Align Technology Case

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 ASAD AMIN

 ID #11108124        

                                                     Align Technology, Inc.

Issues

Align Technology was facing many issues; there are some factors that effects the cost and sales of the company.

• The core of the problem was that the average cost per case was higher than the average selling price and the Company was not meeting its financial targets.
• The demand of Align’s product was less than the actual manufacturing capacity and Company’s policy (excess production capacity) to prevent delivery restraints.
• The orthodontists had been slower to adopt invisalign and they charge a premium cost.

Analysis

The average cost of a case is calculated as an average $200 more than its selling price. This is the main cause through which the company was still far from profitable. There were two parts to the challenge of lowering the manufacturing costs: reduce the fixed costs and reduce the variable costs. The company can reduce the cost by downsizing the extra labor from treat operations and SLA mold fabrication (See Exhibit 2). They can devise new technologies and procedures that reduced the variable costs, company can save a huge amount if they practice this thing.  However, manufacturing fixed costs were too high because Align Technology had scaled its production capacity far above the real demand just because to achieve high tolerance and high volume manufacturing.

The demand for Align’s ingenious product fell short of its manufacturing capacity and therefore, the company was not getting its financial targets (See Exhibit 3). It was estimated that in the United States alone over 200 million people had some form of malocclusion, or the misalignment of teeth, while less than 2 million per year actually began orthodontic treatment. The marketing department of the company was unable to convince the patient; mostly patients didn’t ask their orthodontist about invisalign treatment. The company had a policy of maintaining at least 20% excess production capacity to prevent delivery constraints and long lead time. For that policy they bear extra cost like fixed cost and labor cost.

This technology had not yet been widely accepted as the treatment of choice by orthodontists. Nevertheless, the company had a policy that they can sell their product to orthodontist only they decided to not sell to general practice dentists. But many potential cases go to their GP dentists first and a tremendous number of patients stop right there and convinced with traditional treatment. The many eligible patients most likely balked at the orthodontist’s price but the company had no control over the actual retail price because Align technology Inc did not mentioned the price on their advertisements that they charged the orthodontists. The orthodontists charged the patient a marked-up fee taking into account variables such as the difficulty of individual case, the estimated chair time, staff time and cost of goods etc (See Exhibit 4).