Sunrise Medical, Inc.

Executive Summary:

We recommend that the Quickie division focus on “Custom” wheelchairs and related equipment, while the Guardian division proceeds with the plans to develop a mass produced “standardized” lightweight wheelchair. However this product must be developed using more standard parts compatible with Invacare and E&J products, so as to make the switch over, for hospitals and other rehabilitation centers, easier and cost effective. Sunrise should also consider combining both the sales teams and implement a unified order system for all its divisions.

Sunrise Medical, Inc. is a manufacturer of products used in the rehabilitation and recovery phases of patient care, e.g. wheelchairs, crutches etc. In 1994 the company is faced with conflicting objectives among its divisions. Sunrise provided total divisional autonomy in a decentralized model. Quickie is the largest and most profitable division of Sunrise, and its Guardian division plans to add a lightweight standard wheelchair to its list of product offerings, which is already offered through the Quickie division.

Mission Statement:

Quickie: “Global product and service leadership in custom wheelchairs and related equipment”
Guardian: “To be the undisputed global market leader in … standardized healthcare products used for walking, bathing, toileting, patient handling and mobility”

Both divisions have very distinct mission statements; they both target different user groups and require different approach for sales and marketing. So far both divisions have enjoyed autonomy for their operation and business development. However as the competition, from other companies and also internally, increases, Sunrise will have to make strategic decisions for the company as a whole so as to maximize profits and increase its market share.

SWOT Analysis:

Exhibit 1 shows the SWOT quadrant. We know that Sunrise has been able to develop its brand name over the years and there is strong brand recognition it has also been able to secure the leadership position in the custom wheelchair segment. Sunrise also has a very unique corporate culture which has reduced its employee turnover to only 8%, also the company encourages its employees to contribute in making the company more efficient and innovative. The new product offering should be made with specifications similar to products from E&J and Invacare so that hospitals and other centers can make use of the spare parts already stocked.

Sunrise has not been able to grow exponentially due to the decentralized and autonomous divisions; there might be overlap in product offerings and loss of business due to decentralization. Sunrise does not have a unified ordering system, representatives from both divisions have to take orders for their respective division, increasing the burden on dealers and causing a waste of resources for Sunrise. Sunrise has international vendors for their parts which increases its manufacturing costs, this negatively affects the profit margin. Also there have been some issues with this vendor in the recent past.

There is a growing demand (12-15% growth expected) for lightweight standard, ultra light and powered wheelchair market. Medicare covers under its plan coverage for Standard and has recently added coverage for Lightweight Standard up to $850, this would increase the demand for this product line. Also Quickie only manufactures “custom” Lightweight wheelchairs, if Sunrise was able to manufacture in large quantities it would be able to reduce costs through economies of scale, and also reduce the time to deliver the product to the customer.

Invacare has a complete assembly plant in Mexico which has reduced its cost of production and passes this on to the dealers giving them more margins. As the number of product offerings increase the margins will be squeezed making it non-profitable in the long run.

Value Chain:

Exhibit 2 shows the Value chain. Sunrise follows a JIT inventory management and autonomous teams are used in production. They have vendors who are able to supply parts directly to the production floor. Since they depend on these suppliers for their frames, their production cost is 10% higher than Invacare, which manufactures most of their parts internally.

The two brands under which Sunrise sells its wheelchairs are Quickie and Guardian. They both target a unique customer market. Quickie attracts customers who are younger and individuals with an active lifestyle who like to customize their wheelchair and have specific needs. The Guardian wheelchairs, on the other hand, attract older patients and hospitals and rehabilitation centers, where standard equipment is more commonly used.

Most orders are fulfilled within a four to eight week period. Orders are received through retailers and the distributors place orders with the company. The distributors are sold wheelchairs at a discounted price ranging from 40% to 50% lower than the list price of the wheelchair; however there are no discounts given out from the retailers to the customers.

Sunrise has a very high level of customer satisfaction, it is able to target a broader market and serve the needs.

Distribution channels:

As it is stated in the mission statement Quickie is more focused on customized products and is targeting new, young users, athletes and active patients. That is why the company uses Rehab suppliers and General HME dealers as their distributors. General HME dealers account for 40% of Quickies revenues but the competition is severe as all three companies are using the same distribution channel (Invacare and Guardian). If Quickie’s management team decides to focus more on customized products they will increase their market size through rehab suppliers and probably pass on some of its market share in the General HME distributors to Guardian.

On the other hand Guardian is selling their products through General HME dealers and Medical and surgical distributors. They are mainly targeting elderly people in hospitals and nursing homes. When Guardian introduces the new type of wheelchair and because of the change in the new regulations, the company will be able to obtain a large amount of the lightweight standard market. They will not have to change the distribution channels already used and they will not have to compete directly with the Quickie division.

Challenges Faced by Sunrise Medical, Inc.

Sunrise has two main competitors, Invacare and E&J; of these Invacare is the largest competitor and more aggressive. Invacare also has a lower operating cost with manufacturing unit in Mexico and hence is able to offer higher margins to its dealers.

Sunrise has two out of the four top US brands and can penetrate the market. Also by introducing a wheelchair compatible to those of its competitors Sunrise will increase its market share and its profit margins. In addition the company will reduce its delivery time by mass production of standardize models. Quicker delivery will enable them to outperform their competitors and gain a big share of the lightweight standardized wheelchair segment.

Sunrise as a company accounts for almost 50% of the wheelchair market. The company has a financial leverage due to its size and also bargaining power on the dealers and all three distribution channels. They are in a position to set a benchmark for other companies to follow, but both divisions have to work in unison.

Finally by introducing a combined sales force Sunrise will have better results as Quickie has expertise in sales and excellent customer service. With a combined sales force the administrative costs will be reduced and also more efficient. Quickie’s operating profit margins are better than its competitors and Guardian. With Return on Sales (ROS) of 9.7%, 3.9% higher than Invacare has a competitive advantage. Guardian’s ROS is only 2.6% but still over the industry average. It’s essential that Guardian improve its operation, restructure its business model and change its strategy by entering untapped segments of the wheelchair industry and other related products.

Guardian’s restructure is crucial and challenging as it is difficult to cut costs and integrate the two divisions with distinct business models and cultures. Quickie is a more innovative and marketing driven company than Guardian which is a more traditional company. Implementing a common sales system and customer service implies that both companies share the same core values and culture.

In addition both companies face severe competition as Invacare and E&J have lower manufacturing costs and they offer better deals to the distributors. Guardian will shift to the mass production of wheelchairs but they are not going to be the only players in that segment. Walking on an unknown path is challenging as the regulations and customer behavior change constantly.

Conclusion:

We recommend that Sunrise consolidate their sales force; maintain different divisions for better productivity and competitiveness (efficiency). Maintain the standard wheelchair and launch a lightweight standard wheelchair under the Guardian brand with same parts as E&J and Invacare. This should be mass produced and they should use methods of distribution for both Quickie and Guardian; install a single order system and also maintain its culture.

The above essay was written by a college student and merely states opinions of a college student. However, if you feel strong about responding to the opinions stated, please write to articles@directorym.com and express your concerns.