mini case 2

Sussex Industries: New Products or New Markets?

In early 2008, Cyril Nabarkin received a telephone call that sent shock waves through Sussex Industries. Both the U.S. Navy and U.S. Air Force had decided to cancel their longstanding contracts with Sussex for liquid oxygen (LOX) converters, the company’s main product, favoring instead a new OBOGS (on-board oxygen generating system) technology, which extracts oxygen from engine air during flight. In less than six months, Nabarkin calculated, revenue would shrink by almost 90%. It was urgent, therefore, to identify new opportunities for the company.

Marketing had never been the strong suit of Sussex, however. Indeed, Nabarkin once joked that the company, being a government contractor, had a marketing department, which consisted of a secretary who sat at her desk waiting for the next military order. Nabarkin also worried that, with the technological switch in the market, its main activity might cease to exist in the near future. Could he identify new markets in which LOX could be used? And did Sussex have what it would take in order to play in these markets?

Sussex Industries was founded in the late 1960s in St. Louis, Missouri, triggered primarily by the 1967 formation of the McDonnell Douglas Company, which chose to locate its headquarters next to St. Louis Lambert International Airport. Sussex began producing yokes, valves, and other machined components for DC-8 and DC-9 aircraft, but switched to more profitable control grips for fighter jets when McDonnell Douglas began building military aircraft in its St. Louis manufacturing facility. In the 1980s, Sussex developed a LOX converter in collaboration with McDonnell Douglas, a converter, which won approval with the government. Soon the company began receiving military orders. By the mid-1990s, Sussex had consolidated its activities to two products, control grips and LOX converters, the latter of which became its cash cow.

As any aircraft flies higher, the weight of the atmosphere demands that the cabin be pressurized and, more importantly, the thinness of the atmosphere requires that oxygen content be regulated. Otherwise, serious physiological consequences, including hypoxia, altitude and decompression sickness, and barotrauma, can occur. In the case of commercial aircraft, the pressure and oxygen in the content cabin are maintained, for pilots and passengers alike, through a combination of airtight fuselage and oxygen generation system. In jet fighters, cabins are pressurized and oxygen is fed to pilots through masks. Until the technological change to OBOGS, this oxygen was provided by a LOX converter.

Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.

©2015 John Branch. This case was written by John Branch, Lecturer of Marketing and Strategy, at the University of Michigan’s Ross School of Business. This case was created to be a basis for class discussion rather than to illustrate either the effective or ineffective handling of a situation.

Unauthorized reproduction and distribution is an infringement of copyright. Contact us for permissions: [email protected] or 734-615-9553

Sussex Industries: New Products or New Markets? 1-430-471

In essence, a LOX converter (see Exhibit 1) stores liquid oxygen at extremely high pressure in a cylinder about the size of a basketball, and which is painted green for identification. The liquid oxygen, either on demand from the pilot or at a constant flow, is converted to a gas through a series of decompressors, valves, and regulators. As a result, pilots can breathe 100% pure oxygen through their masks when above certain altitudes.

The main advantage of LOX converters is the quantity of oxygen, which can be stored — one unit of liquid oxygen yields more than 800 units of gaseous oxygen. Liquid oxygen also saves on space and weight, extremely important in a fighter jet. LOX converters, however, require careful handling and regular maintenance. Liquid oxygen has a boiling point of -182.8°C, and canisters bleed over time, requiring an inventory of LOX converters on-site.

Sussex LOX converters were nothing special, however. The design and assembly of LOX converters was largely standardized across the industry, although Sussex had the flexibility to manufacture products of different sizes for different types of aircraft. All components were manufactured in-house, except fasteners, which were purchased. The quality of the cylinders was extremely high. Indeed, cylinders for LOX converters needed to be void of any defect, fully evacuated, and perfectly sterile inside. These characteristics required tightly controlled manufacturing and experienced employees.

Exhibit 1

Lox Converter

Source: Ferno Aviation. < http://www.fernoaviation.com/Products/LiquidOxygen/converters>

2

Unauthorized reproduction and distribution is an infringement of copyright. Contact us for permissions: [email protected] or 734-615-9553

Sussex Industries: New Products or New Markets?

1-430-471

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