Strategies Flashcards
Customisation
- Refers to the development of individual products to meet the specific needs of customers
- Elements of customisation could include variations in colour, size and quality
- Mass customisation where businesses modify their operational and transformation process to allow mass-produced (i.e. standardised) goods to be modified to meet specific customer needs
- Modifying goods/services to meet specific customer needs and desiresMaximising customer satisfaction/repeat sales
- Increased market share
- Long-term sustainable competitive advantage
HOWEVER
- Result in increased complexity to operational and transformation processes
- Business’s might not have the knowledge, machinery, systems, processes available to engage in customisation (or a high degree of customisation)
- Customisation will generally increase lead times (negative impact on customer satisfaction)
- Despite the benefits of customisation, standardisation remains the predominant strategy employed by businesses, largely due to simplification and it’s cost effective nature
Performance objectives - dep
- Refers to the consistency, reliability, and durability of a product
- Goods: dependability can be measured through number of customer complaints, defects, warranty claims (interdependence with marketing)
- Services: dependability can be measured through the number of customer complaints
- Dependable products will result in enhanced brand image / reputation, increased customer satisfaction and achieving a long-term sustainable competitive advantage
HOWEVER
- Inconsistent and unreliable products will result in tarnished brand image / reputation, decreased customer satisfaction and loss of competitive advantage
- Improving consistency and reliability will require greater levels of quality control (negatively impacting costs)
- Using durable materials will increase costs adversely impacting the profitability objective
Flexibility
- Flexibility refers to how quickly operational processes can adjust to changes in the market
Manufacturing based businesses
- Utilisation of (more flexible) technology to increase / decrease production as required
- Altering product design
- Methods of increasing flexibility (service based businesses)
- Increasing the use of technology
- Shifting/changing consumer needs and wants can be fulfilled (fail to respond will result in lost sales)
- Avoids underproduction (lost sales) / overproduction (may not be able to sell products)
- Enhance flexibility will result in increased efficiency, customer satisfaction, sales and achievement of a long-term sustainable competitive advantage
HOWEVER
- Improving flexibility may necessitate the need to purchase new technology/machinery, this could require a significant outlay of capital – adversely impacting the cost objective
Cost
- Cost refers to minimising operational expenses
Operational costs that can be minimised
- Input costs
- Logistics costs
- Inventory costs
Cost minimisation strategies include
- Waste minimisation
- Application of technology
- More efficient use of inputs
- Efficient logistics procedures
- Utilising cost minimisation strategies will result in lower operational costs, reduced COGS and expenses, high gross and net profit results – thus helping to achieve profit maximisation
- Cost minimisation strategies will assist a business cost leadership
- Lower production costs could enable a business to charge lower prices to customer – assist inducing increased sales and market share
HOWEVER
- Businesses must find a balance between cost and quality – if quality is compromised to save costs, it can lead to many negative ramifications – increased warranty claims and damaged brand image/reputation
Speed
- Refers to the time it takes for operational processes to respond to changes in demand and adjust output volumes
Speed goals include: Reduce wait times, Shorter lead times and Faster processing time
Eliminating bottlenecks in the production process
- Reduce wait times and shorter lead times – increased customer satisfaction – Repeat sales and competitive advantage
HOWEVER
- IF Operational processes are rushed to achieve speed objective, quality objective could be compromised
- It is critical that a business has efficient and reliable suppliers who have the capacity to respond to increases in demand for the inputs the business may require
Quality
- Refers to the ability of a business to satisfy or surpass the standards and expectations of consumers
Quality of conformance Refers to whether a good or service meets (conforms) to the desired specifications a consumer would expect
Quality of service Refers to Is the service reliable, customisable and delivered in a time manner
Quality can be enhanced through commitment to the principle of: quality of design
- Less defects
- Less warranty claims
- Reduced waste
- Improve reliability and dependability of product (key performance of objective)
- Improve customer satisfaction
- Lead to a long-term sustainable competitive advantage
HOWEVER
- Increased defects
- Increased warranty claims
- Increased waste
- Reduced reliability and dependability of product
- Decreased customer satisfaction
New product or service design and development
- The design, development, launch and sale of new products enables a business to grow and attain a competitive advantage.
Changes in innovation and technology
Enables new, appealing products to be made because they sue advanced technologies, which give products great functionality.
- Addresses the issues with products being obselete
- Entice existing customers to repurchase
- Satisfy cosnumer needs and wants
- increases products range
HOWEVER
- May make existing products obselete
- Cost of R&D
- modifications to process layout and task design can be time consuming and expensive.
Consumer approach
The preferences and desires of consumers, identified by market research, determine which products are deisgned and developed.
- Satisfy cosnumer needs and wants
New product or service design and development CASESTUDY
- One main reason for apples contunous success is beacuse they understand the power of product deisgn and devlopment.
- Apple has established a reputation as a comopany that prodcues extraordinary products that grab the attention, and loyalty, of customers.
- Exmaples for upcoming designs and development with apple are;
- 5th Gen Ipad air
- Mac mini
- iphone 14
- 2021 apple annunal R&D expenditure - $22B , 17% increase from 2020.
- Apples key strategy has been well desighned products - quality leading to customer expectation.
- NEW SERVICES that apple have designed include Apple pay,apple fitness. this ultemetly leads to greater usage of the iphone in everyday activity. to buidl brandloyalty and increase sales.
- 2021 revenue from services $68M, an increase of 27% from 2020.
- NEW PRODUCTS that apple reases are the apple iphone, each september.
- R&D for the iphone 12 focused on areas such as oLED display, ceramic glass, facial recognition and tri-camera.
- Resulted in apple selling over $1M iphones per day within the first quater of ist release.
- R&D was was also spent on the development of new products, such as apple car - still underway.
- Apple are focusing and investing more on AI as it attempts to catch up to rivals like amazon and google.
- Ensures that apple maintains a competitive advantage in a highly competitive and changing technological environment.
Supply chain managment
- Refers integrating and managing the flow of supplies throughout the inputs, transformation processes and outputs in oder to meet the need of customers.
Involves both sourcing (Supply side) as well as logistics and distribution (What is sold)
- LEG
- Logistics
- E-Commerse
- Sourcing (Including Global)
Logistics
- Refers to the transport of physical raw materials and inputs with the distribution of finished goods to markets.
Considerations a business may consider are warehosuing, and distribution centres.
Warehousing and distribution centres
- Useful for short term or long term storage
- Perserve the products
- Ensures a business has stock on hand to meet customer orders
HOWEVER
- Costs such as insurance, stacking and moving, damage costs
- Technologies within the distribution centres
Automated warehouse trucks
- Reduces the need for warehouse staff - Higher efficiency.
- Achieve economies of scale by rationalising number of distribution centres or outsourcing -
HOWEVER
- High inital outlay for automated vechicles.
- Increased use of automation impact on existing labour - Lack of dexterity
AI is also being applied to improve supply planning - Assessing the volume needed.
- Ai can assist with continous volume within producution - minimsed shortages - production efficieny
- Improve reliability/dependability
HOWEVER
- Increased use of automation impact on existing labour - Lack of dexterity
- Significant cost/infrastructure required e.g purchasing of drones for small deliveries, autonomous mobile robots, supply chain software,
Logistics CASE STUDY
- Apple primarily outsources its logistics as it lowers operating costs and helps achieve the speed objective.
- Apple purchases raw materials from various sources then get them shipped to an assembling plant in China.
- From there, the assembler will ship products directly to consumers via FedEx, for those who buy from the Apple’s Online Store.
- For other distribution channels such as retail stores, direct sales and other distributors, Apple Inc will keep products in Elk Grove, California and supply products form there.
- At the end of a product’s life, customers can send products back to the nearest Apple Stores or dedicated recycling facilities.
- UPS and Fedex will freight the iPhones using Boeing 747’s which can carry 150,000 iPhones (SPEED AND COST)
- Logistics hub located Louisville Kentucky, Elk Grove California
- It takes three days to transport the iPhones from China to a store in the US (SPEED OBJECTIVE)
E - Commerce
E - Commerce involves the buying and selling of goods and services via the internet.
E-procurement, B2B process.
- The use of online systems to manage supply.
- Allows suppliers direct access to the business’s level of supplies.
- Stock falls to a pre-determined point, the supplier will re-supply
- Allows business to source efficiently
- Ensures that sufficient inventory is ordered
HOWEVER
- Innefficiency in production implementing procurement systems
- High intial outlay - S.T increased costs.
Opting to sell directly to consumers - B2C process.
- Improve speed
- Receive customer’s orders electronically
HOWEVER
- More difficult in certain industries ( Highly customised goods )
E-commerse CASE STUDY
- Apple utilises an e-procurement strategy as a result of the increasingly complex B2B transactions it engages in, whereby, when stock/inventory in its distribution facility at Elk Grove, California falls below a certain point, more stock is automatically ordered.
Global sourcing
- Refers to businesses purchasing supplies or services without being constrained by location.
Involves a business creating a global web of suppliers for materials.
- Access to greater volume of inputs → Economies of scale
- Access to higher quality inputs → QUALITY
- Access to unique inputs → G/S Diff → Comp Ad.
HOWEVER
- Unfavourable exchange rate movements → hinder cost saving → Use of derivatives.
- Quality concerns → Poor QM → Quality
- Transportation delays with inputs → SPEED (Covid)
Advantages having multiple suppliers:
• Mitigate supply chain disruptions and delays, allowing a business to maintain gross-margins.
• Can quickly increase production capacity to respond to changes in consumer demand
• Encourage lower supply costs as multiple suppliers compete for its business
• Prevent competitors from utilising the same production capacity through
exclusive relationships with suppliers
Global sourcing CASE STUDY
- While many components are bought from multiple sources, Apple is reliant on some suppliers as a single source of their component part These sources are located in U.S, Asia and Europe Component from more than 200 suppliers go into each iPhone
• Apple orders many of the components from global suppliers and then sells them to Foxconn or Pegatron to build the product
- This can be an issue if there is an industry wide shortage issue or significant price changes of the component parts
- As Apple also uses some custom components – New products launched use these custom components and these may only be available from a single supplier
- There are advantages of this strategy however, disadvantages include significant supply and pricing risks due to its reliance on one or limited suppliers
Outsourcing - Advants, Disads
- Outsourcing involves external (outside) providers to perform business activities. Such as extenal manufactuers for goods.
More effective production.
- Manufacturing, design, sourcing, logistics
- Simplification - reducing the number of activities a business has to perform
- Access to skills/resources lacking within the business
- Increased process capability (Mass-production facilities and robotic process automation)
HOWEVER
- Cost of outsourcing
- Communication and language – Outsourcers are often using English as their second language;
- Loss of control standards
Outsourcing - Advants, Disads CASESTUDY
Apple’s outsourcing of production to Foxconn and Pegatron has been highly effective in upholding the operations performance objectives for Apple.
• 94 production lines at each Foxconn manufacturing facility - 400 steps to assemble the iPhone, polishing, soldering, drilling and fitting screws.
• The facility can produce 500,000 iPhones a day, or roughly 350 a minute
• Apple saves US$300 per iPhone unit through the outsourcing of production, additionally, through the outsourcing of logistics to FedEx and UPS
• Apple has been able to freight iPhones at $0.50 per unit
• Dual supplier engagement of both Foxconn and Pegatron - leverage more competitive prices
• Quality & Dependability - Foxconn’s 96% manufacturing accuracy rate significantly assists with achieving these objectives
Disadvantages
•Apple requires its suppliers to adhere to their Suppliers Code of Conduct
•However Apple notes that material violations of the code could occur and can be a problem
•Apple has clear contractual arrangements (SLAs) in place regarding the required quality, delivery schedules and cost
Technology
- The application of science and knowledge that enables people to do new things or perform established tasks in new and better ways
A business may use established technology such as robotics & automated vehicles to undertake the transformation process
Established Technologies (CAD, Robotics)
- CAD Increases the accuracy and precision of production methods – Increasing qaulity – reduced wastage – COST & QUALITY.
- Robotics leads to a reduction of labour costs due to Capital Labor substitution – long term cost efficiencies – COST.
HOWEVER
- CAD requries High initial outlay → Negatively impacting S.T costs – COSTS
- Redundancy costs associated with employees who are replaced by Robotics → Impact staff morale and productivity
Administrative technology (Computers and software)
- Computers may Improve efficiency & productivity in the transformation process – improved lead times – SPEED
- Software Reduces defects – Warranty claims – Improved COSTs.
HOWEVER
- Time and cost of training or retraining employees – decreased productivity – SPEED & COSTS.
- Installation and set-up of new technology – Decreased efficiency – decreased lead times – SPEED.