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Rev. Apr. 19, 2013

NCM PERSONAL COMPUTER DISPLAYS

Norman Draper glanced upward as another cloud moved across the sky, obscuring the
sun. It was another typical, tough June day in Southern California, and Draper, as usual, was
spending it on the beach. Sighing, he turned over on his blanket and began pondering the
problem that had brought him to San Diego.
Draper had been working during the summer for the Consumer Products division of
National Computing Machinery (NCM), one of the larger manufacturers of microcomputers. His
manager, George Buffet, had asked him to develop a means of predicting costs for NCMs
subcontracted microcomputer displays. Buffet wanted to be able to take a set of design
specifications and determine the approximate cost NCMs vendors would submit without having
to go through the long formal bidding process. Some type of mathematical model seemed
appropriate, but Draper was puzzled as to the best way to arrive at such a model.
Draper glanced at his thermos and saw that it was empty. Oh well, he thought. Time
to go in; Ill wait and think about this more on Monday.
NCMConsumer Products Division
The Consumer Products division began in 1980 when NCM executives decided to enter
the microcomputer business. Only one year after this decision was made, NCM was able to
introduce a microcomputer that could compete with Apples and IBMs personal computers.
NCMs success at designing, producing, and marketing a product in such a short period of time
was partly due to the decision to utilize as much external vendor technology as possible.
This philosophy, however, had produced a small problem for the Consumer Products
Procurement (CPP) department in 1985. One of the responsibilities of CPP was the procurement
of emerging technology displays. NCM-San Diego had no in-house manufacturing capabilities
for displays, and thus subcontracted their needs to vendors in the Far East. This provided them
with good quality at a low price, but it also left them with no manufacturing experience with
which to estimate cost. Currently, engineers were asked to estimate the probable cost of a new

This case was prepared by Professor Phillip E. Pfeifer. It was written as a basis for class discussion rather than to
illustrate effective or ineffective handling of an administrative situation. Copyright 1997 by the University of
Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying,
recording, or otherwisewithout the permission of the Darden School Foundation.

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display model based on their technological expertise, experience, and a certain amount of gut
feel, as one engineer put it.
Management saw three areas where a cost model could prove useful.

Production planning: The final selling price of each model of NCM personal computer
would depend, in part, on the cost of the display. Thus, in order to forecast sales and plan
production, NCM needed an early and accurate estimate of the cost of purchasing the
display.

Product development: NCM was constantly trying to develop new displays to meet the
dynamic display market. Microcomputers and their peripherals were quickly moving
through their product life cycle, to the point where product segmentation was becoming
extremely important. Type of display was an important dimension for segmentation and
NCM could use a flexible cost prediction model that would allow it to evaluate a wide
variety of segmentation schemes.

Purchasing: An accurate cost model would provide a baseline figure for NCMs
negotiating teams.

When management decided a particular display was suitable for production, the
procurement department sent out a request for quotation (RFQ). Usually several vendors were
asked to quote. Once a vendor was chosen, NCM sent in a negotiating team to discuss price with
the vendor. At this point, a good team often negotiated a lower price. But the team had to have a
strong base to start from in order to substantiate its arguments. This is where a mathematical
model based on past prices could be very useful.
Draper spent the first few weeks of the summer familiarizing himself with the technology
of personal computer monitors. He and his manager felt that this time was well spent since
Drapers chance of developing a logical working model would be slim, if he had no idea of the
potential cost factors.
Next, he made a list of all possible variables that could affect the cost of a display. He
pared that list down to just the variables that would have a material effect and would likely be
changed in different designs. There was no need to include cost items that would be constant in
every display. He put together the data shown in Exhibit 1 using the 71 most recent display
purchases.
Possible Factors Influencing Price
1. Swivel/tilt: Some displays were built with the capability to swivel and/or tilt for ease of
use. This feature added to the cost of the display.
2. Power supply: Power supplies were fairly standard among displays. Some designs,
however, called for an integrated power supply or a power supply that was powerful

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enough to drive not only the display but also the system unit. Usually the display and the
system unit had its own power supply.
3. Misconvergence and geometric distortion: Measured in millimeters (mm.), these
indicated the quality of a display. To form any color other than the primary ones (red,
green, and blue), at least two electron beams had to converge to form a composite spot on
the viewing screen. Misconvergence was a measure of how far these spots are allowed to
stray from perfect convergence. Misconvergence degrades resolution. Dots also had a
tendency to be over- or under-focused, causing distortion. The maximum allowable
geometric distortion was simply the maximum that these dots could be distorted within
the design criteria. Both were defined in terms of the maximum allowable, thus smaller
was betterand more expensive.
4. Color: Displays were capable of showing an infinite number of shades of color. NCM
had marketed 16-color monitors, 64-color monitors, and monitors that were capable of
either. Each additional step in complexity added circuitry and could change the type of
circuitry from analog to digital. It was felt that it was just as expensive to go from 16 to
64 as it was to go from 64 to a monitor that could handle both 16 and 64.
5. Quantity: As in most purchases, quantity discounts were given, but it was unclear
whether those followed a linear or curvilinear pattern.
6. Tube size: NCM had displays with tubes as small as 9 inches (for the portable PC) and as
large as 14 inches, however, most were between 12 and 14 inches. Separate cost data did
not exist on the portable, so it was excluded from the analysis.
7. Dotpitch: Dotpitch was a measure of resolution and was simply the distance between the
centers of two dots of the same color. High-resolution screens at the time had a dotpitch
of 0.31 mm. or lower. Display technology was advancing so rapidly, however, that a
pitch of 0.31 or below would likely become the standard in the near future. The lower the
dotpitch, the higher the cost.
8. Year: As technology progressed and a product continued along its life cycle curve, the
same technology was expected to become less expensive.
Trying to determine the shape of the relationships between these variables and cost
proved to be difficult, but not impossible. Draper felt he had a good idea of the impact on cost of
all the variables, except dotpitch. He met with several design engineers and display buyers to
discuss this relationship. They all agreed that the curve should drop sharply as the dotpitch
specification was loosened from around 0.25 mm. to 0.31 mm. Then there should be a gradual
drop to 0.55 mm. Their reasoning behind this particular shape was based on two points; 0.31
mm. and 0.55 mm. The 0.31 mm. dotpitch was the current edge of technology for cathode ray
tubes (CRT). Therefore, any spec better than this and the CRT was in the specialty range.
Specialty meant lower production, fewer vendors, more difficulty in manufacturing, and higher
margins. All that, of course, equaled higher price. Displays with a dotpitch greater than 0.31 mm.
were classified as standard off-the-shelf computer displays. There was little difference in price
because they were seen as a commodity and as old technology. (In the computer industry, old
can be as short as one or two years.) The 0.55 mm. dotpitch was the approximate threshold of

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TV displays. Prices here had depended on little except market conditions for many years.
(Drapers sketch of the relationship between dotpitch and cost is shown in Exhibit 2.)
Draper examined his list of variables and saw that it was good. All of them were potential
contributors to cost, and were easily measured. Draper could easily ascertain the direction and
nature of their impact. He was ready to decide how to model the relationships.
The DeSoto Display
Before Draper could get to his office door on Monday morning, his phone rang. It was his
boss, George Buffet.
How are you doing on your cost prediction model, Norm? Buffet asked.
Im almost done, Draper exaggerated.
Great, because we have a perfect chance to use it. You know the DeSoto model display
we are about to send out RFQs on?
Before Draper could respond, Buffet continued. Well, we already have a firm bid of
$450 per unit from Sundari for the 100,000 units. John Fuji just called it in. He was working with
Sundari on another project and just happened to tell them about the DeSoto. Since Sundari has
excess capacity at this time, Fuji believes this to be a very good price that probably wont last.
He thinks we should take it now and forget about the formal bidding process. He figures by the
time were through soliciting bids, there is at least a fifty-fifty chance that Sundari will no longer
be interested. As far as Im concerned, Sundari quality is fine, and I need to know soon what to
do. Finish your model, run the DeSoto specifications (Exhibit 3) through the model and get back
to me with a recommendation by tomorrow morning at 11.

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Exhibit 1
NCM PERSONAL COMPUTER DISPLAYS
Price Data for 71 Displays

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40

SWVL
TILT
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
0
0

PWR*
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1

MCONV
(mm.)
5
5
5
5
5
5
5
5
5
5
8
8
8
7
7
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
3
3

DIST
(mm.)
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
7
7
7
7
7
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5
5

CLR**
3
3
3
3
3
3
3
3
3
3
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2

QUANT
(000s)
20
30
40
50
60
20
30
40
50
60
400
600
650
48
737
100
150
200
250
300
350
400
450
500
550
600
650
100
150
200
250
300
350
400
500
550
600
650
50
100

TUBE
(in)
14
14
14
14
14
14
14
14
14
14
13
13
13
13
13
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
14
12
12

DOTPITCH
(mm.)
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.63
0.63
0.63
0.43
0.43
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31

YEAR
0
0
0
0
0
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
3
3
2
2

UNIT
PRICE
$520.40
$493.10
$482.60
$472.10
$467.90
$495.20
$467.90
$457.40
$446.90
$442.70
$226.40
$224.30
$222.20
$436.20
$356.00
$352.00
$335.20
$326.40
$318.40
$314.20
$307.90
$305.80
$303.70
$301.60
$301.60
$299.50
$299.50
$343.60
$326.80
$316.30
$310.00
$305.80
$299.50
$297.40
$295.30
$293.20
$291.00
$289.00
$333.50
$331.40

* 1 = system; 0 = normal
** 1 = 16-color; 2 = 64-color; 3 = both
*** 0 = 1980; 1 = 1981; 2 = 1982; 3=1983; 4=1984

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Exhibit 1 (continued)
Price Data for 71 Displays
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3

5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5

2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2

150
200
250
300
350
400
450
500
600
50
100
150
200
250
300
350
400
450
500
600
50
100
150
200
250
300
350
400
450
500
600

12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12

0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31

2
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
4
4
4

$327.20
$323.00
$318.80
$316.70
$312.50
$310.40
$308.30
$306.20
$304.10
$310.40
$306.20
$304.10
$299.90
$295.70
$293.60
$289.40
$287.30
$287.30
$285.20
$283.10
$299.90
$297.80
$293.60
$291.50
$289.40
$285.20
$283.10
$281.00
$278.90
$276.80
$274.70

Average
Std.
Dev.
Correl.

0.32

0.49

4.25

5.37

2.07

301.90

13.00

0.33

2.34

327.20

0.47
(0.18)

0.50
(0.33)

1.35
0.19

0.51
0.08

0.46
0.77

203.18
(0.65)

0.97
0.44

0.07
(0.26)

1.12
(0.68)

66.90
1.00

* 1 = system; 0 = normal
** 1 = 16-color; 2 = 64-color; 3 = both
*** 0 = 1980; 1 = 1981; 2 = 1982; 3 = 1983; 4 = 1984

Source: Created by case writer.

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Exhibit 2
NCM PERSONAL COMPUTER DISPLAYS

Indexed Cost (0.31=100)

Drapers Sketch of the Relationship between Dotpitch and Cost

300
250
200
150
100
50
0.25

0.35

0.45

0.55

Dotpitch

Source: Created by case writer.

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Exhibit 3
NCM PERSONAL COMPUTER DISPLAYS
DeSoto Specifications
Swivel/tilt
Power supply
Misconvergence
Distortion
Color
Quantity
Tube size
Dotpitch
Year

Yes
System
3 mm.
5 mm.
64-color only
100,000
13 inches
0.25 mm
1984

Source: Created by case writer.

This document is authorized for use only in PGP - Decision Sciences II (RVM) by Prof.Rajluxmi Murthy, IIM Bangalore from October 2016 to October 2016.