GIFT UNIVERSITY GUJRANWALA

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 Aligns product was less than the actual manufacturing capacity and
Companys 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 Aligns 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
didnt ask their orthodontist about invisalign treatment. The company had a policy of

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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 orthodontists 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).
Options
o They need to control their variable cost that is too high because they were following
companys policy of excess manufacturing capacity. They can cut off the labor cost.
Through which company can save $303160/quarter. This step will ultimately helpful for
making a cost-effective capacity plan for the new sales forecast. Their entire labor can also be
de motivate due to this step.
o Their sales will boost up if they train and certify general practice dentists. They are more
of orthodontists, they are hungrier for business and they will adopt their product more
quickly. On the other hand people usually visits dentists first and mostly stay there with
traditional treatment.
o Company needs to acquit its 20% excess capacity policy because of its dual effects the
first one is high cost and the other one is less sales.
If the company keeps practicing of this policy in future then extra cost of fixed assets and
labor cost will occur.

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Decision Criteria
If we illuminate the current position of the company then we come to know that the company is
continuously going with loss. The company invested a lot in building its manufacturing capacity
according to forecasted sales. But because of low sales and excess manufacturing capacity the
average cost per case is more than selling price. They need to implement cost effective capacity
plan through which company can minimize its direct cost. Manufacturing department team
constantly were devising new hardware, software and procedures that reduced the variable costs
but didnt implement yet. It will also help out in reducing the variable cost. Company needs to
enhance their sales and also match their capacity with their sales.

Decision
In order to achieve 50-70% margin they need to drive down the cost per case. Implement new
invented procedures of manufacturing. Match their production with the sales and cut off the extra
cost. For this the company needs to enhance their sales.

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Exhibit 1
Process Flow

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Exhibit 2
Lower the cost of labor
From the department of Treat Operations
Total employees
Need of Employees
Extra
Employees wage rate

220 $2.65 8 = $4664/day

$4664 65 = $303160/quarterly

Exhibit 3

450
230
220
$2.65

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Estimated Capacity for a quarter
Operations
Order entry
Dental lab
Data Acquisition
Treat Operations
SLA Mold Fabrication
Aligner Mold Fabrication & Shipment
Through-put time

Capacity/day
200 cases
160 cases
175 cases
340 cases
220 cases
160 cases
6 days

Cycle time for further 160 cases = 1 day

In a quarter there are 65 working days, so the capacity is:
65 6 = 59 160 = 9440
9440 + 160 = 9600 cases/quarter
Per month actual demand = 2500 cases
Quarterly = 2500 3 = 7500 cases
Excess Capacity = 9600 7500 = 2100
This is actually 28% more than the demand.

Exhibit 4
Difference in wages/hour of Orthodontists and GP dentists
Orthodontists

Dentists

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Avg Net Income/year
Hours Worked/week
Total hours worked/year
Wage rate/hour

$300,000
34
1768
$170

$125,000
39
2028
$62

The wages/hour of orthodontists was actually 177% more than GP Dentists wages/hour.