L6M3 Flashcards
What is the difference between a goal and a strategy?
A strategy is a clear plan that’s decided by the main actors of the company such as the Board of Directors or CEO. It sets out the company’s intentions – but it’s not too specific, it is more of a broad statement about the direction of travel the company is going in, and wants to go in. A strategy is decided based on the perceived market conditions (e.g. is the market growing, shrinking? etc), professional practice (i.e. what’s common in that specific industry) and what competitors are doing (a company may decide to take a very different strategic approach to differentiate itself from the competition). An example of a strategy is a company deciding to compete in a new marketplace. Porter outlines three major ‘competitive strategies’ as being cost leadership, differentiation and focus.
Once an organisation has outlined their strategy, goals can then be devised to achieve this. Goals are tactics and specific actions which will allow an organisation to realise the strategy. Where the strategy is ‘high level’, goals are often decided by the business functions such as procurement and finance. Each business function may have different goals, but they will all be aligned (horizontally) to ensure the overarching strategy is achieved. Goals are usually quantifiable and should be developed using the SMART methodology. For example a drinks manufacturer has a differentiation strategy- they want to set themselves apart from other companies by providing unique new flavours of drink. This is their strategy.
Describe three possible strategies of an organisation competing in the private sector.
1) Growth
Growth is about increasing market share, revenue and profitability. There are many ways which an organisation in the private sector could do this including introducing new product lines, attracting new customers or breaking into a new market segment. For example a growth strategy for Primark may be to increase sales to men, or to open new stores in Hungary. An organisation can use the Boston Consultancy Group Matrix and the McKinsey Matrix for analysing growth strategies.
2) Diversification
This means branching out and doing something new, such as introducing new products to an existing marketplace. The diversification can be related to the product they already sell (e.g. a drinks manufacturer brings out a new flavour) OR it could be completely different to what they’re used to (a drinks manufacturer starts making cakes). A real life example of this is Lego making films and a theme park. The further the diversification is from the company’s usual market, the higher the risk is with this strategy.
3) Stability
This could be a strategy if an organisation is already the market leader and wants to maintain its position. This is particularly common in heavily regulated markets that wouldn’t allow a monopoly to exist and when a company has risk-averse shareholders. A good example of this is Bowing (the plane company) – their strategy is to maintain stability in order to keep dividends high for their shareholders, who are mainly pension funds.
Describe 4 internal and 4 external factors which may influence this company’s corporate strategy.
Internal Factors
1) Stakeholders
2) Company Structure
3) Product Lifecyle
4) Culture and History
External Factors
1) Competitor Actions
2) Regulators
3) New Entrants
4) Substitute Products
Describe 4 internal and external risks that can affect the supply chain.
Internal risks
1) Disruption to manufacturing processes
2) Staff risks
3) Poor network planning
4) Lack of control/ visibility over the supply chain
External risks
1) Supply risks
2) Demand risks
3) Security
4) Natural disaster
How should a supply chain manager deal with risks?
Tolerate- the supply chain manager can just ‘let it go’. If the risk happens, it happens. There is nothing in place to stop the risk from occurring. This option should only be used if the consequences of the risk would not severely affect the business/ supply chain.
Treat – this means to put measures in place to lower the risk rating. This is the most common form of management. For example, if there’s a risk of machinery breaking down and it is likely to happen, this would dramatically impact operations. Therefore, the supply chain manager would treat the risk by getting routine maintenance done on the machine and replacing parts periodically. This may drop the score from a 20 to a 5, which can then be tolerated.
Transfer – this means passing the liability of the risk to someone else like an insurance company. An example of this is the risk of a warehouse and all the stock being destroyed by a fire – the supply chain manager can take out insurance to protect against this risk. They would still lose the warehouse, but the organisation wouldn’t lose out financially. They can recoup costs from the insurance.
Terminate – this is when the risk is too great that the supply chain manager needs to eliminate it completely. For example, if the supply chain has embarked on a new project which requires high investment and is running the risk of failure and bankrupting everyone, it may be wise to terminate the risk and shut down the project.
What is meant by effective supply chain management? What benefits can this bring to an organisation?
Effective supply chain management is the ability to ‘get the best’ out of the supply chain. This means using it to its full potential, ensuring there is no waste and ensuring there is strategic fit. It is important as effective supply chain management offers a potential route to achieving competitive advantage.
Supply chains need to be actively managed in order to be effective. Effective supply chains rely on strong flows of materials, information and finance- these flows need to be quick, effective and without waste. This means ensuring that the ‘5 Rights’ are achieved – the right information/ product, to the right place, at the right time, in the right quantity, in the right way. Strong information flow means information is transported both up and down the supply chain, and finance flows means paying suppliers quickly so that everyone remains solvent. Effective supply chains can be agile or lean in nature, and the structure of the supply chain must benefit the organisation’s competitive strategy.
An example of an effective supply chain is Amazon. The company uses automation and reliable supply partners to ensure that the website is accurate in terms of level of stock, and that an order placed by a customer can be fulfilled and delivered the next day. The supply chain is extremely agile- it is able to respond to changing customer demands, whilst remaining cost effective.
There are many benefits of effective supply chain management; it helps to achieve all aspects of the Iron Triangle of cost, quality, scope and time. For example ;
- Cost = effective supply chain management can lead to reduced costs through the elimination of the 7 wastes. This therefore provides higher profit margins.
- Quality = It can lead to superior products being delivered with less defects and waste
- Scope = an effective supply chain meets customer’s expectations. This leads to satisfied customers and potentially to repeat business
- Time =an effective supply chain results in reduced lead time to market, which in turn may lead to more sales and happier customers
Other benefits of effective supply chain management include; being more responsive to demands and shifts in the marketplace, providing a source of differentiation, an enhanced reputation, and higher ethical and environmental standards. Moreover, effective supply chain management can also lead to innovation.
What is Enterprise Profit Optimisation?
Enterprise Profit Optimisation (EPO) is a tool that looks across the entire supply chain with the goal of enhancing profitability. Based on the work of Eugene Bryan in the 70s, it’s the dynamic linking of price to sales and production information. Profitability is enhanced by optimising both the demand (sales, marketing) and supply (raw material availability and prices) sides of the business. The coordination between the two sides leads to synergies and thus to higher profitability.
What are the advantages and disadvantages of using this?
The main benefit to EPO is that changes in demand can be quickly reflected in the price. IE if a product is selling faster than anticipated, then the supply chain can increase the price and therefore maximise profits. Similarly, excess supply can be capitalised on by changing the price quickly (e.g. by discounting the price to sell at a higher volume). If there is a glut (a slowdown in sales), EPO can manage this in one of two ways: increasing the price to ensure the supply chain is breaking even, or reducing the price to stimulate demand. Either way, it benefits the supply chain’s profitability level. When using this system, the supply chain becomes very agile and it can reduce the risk of stockouts.
There are also disadvantages to EPO. It can be costly and time-consuming to implement, and it requires buy in from all business functions and parts of the supply chain, which can be difficult to get. EPO only works if the data is accurate – it can be risky to do if the supply chain doesn’t have good visibility of both up and downstream activities. Moreover, when using EPO, customers become aware that prices change, so may hold back purchasing if they think the price will drop. In some circumstances, it can lead to customer dissatisfaction – no one likes paying a higher price for something than someone else. The price changing so frequently may lead to customers being unhappy and feeling like they’ve been ‘ripped off’. It can be seen as ‘underhand’. This is particularly true with airline prices.
Describe 3 ways in which a market can change.
1) Structural change
2) Expansion and contraction
3) Actor-centric change
XYZ is a toy manufacturer in the UK, specialising in wooden toys such as building blocks for toddlers. Describe the external factors that could affect the supply chain management of XYZ. You should make use of a STEEPLED analysis in your answer.
1) Social factors
What is meant by strategic alignment?
Strategic alignment ensures that all parts of the company are working in harmony in order to achieve the company’s overarching strategy. There are two types: vertical alignment which aligns the three levels of a company: corporate, business and function. There’s also horizontal alignment where each business function such as procurement, finance and HR are aligned. This means they’re working towards the same objectives, rather than competing against each other. Henderson (1992) says that every aspect of the company should be involved in strategic alignment and considers 2 main factors: strategic fit and functional integration – when these two factors are aligned, a company is highly effective.
How can a company ensure strategic alignment and what are the advantages of this?
Strategic alignment is usually implemented by a top-down approach. The senior management team set the overall strategy, and the business functions set objectives and working practices that align to the overall vision set by the corporate level. This requires strong information sharing and high levels of communication. Moreover, teams need to have high levels of trust in each other and at different levels – i.e. those in the functions need to have trust in the corporate level. One way to ensure this is to also use a ‘bottom-up’ approach whereby functions can suggest strategies and methods and this is passed up the chain for approval. Listening to those on the ground often results in better strategic alignment.
what are the advantages of strategic alignment
Firstly, there is a reduction of waste – both in time and money. If everyone is working to the same goal, then processes will become more streamlined and work will not be duplicated.
There is the elimination of competing priorities and rivalry – functions no longer compete against each other (which causes hostility), instead they help each other through effective information sharing so that all areas of the business succeed.
strategic alignment leads to more effective decision making – when everyone is ‘singing off the same hymn sheet’ decisions can be made faster.
strategic alignment supports the market position of the company – strategic alignment means the company is highly effective- they can defend themselves against shocks to market by responding quickly and delivering what the customer wants.
Describe 3 reasons why a company may find it difficult to become strategically aligned.
1) In-built bias to do things the ‘old way’
2) Market structures – in companies that operate in different markets
3) Size of the company
How can a company implement strategic relationship management of both customers and suppliers to ensure success?
CUSTOMERS
A common tool used in strategic relationship management with customers is a CRM system. In most supply chains the ‘customer’ is a buyer or anther organisation such as a retailer. A CRM system – Customer Relationship Management system – is a digital tool to collect data on the customer’s usage, trends, and requirements. This will allow an organisation to fulfil demand accurately and keep customers happy.
SUPPLIERS
Like with customers, Strategic Relationship Management with suppliers can be completed through the use of a digital tool - a SRM system (supplier relationship management system) – this can be used for KPI monitoring, and developing a ranking system of suppliers. SRM can highlight when suppliers are fulfilling the requirements of the contract and highlight when they’re failing, so that early intervention can be taken
