanent workers had an unbalance
schedule to help addressing the seasonal
peaks
Temporary workers were given first
consideration for full-time employment
when the factory required more
permanent workers
Daikin
Industries –
Production
Planning
q  Production Planning is updated once a
month
q  Averaging 60 product variants each day
being produced
q  Centralized control over all finished goods
inventory
Highly seasonal demands forced the factory
to carry large inventories
Daikin Industries –
Research & Development
Daikin’s Research and Development controlled mainly in Shiga
Factory
Notable Research and Development Task:
•  Factory’s Reliability in Product Deliveries
•  High Quality inputs
•  Factory Efficiencies

Notably remarks:
Cost Reduction efficiency of 50 Billion Yen over 3 years.

Although the number still not enough to surpass Daikin’s

competitors as claimed by Toshinari Oka.
Toshinari Oka’s Three
Decisions to make
#1 Product Consolidation. Reducing the
product variants from over 600 products.
Pros:
-  Improving the operational efficiency.
Cons:
-  Unable to be done in short time
-  Providing maximum choice was an
explicit sales strategy for Daikin, if not
careful, Daikin Product Consolidation
may backfire to the company’s sales.
Toshinari Oka’s Three
Decisions to make
#2 Build a Factory Outside Japan
Pros:
-  Lowering the Direct Labor cost
-  Stronger emphasis on Competitive Prices
Cons:
-  The employees in the effected areas at Shiga
Factory would have to laid off which is
breaking the company’s long-standing policy
of ‘no lay-offs’
-  Relationship with Suppliers is in ambiguity
-  Other Stakeholders might be effected.
Toshinari Oka’s Three
Decisions to make
#3. Exit the business
Pros:
-  It may be a good time for
Daikin to exit the business
while it still profitable
Cons:
-  It means Daikin may forfeited
any future opportunities that
resides for the company
Question and Answer
 1.  D a i k i n h a d a l a r g e o v e r
What is your production in anticipation of
assessment strong summer sales that turns
of the out false.
problems 2.  Daikin’s president at the time
confronting Mr. Oka also concern with the
future of Daikin
the Shiga
3.  Three Mr. Oka’s option as
Factory of described in the case.
Daikin
Industries?
 Strengths:
•  Widest Variety of product lines
What are the •  Highly trained and well-maintained Employees
strengths and •  Great relation with the supplier in terms of
contracts and customer in terms of product service.
weaknesses •  Sales Companies exclusive partners.
of Shiga •  Have own subsidiary of Daikin’s AC component.

Factory Weaknesses:
•  Insufficient supply in relation of responsiveness
relative to the •  Bad forecasting practice that is done only once a
competitors? month, makes it difficult to allocate inventory
•  3-week lead time on one of the production
components
•  Lower Cost efficiencies than other competitors.
 Short Term Action:

1.  Product Consolidation for this summer

Cutting down on the number of product combination in the priority from product with the

worst profit margin for Daikin.
As Mr. Oka, 2. 

New Forecast & Pricing justification for this summer
what short- Making an assessment for the new forecast after knowing the unexpected cold summer.

term and long- Adjusting price and making marketing deal accordingly to avoid excess inventory for that fiscal
year
term actions
Long Term Action
would you
recommend to 1.  Start building own retail store

This is to assess the Pre-PO cancelation issues from the case

your BoD?
2.  Start to independently producing own vital material production So it does not
How would you depend on the suppliers

justify them? This is meant to reduce the material cost and dependability

3.  Start to outsource their variable cost

Making a new factory in China to significantly be more competitive in-regards to production

cost efficiencies.
 The main step in the Daikin Industries air conditioner supply
chain regarding to the information flow based on the case:
Which step 1.  Consumers placing orders at the retailer

in the supply 2.  The retailer place orders with a sales companies
3.  The sales companies make Pre-PO to Shiga Fact.
chain, if any, 4.  Shiga factory’s production planning starts figuring out how
would you many each unit it needs to produce.
5.  Based on the production planning, do a purchasing orders on
like to suppliers

tighten up or 6.  HR get the numbers of employees they need to hire (Full-time/
Part-time/Temporary) to do the work.
eliminate? If 7.  Shiga factory informs the sales companies of when the order is
expected.
so, how 8.  The sales companies inform the retailer when they expect their
shipments.
would you 9.  The retailer inform Consumers when they can expect their
proceed? orders.
 Which step The main step in the Daikin Industries air
conditioner supply chain regarding to the Physical
in the supply flow based on the case:
chain, if any, 1.  The suppliers provide the material needed for production of Shiga
factory.
would you 2.  After getting the materials needed, Shiga Factory produce
according the production plan.
like to 3.  Then Shiga factory ships products from its warehouse the
retailer’s warehouses.
tighten up or 4.  The retailer delivers / sells the products to the Consumers.

eliminate? If
so, how
would you
proceed?
 After assessing the case and do some research around Daikin
Industries’ inventory and products our group has concluded some
of the things that can be drawn:
Which step 1.  One of the big reason Daikin can’t keep a lot of inventories at
hand, is because there is a big product varieties and short
in the supply product lifetime cycle.
2.  Daikin’s competitor most likely has a lot more efficiencies in
chain, if any, their product cost due to the fact they already has foreign
factory settled.
3.  Although efficiencies seems to be the number one concern of
would you Toshinari Oka, Daikin Industries’ responsiveness also a vital
weakness of Daikin Industries to remain competitive in the
like to market. Slow supply chain = lack of sales.
Therefore the supply chain improvement our group propose:
tighten up or 1.  Sales Companies need to have a strict PO versus Pre-PO balance
to reduce the cancelation rate of Pre-PO.
eliminate? If (Information Supply Chain #3)
2.  Also having the sales company also have their own retailer shop
so, how (Information Supply Chain #8, #9 )
3.  Daikin need to slowly increase the rate of in-house material to
produce. Decrease the dependencies and communication on
would you Supplier. (Information Supply Chain #4, #5, #7)
4.  Direct Shipment option from Factory to Consumers.
proceed? (Physical Supply Chain #2, #3, #4)
 Would a
move to low-
cost country
such as
China be in
your plan?
 We totally agree with the plan but we also think Daikin needs to
proceed with caution in regards how it plan the outsourcing.
Daikin Industries should keep in mind the stakeholder
risk for suppliers and consumers. Such vital questions to
be answered:
-  “Will consumers will keep buy their products if it were made
in China ? (assumed country)”
Would a move -  “Will Daikin still have a great relationship with their
to low-cost suppliers?”
-  “Will Daikin face a scrutiny in their country in regards of
country such moving/expanding their main factory to China (assumed
country)?”
as China be in -  “What is the fate of Daikin’s current workers back in the Shiga
your plan? Factory?”
-  “What are the parts they want outsource to China and Why?”

Long term Political and Legal risk also need to be addressed by
Daikin to ensure a smooth transition of their factory.
THANK YOU
Any questions?