MANAGING OPERATIONS

Managing Operations

Managing Operations

Introduction

The power tool industry consists of portable and stationary tools powered by electricity, gasoline, or air. Stationary tools such as table saws, band saws, radial arm saws, large grinders, and sanders are large, heavy units mounted on floor stands. Portable tools are hand held and mostly powered by an electric motor. The gasoline powered chain saw was one of the few portable tools with a no electric engine. Pneumatic power was largely restricted to automotive tools such as grinders, buffers, impact wrenches, drills, and hammers.

Portable electric power tools come in a wide range of sizes, prices and qualities Principal products were saws (circular, reciprocating saber, or jig); drills (corded or cordless, regular or hammer); and sanders (disc, orbital, belt, or combined sander/grinders). Other products included routers, planes, roto hammers, impact wrenches, polishers, and screwdrivers. Exhibit 1 shows domestic U.S. sales of portable tools by type of tool (Mentzer, William and James, 2001).

A typical company product line consisted of about 200 tools plus accessories, for which a variety of sizes and price points were available. The portable power tool market was becoming increasingly segmented by price point. Circular saws, for example, ranged in price from $24.99 to $199.99 with typically 20 price points in between, each point designating a certain level of quality, durability, horsepower, and other product features. A typical manufacturer had 15 models.

Portable electric power tools were used primarily for woodworking, metalworking, or automotive repair. Power tools could be broadly divided into professional (also called industrial) and consumer categories. Professional tools were designed for heavy-duty use and had higher horsepower and a longer useful life. They were marketed superior in quality and precision to those designed for the consumer. For example, the gears for a professional saw were made of steel, whereas consumer saw gears were made from powdered metal, a lower-strength material. Professional tools sold at higher prices and gross margins than consumer tools. For example, while a professional drill retailed at $100 or more, a consumer drill typically cost less than $50. The average gross margin for a consumer drill was 37% compared with 45% for a professional drill. Within both markets, the range of price, quality, and size gradations was wide.

As consumer tools were becoming more sophisticated and of higher quality, however, the traditional distinction between consumer and professional tools was blurring. As a result more and more trades people and other professionals were buying consumer tools, especially in developing countries where both markets were served through the same channels (Ireland and Colleen, 2005).

Product improvement in portable power tools took several forms. First was the use of battery power. Although the first cordless drill, driven by nickel cadmium batteries, was introduced in the early 1960s, cordless tools did not become commercially successful until the early 1970s. Cordless tools were generally less powerful than corded ones because of the limits of battery power and lightweight motors. They were generally regarded as consumer tools. As battery technology improved, professionals began using cordless tools for quick ...