Align Technology Inc

AlignTechnologyInc.
Hasmukh Gajjar

Product:Aligners
Usages:Tocurebadbitesmalocclusion
ExistingSolutions
MetalandCeramicbraces

SolutionprovidedbyAlignTech.
Invisalign system

FeaturesofInvisalign
Newmethodoftreatingmalocclussion.
Clear,thin,plastic,removablebraces
PracticallyInvisible
i ll
i ibl

BenefitstoOrdontists whileadoptingInvisalign system

Abilitytovisualise treatmentandpotentialoutcomesusing
Clincheck(a webbased computergraphicdevelopedbycompany)
Clincheck(awebbased
computer graphic developed by company)
Minimaladditionaltraining(Initially3hoursandlaterincreasedto6
hours)
Easeofuse
Anexpandedpatientbase
Higherfees
Decreasedchairtime

CompanyBackground
AlignTechnologyIncwascofoundedbyZiaChishti and
Kelsey Wirth in the year 1997.
KelseyWirthintheyear1997.
Received510(k)fromFDAin1998.
IntroducedInvisalign
g Systemin1999
y
aclear
removableorthodontictreatmentoptionfor
straighteningteeth.
Alignrestrictedtheuseofsystemtothoseindividuals
Ali
t i t d th
f t
t th
i di id l
withmaturedentitionhavingmildMalocclusion
Overthreeyears,theywereabletoraiseover$130
Over three years, they were able to raise over $130
Million.(TableA)
Raised$140millioninitsJan2001IP.
Hasresourcestoputcompanyonsolidperformance
Plan.

TheproblemsfacedbyAlignTech
VP(Mfg.):
Capacitywasbuilttomatchthecompanys
aggressivesalesforecasts(Strategy Builditand
they will come)
theywillcome)
Maintainingatleast20%excessproduction
capacity to prevent delivery constraints and long
capacitytopreventdeliveryconstraintsandlong
leadtimes.i.e.quickresponsetime

VP(Sales):
VP(Sales) :
wehavenotdeliveredwhatwepromised.
Orthodontistshavebeenslowertoadoptthanwe
O th d ti t h
b
l
t d t th
tought!

TheproblemsfacedbyAlignTech
VP(Mktg.):
Wearestilltryingtofindthebestwaytomarketthis
Hopingtobeabletoreachtargetof$300$400per
case in customer acquisition cost
caseincustomeracquisitioncost.

Mismatchbetweensupplyanddemand
WhataboutpricingsandcostofInvisalign?
Wh
b
i i
d
f I i li ?
AverageSellingPrice:$1600
AverageMfg.Cost:$1800
f
$ 800
Targetedtoachieve70%marginbyendoftheyeari.e.
it must reduce cost to below $ 500
itmustreducecosttobelow$500

Solution?

Solution?
Alignneedtoreducethegapbetweensupplyand
demand
Alignneedtoreducecost(currentlyburningalot
of cash & will run out of the reserves generated
ofcash&willrunoutofthereservesgenerated
byitsIPO.
Alignstillmaintain
g
Flexibilityforfuturegrowth
Quality:unbelievableprecisionrequired
Responsiveness:Cantmaketostock,22daydelivery
timefastenough?
WIP=Outputrate*Mfg.Leadtime
WIP= Output rate*Mfg Leadtime =125cases*22
= 125 cases * 22
days=2750cases(asofJune2001)

MarketAnalysis
Over200millionpeopleinUSAhadsome
f
formofmalocclusion
f
l l i
Lessthanapercentperyearactuallybegan
orthodontictreatment(spendingnearly$7b)
Mostlyyouthandonly0.4%ofeligibleadults
yy
y
g
receivedtreatments.
Productsavailable:Metal&Ceramicbraces,
Products available: Metal & Ceramic braces,
Invisalign.

MarketingEffectiveness
Thosewhocalledthe800number
29%proceededtocalltherecommended
orthodontist
Fromthat,49%actuallymadeanappointment.
Ofthat,73%wouldshowupatthescheduled
appointment
i
Andthen28%ofthemactuallybecamePatients
i.e.outof1000whocalled800numberonly29
wouldbecomepatient

Morebusinessfortraditionaltreatmentrather
b
f
d
l
h
thanforInvisalign.

WasCapacityUsed?
Onlyorthodontistwereallowedtouse
I i li
Invisalign
Generalpractitionerswerenotallowedtouse
Invisalign
AlignTech
g
restrictedtheuseofsystemtothose
y
individualswithmaturedentitionhavingmild
Malocclusion
Isthecapacitybalanced(Exhibit10)

Manufacturing Process
ManufacturingProcess

DownSizingDecision?

Thedecisiononhowfartodownsizeislimitedbytwoconstraints:
Howlongdoesitmakesensetoholdtounutilizedcapacity(economic
criterion)
Howlongdoesittaketodevelopfurthercapacity(availabilitycriterion)
How long does it take to develop further capacity(availability criterion)

CostofHoldingCapacity(H)VsCostofAcquiringCapacity(A)
IndifferencePeriod=L=A/H
WorkingRule:
g
IfdemandisexpectedtoreachcapacityinaperiodshorterthanLthenit
makessensetoholdthatcapacity.
IfcapacitytoremainunutilizedforlongerthanLthenitmakessenseto
q
downsizeandlateracquire.

EstimateddemandafterLperiod:DL =InitialDemand+L*Growthrateof
demand
Ifcurrentcapacity(Co)isgreaterthanDLthanweshoulddownsizetoDL
Hi i
HiringandTrainingPeriod(E),EstimatedDemandafterEperiod(D
d T i i P i d (E) E i
dD
d f E
i d (DE =
InitialDemand+E*GrowthrateofDemand)
IfCo isgreaterthanDE thenweshoulddownsizetoDE.
Combining two criteria we should downsize to the greater of the two
Combiningtwocriteriaweshoulddownsizetothegreaterofthetwo
estimatedvalues(D*=Max(DL,DE)i.e.RevisedCapacity=D*

CapacityExpansionorAcquisition?
Afterrightsizingwhatdecision
process would you recommend to
processwouldyourecommendto
increasethelaborcapacityas
demandgrows?

CapacityExpansionorAcquisition?
Costofholdingcapacity(H)
MarginalCostofsatisfyingdemandwith
Marginal Cost of satisfying demand with
Overtime(o)
Thediscretebundles(B)inwhichcapacitycan
The discrete bundles(B) in which capacity can
beacquired.
Expecteddemandgrowthrate(G)
E
t dd
d
th t (G)
CurrentCapacity(Co)atcurrenttime(To)

Capacity Expansion or Acquisition?

CapacityExpansionorAcquisition?

TotalCost=OvertimeCost+HoldingCost
=T2 *G/2*O+(IT)2 *G/2*H
OptimalperiodT*=I*(H/H+O)

Whatreallyhappened?
Foundedin1997,Alignbeganitsfirstcommercialsales
ofInvisalign
g toorthodontistsin1999andsoonafter
launchedaU.S.nationalconsumeradvertising
campaign.
By late 2001 Align had manufactured one million
Bylate2001,Alignhadmanufacturedonemillion
aligners.
In2002,Invisalign wasmadeavailabletogeneral
dentists and by mid 2003 dental schools began adding
dentists,andbymid2003dentalschoolsbeganadding
Invisalign totheircurriculum.
Today,AlignTechnologyprovidesexclusiveeducation
eventsatmorethan60universitiesworldwide.
h
ld d
In2005,AlignintroducedInvisalign Express.Inthe
y ,
g
sameyear,itachievedamanufacturingmilestoneof15
millionaligners.

Advicetothreecompaniestomodifytheir
strategy and structure?
strategyandstructure?
Today,Invisalign hasevolvedintoan
i
increasinglymainstreamtreatmentoption.To
i l
i
i
T
date,AlignTechnologyhas
trainedmorethan56,700doctors
manufacturedmorethan44millionunique
Invisalign aligners
startedmorethan1,000,000patientsintreatment
compiledawelldefendedintellectualproperty
portfoliothatincludesmorethan160patents
worldwide
worldwide
reached$1.5billionincumulativenetrevenues