Operation and Supply Chain Strategies

December – 2022 Examination

Internal Assessment
Semester – 3

1Q.
There is XYZ Ltd Company operating in retail business and having numerous
products. Because of dynamic market condition, company is facing lots of
problems such as decrease revenue, increase operations cost, competition
etc. Suggest organisation to implement focused operations strategy that
improve the efficiency of the firm.
ANS –
INTRODUCTION –
Given that XYZ Ltd company operating in retail business and having numerous
products. Is facing dynamic market condition, as company is facing lots of problems
such as decrease revenue, increase operations cost, competition.
we can suggest Operation strategy to improve the efficiency of the firm.
The Organizations rely upon different strategies to achieve their business goals and
survive in today’s competitive business environment. These strategies are planned
for the long- term and carry a board range of activities. Generally, an organization
develops three different strategies which is –
1- Corporate strategy,
2- Business Strategy
3- Functional Strategy.

The corporate strategy revolves around the objectives of the organization, core
competence, and gaining competitive advantage in terms of products and/or
services. On the other hand, market segmentation and priorities that are based
on a competitive market scenario for products/services come under the preview
of business strategy. Operations related activities fall under functional strategy
as it includes operational tasks to develop products such as effective
management of productivity, capability, flexibility, quality, production cost,
delivery.

Definition- According to Authors Slack and Lewis they have defined operations
strategy as the whole system of decisions that are aimed at shaping both the
long-term capabilities of operations irrespective of their type and their contribution
to the overall strategy achievement.
In other words, operations strategy consists of a series of decisions that
organizations take in order to implement competitive business strategies. Operations
strategy supports in linking operational-level decisions. Which is both short-term and
long-term, to corporate strategy. This is also considered a process of making key
operations decisions by maintaining consistency with the overall objectives of the
organization from a strategic point of view.

SUMMARY
There are two main elements which is Market requirements and Operations
resources. Market requirements consist of performance-related goals such as
quality, flexibility, time, cost,
and dependability. Addressing the appropriate needs of customers through offerings
and attracting customers as compared to the competitors; are the main concepts that
influence performance objectives. Wherein, Operations resources cover an
organization’s assets, processes, and capabilities.
In between these two, operations strategy lies that reconcile the available resources
of an organization with the pre-determined performance objectives.
The main focus of operations strategy is on specific capabilities related to the
operation that facilitates an organization in gaining a competitive advantage. These
capabilities are termed as competitive capabilities or priorities. An organization can
get success in the market by getting excellence in such capabilities. In other words,
competitive capabilities are those capabilities that are developed by operations
function to provide a competitive advantage to an organization in its industry or
market.
Business strategies act as a foundation for developing operations strategies. Few
business strategies have a direct hold on manufacturing such as:
- Serving a defined product or service in a stable market
- Providing the high variety of a product and design customization to fulfil the
particular requirement
- Use of in-built flexibility to offer quick market response and manufacturing of
different products to maintain the level with the environmental changes
In order to obtain the above business strategies, an organization needs to focus on
gaining productivity, low-cost advantage, quality, design-related constant innovation,
and development of new products through the reduced development cycle.
Achieving a competitive market advantage and making core competencies are
considered effective strategies. The strengths and unique resources of an
organization are its core competencies that the organization should develop,
practice, and improve constantly. Competence transforms into capability once the
strategy is implemented successfully and pre-defined objectives related to competing
are achieved.
Competitive advantage can be achieved by understanding the needs and desires of
customers and providing the offerings accordingly. This includes finding out their
preferred quality and cost of products, serving customers in a more effective way
than competitors.

The main objective of any business is to secure a position through which it can
attract more customers as compared to its competitors. To achieve this, Operations
managers are supposed to work in close conjunction with marketing to understand
the market’s competitive situation in which an organization is operating and identify
the unique competencies in order to determine the important competitive priorities.
In making decisions related to the growth and survival of an organization,
competitiveness plays a crucial role as it is related to the effectiveness of the
organization in meeting customer requirements over its competitors, and hence,
considered an important factor. For this, organizations depend upon their operational
strengths and use them along with opportunities as their competitive weapons or
Competitive priorities.

Relationship between corporate, Operations and Business strategy.

In every organization, there is a unique mission statement that includes a range of
long-term goals. This is termed as a corporate strategy as it contains the detailed
description of the type of business that an organization desires to be in, the different
type of customers that the organization will serve, the basic values and belief system
of its business, and the goals and profitability, that are expected to be achieved.
Another long-term business plan similar to the corporate strategy is a business
strategy that acts as a roadmap in order to achieve of fulfill the above-mentioned
mission of corporate strategy. These long-term plans have to undergo different
functions such as marketing, HR, production, finance, etc. Here the role of
operations strategy comes in as its main function is to translate whole decision-
related processes that facilitate business strategy.
It’s the responsibility of operations function to manage the resources required to
produce products/services of the organization. To support the business strategy,
operations strategy acts like a plan to specify the structure and usage of resources.
This consists of required skills and talents of the workforce, technology usage; size,
location and type of available facilities, special equipment and processes required,
and methods of quality control. So, operations strategy enables the organization to
fulfil its long-term plan and for this, it must be aligned with the business strategy of
the company.
Operations Strategy Development
Developing an operations strategy under the corporate strategy is explained through
the above diagram. It indicates different factors that are included in operations
strategy and the connection between the corporate strategy, business strategy, and
Competitive priorities of operations strategy. In this, there is a direct connection of
long-term strategic decisions of operations with new product development, facility
establishment, introducing new technologies, determining product capacity, and
suitable decision-making on developing and maintaining the quality of products.
With the help of operations strategy, an organization can translate its competitive
priorities and product plans into processes related to decision-making. Decisions
related to operations help in determining different processes for producing variety
and volume of products.

Examples of Operations Strategy - Fast-food giant McDonald’s business strategy

is aimed at preparing food for its customers on the fast track and comparatively low
competitive cost. It also includes earning profit by cost reduction of its products and
expansion of its business across the world
To meet the above organizational goals, the Operations strategies of McDonald’s
play a vital role. The company is able to maintain and control all of its operational
activities. Top management of the company develops its operations management
strategies and the same are implemented by different branches of McDonald’s. Also,
these operations strategies are circulated to other franchisee branches in a written
format. Different operations managers allocated at different branches oversees the
monitoring and controlling part of all operational activities.
Through the increased use of information technology, McDonald’s is able to
introduce new ideas and ways to enhance its operational activities. Through its stock
control database system, it is possible to avoid unnecessary ordering, and also,
stock can be maintained up to date in the store. It has become easy to order the
stock in less time.
McDonald’s operations strategies are based on its competitive priorities that include
the affordable and friendly cost of products, quality of products by offering many
healthy meal options and superior quality services, speediness of services, flexibility.
Speed or less service time
By considering the fact that customers seek fast delivery services as their top
priority, McDonald’s started providing fast, accurate and friendly services to meet the
demand of its customers. This enables the selling of the products at a reduced cost.
Moreover, one of the reasons for the fast delivery of orders is that most of the
products of McDonald’s are in the form of ready to serve as these have to put in the
ovens of superior quality and usually, the order is ready within very few minutes.
Cost
McDonald’s has adopted different operations strategies to provide products to
customers at a discounted price and to reduce the cost of its operations.
The company is using efficient equipment to enhance the speed of producing its
products. McDonald’s uses fluorescent low consumption lighting that plays a crucial
role in the cost reduction of operations. The use of cooking oil by the company in
transport operations also contributes to reducing operations costs.
McDonald’s has also reduced operational costs by purchasing most of the
vegetables (especially potatoes) directly from the farmers. This facilitated the
company to reduce the cost associated with the production of chips.
Apart from the above, McDonald also has a low-cost supply chain system and they
have incorporated a just-in-time strategy to reduce the cost related to wastage and
unnecessary storage.

Quality - The service quality of McDonald’s can be measured through the time
invested in processing orders and customer products. The policy of five Ps which is
product, price, people, promotion, and the place has been applied by McDonald’s to
enhance the quality of its services.
- The product consists of quality, taste, and price of products of the company.
To maintain food quality is always considered McDonald’s top preference.
- McDonald’s staff (people) are well trained to serve customers in an efficient
way. The company always takes the necessary steps to reduce its operation
cost.
- Place includes relevant, clean, surrounding areas with modern amities of
McDonalds such as restaurants, restrooms, or kitchen, etc. It aims at comfort
level and safety for the customers.
- Promotion is related to marketing and trust-building activities.
Moreover, there are three quality centres of McDonald’s in Asia, Europe, and North
America. These quality centres ensure that different famous dishes of McDonald’s
like French Fries, Big Macs, and Chicken McNuggets, etc. always meet their
standards and a great level of taste. These centres are used by the company to
provide training for suppliers and examine the quality of products for taste and
consistency.
Flexibility
There are three forms of flexibility in McDonald’s i.e.
Mix flexibility- This includes producing a wide range of products through an
operation so that customers can select from them.
Product or service flexibility- This consists of generating new ideas or ways to
incorporate in producing food items or services so that customers can find them
more attractive.
Volume flexibility: In this, the adjustments are being made in the output level of
McDonald’s in order to tackle the unexpected changes that occur in demand for
products.
Service Strategies - This includes producing less variety using processes that result
in high volumes and customized forms. These are more customer-focused. For
example, Both Apple and Dell companies are into offering products and services to
their customers. Both companies provide IT-based products and also offer an after-
sales service facility.
Global Strategies and Role of Operations Strategy –
Organizations may adopt a global strategy of importing parts or services from abroad
and counter domestic competitions at the corporate level. A global perspective is
required to identify external environment threats and opportunities and evolve
operations strategy. Analysing different other factors are also required such as
market segmentation that includes psychological, demographic, and industry factors;
also, the identification of different needs of goods, volume, delivery, etc.
Drafting a business strategy from a global point of view requires considering the
global conditions and existing competencies, strengths, and weaknesses. Different
factors such as existing competition, market potential, developmental factors i.e.
social, political, economic, technological, etc. are part of global conditions and are
considered at the time of defining the business strategy.

CONCLSUION -
There are two main strategies that organizations adopt as a part of their global
strategy which is strategic alliance and placing operations in a foreign market and
after-sales service.

Strategic Alliance - When two parties or organizations enter into an agreement for
promoting their products or services then it is considered as a strategic alliance and
partners act as joint partners. Different main forms of the strategic alliance are:
Collaboration -
Two companies are said to be into collaboration agreement when one company
holds core competency in a specific product, joints with the other company that
wants to promote the product in its country. So, rather than designing their own
duplicate product, both companies collaborate for promoting the product based on
their mutual interest. Also, to keep the product’s reputation, the local company
follows the operations strategy of a collaborated company. A few examples of such
companies are IBM, HP.
Joint venture -
This is considered as an agreement between two companies to produce products in
joint form. Joint venture strategy supports in gaining foreign market access. In this,
technology and expertise are supplied by an external company and required
resources such as processing, operations, infrastructure, manpower, etc. are
provided by the local company. Different car manufacturing companies like Honda,
Maruti Suzuki, etc. have adopted this strategy.
Transfer of Technology and Licensing -
Transfer of technology describes different processes using which movement of
technological knowledge is possible between or within organizations. This
knowledge can be in different forms such as services and people, design and
technical documents, etc. Wherein, licensing is related to a business agreement that
allows an organization to grant permission to another organization for the
manufacturing of its product on defined payment terms.
Placing Operations in Foreign Market and After Sales Service
In order to penetrate the new markets, organizations locate their manufacturing
operation abroad. For this, companies are supposed to do a techno-economic
survey in a detailed way before entering into foreign countries because of the
political and economic environment, customer needs may be different and vary.
Operations strategy may also be different than the current operations strategy of the
company. If the product is a standardized one, then its methodology and operations
strategy can be similar. Domino’s Pizza, McDonald’s are a few examples of this.

2Q.
You have been appointed as supply chain consultant in E-Commerce
Company. Company operates in various products line such as books, mobile
phones, laptops, apparels etc. To increase customer base top management of
the firm is thinking to acquire furniture start up. Simultaneously company also
need to focus on exiting business model. Analyse and suggest a different level
of strategies that you will implement in the firm that can improve overall
business profit.

ANS -
Introduction - Operations and Supply Chain Management (OSCM) is the design,
operation, and improvement of the systems that create and deliver the firm’s primary
products and services. OCSM is concerned with the management of the entire
system that produces a product or delivers a service.

What is supply chain network-

For every product/service a supply network can be made. Think of a supply network
as a pipeline through which material and information flow.
Success in today’s global markets requires a business strategy that matches the
preferences of customers with the realities imposed by complex supply networks.
Operations
Operations refers to manufacturing and service processes that are used to transform
the resources employed by a firm into products desired by customers.
Supply Chain
Supply Chain encompasses all activities and information associated with the flow
and transformation of goods and services from the raw materials stage through to
the end-user.
From what do Operations and Supply Chain processes consist?
A process is made up of one or multiple activities that transform inputs into outputs.
Operations and Supply Chain processes can be categorized as follows:
- Plan: Involves the processes that are needed to operate an existing supply
chain strategically;
- Source: The selection of suppliers that will deliver the goods and services
needed to create the firm’s product;
- Make: Where the product is produced or the service is provided;
- Deliver: Also, logistics processes. Delivering products to warehouses and
customers, contact with customers and information systems need to be
managed;
- Return: Involves the processes for receiving worn-out, defective, and excess
products back from customers and processes for supporting customers who
have problems with the delivered product.
What are the differences between goods and services?
They are five essential differences between goods and services:
Intangibility: A service cannot be weighed or measured. This means that services
innovations cannot be patented and customers cannot try the service beforehand;
Interaction with the customer: To be a service, the process requires a degree of
interaction with the customer;
Heterogeneity: Services vary day to day between the customer and the servers,
whereas variation in producing goods can be almost zero;
Perishability and time dependency: services can’t be stored;
Specification of a services can be defined as a package of features that affect the
five senses, existing of supporting facility like location and layout, facilitating goods
like variety, consistency and quantity, explicit services like training of the personnel
and availability to the service, and implicit service like attitude of the personnel,
waiting time and privacy.
In which ways can a firm focus?
Almost every product offered is a combination of goods and services. The Goods-
Services Continuum demonstrates the focus of firms and spans firms that only
produce products to firms that provide services only (pure products – core products –
core services – pure services).
What is Product-Service Bundling?
Product-service bundling refers to when a firm builds service activities into its
product offerings to create additional value for the customer.
Efficiency, effectiveness and value
Efficiency is doing something at the lowest possible cost.
Effectiveness is doing the things that will create most value for the customer.
Value is the attractiveness of a product relative to its cost.
How do you calculate efficiency?
An interesting relation between OCSM functions and profit is the direct impact of a
cost reduction in one of these functions on the profit margin.
There are two ratios that relate to the productivity of labour employed by the firm: net
income per employee and revenue (or sales) per employee.
The receivables turnover ratio measures the efficiency of a company in collecting its
sales on credit:
Receivable turnover = annual credit sales / average account receivable
The lower the ratio, the longer receivables are being held and the higher the risk of
them not being collected.
Another ratio is the inventory turnover, which measures the average number of times
inventory is sold and replaced during the fiscal year. This ratio measures how
efficient the company turns its inventory into sales.
Inventory turnover = costs of goods sold / average inventory value
The asset turnover ratio is the number of sales generated for every dollar’s worth of
assets. This measures how efficient a firm is using its assets in generating sales
revenue.
Asset turnover = revenue (or sales) / total assets

What are the issues global enterprises have to deal with nowadays?
As operations and supply management is a dynamic field, a global enterprise
challenges nowadays different issue:
Coordination between mutually supportive but separate organizations existence of
contract manufacturers that are specialized in performing focused manufacturing
activities.
Optimization of global supplier, production, and distribution networks;
Management of customer touch points (the recognition that making resource
utilization decisions must capture the implicit costs of lost customers as well as the
direct costs of staffing);
Raising senior management awareness of operations as a significant competitive
weapon.

SUMMARY –
It’s no secret that today’s supply chains have become more complex than ever, with
socioeconomic and market dynamics underscoring organizations’ need to respond to
an outside-in, demand-driven world.
But companies must now factor in a host of new variables, such as rising
protectionism and nationalism across the political landscape. This is forcing many to
re-examine their business-continuity risks and embrace new sourcing strategies.
Here are six supply-chain strategies designed to help enterprises thrive in the current
environment.
Strategy No. 1: Adopt a demand-driven planning and business operating
model-
Based on real-time demand insights and demand shaping. Demand-prediction
capabilities continue to mature as supply chain management teams utilize ever-more
powerful digital tools. Artificial intelligence technologies and internet of things (IoT)
networks have gotten even better, allowing SCM teams to take action more quickly,
and automatically adjust their supply chains based on real-time insights to match
expected demand.
The cloud continues to play a growing role in the new supply chain. More companies
are moving data and apps to the cloud, allowing the creation of unified data models
that are augmented by external sources. This is driving a new level of predictive
capability and planning accuracy not available just two years ago.
Validating the trend, more companies are seeing their supply-chain modernization
investments bear fruit. Based on our recent research, companies utilizing the cloud
improved delivery performance and increased revenues by 20%-30% on average.
They also cut logistics costs by 5%-25% and slashed inventories, lowering working-
capital requirements by 25%-60%. Asset utilization jumped by 30-35%.
Strategy No. 2:
Build an adaptive and agile supply chain with rapid planning and integrated
production.
Agility is still the name of the game this year when it comes to supply-chain
management. In fact, companies are getting even better at aligning planning with
manufacturing, driving greater operational speed and flexibility.
Yet a fully integrated solution still seems beyond the reach of some companies. A
2014 study found that 55% of businesses have only “modestly integrated planning
across the company.” A mere 9% said they had a “highly integrated supply-chain
planning environment.” Companies still struggle with these issues to this day.
The problem might be the sheer volume of data and analytics required to properly
integrate planning with execution in real time. But this barrier is now falling, with the
introduction of cloud-based platforms that link financial and materials-planning tasks
to business-execution activities such as procurement, manufacturing, and inventory
management — and do it directly across a common online interface. For the first
time, companies can create a zero-latency plan-to-produce process, allowing them
to act faster and adapt seamlessly to the dynamics of their markets.

Strategy No. 3:
Optimize product design and management for supply, manufacturing, and
sustainability, to accelerate profitable innovation.
The days when companies ran product development and supply-chain planning as
separate functions are coming to an end. To stay competitive, the tradition of
“throwing product designs over the wall” to supply chain planners — the ones who
figure out how to source and build the products — is no longer fast or efficient
enough.
Consider the market for mobile phones, where competition is driving manufacturers
to develop and launch new models every year. Increasingly the only way to do this is
by merging design teams with supply-chain planners on a single (usually cloud-
based) platform. These new collaborative systems, as well as smart procurement
practices such as supplier prequalification, can help product developers source the
right components up front, based on factors such as parts availability, quality, and
cost.
Our research shows that when done right, integrating design and supply-chain
planning process can lead to 10%-20% faster time to market, 10%-20% greater
product revenue, and 10%-25% reduced scrap and rework expenses.
Strategy No. 4:
Align your supply chain with business goals by integrating sales and
operations planning with corporate business planning.

Business risks for companies have risen significantly in the last couple of years.
From Brexit to tariff wars, leaders are facing a growing array of market uncertainties.
This is why companies need to integrate their tactical sales and operations planning
(S&OP) programs with their strategic budget and forecasting efforts. The goal is to
create a planning capability that translates macro business priorities and risks into a
set of on-the-ground execution tasks that are continually updated to reflect changing
market conditions.
Integrating business planning, S&OP, and supply-and-demand planning improves
business agility by creating an efficient closed loop from planning to execution to
performance management.
Strategy No. 5:
Embed sustainability into supply chain operations.
Sustainability in all its forms, both social and environmental, has joined growth and
profitability as a top priority in the C-suite. And for good reason: sustainability and the
bottom line are no longer mutually exclusive. Just this past year, the Business
Roundtable released its Statement on the Purpose of a Corporation, declaring that
sustainability should be a key priority for companies, in addition to generating profits
for shareholders.
Putting a spotlight on sustainability places a new focus on supply-chain practices,
many of which can have a sizeable impact on environmental health in areas ranging
from carbon emissions to industrial waste and pollution. Today there are myriad
strategies companies can use to optimize their supply chains for sustainability:
Supply-chain teams can develop long-term targets that improve key measures of
sustainability such as the company’s carbon footprint, energy usage, and recycling
efforts.
Teams can deploy new technologies to ensure responsible environmental practices
such as optimizing truck routes to reduce fuel consumption and carbon emissions
across the supply chain.
Companies can move to a shared data model to provide the end-to-end visibility and
real-time insights needed to optimize supply chains and ensure they are sustainable.

Strategy No. 6:
Adopt emerging technologies to ensure a reliable and predictable supply.
Businesses need a buffer to deal with unexpected shifts in demand, but too much
inventory can raise costs. By improving demand accuracy, new technology can
reduce inventory requirements and speed reaction times, creating a nimbler and
more reliable supply network.
With today’s global trade volatility and ongoing tariff wars, it’s essential to make the
right decisions about where to source materials, make products, and deliver goods in
order to minimize costs and ensure compliance.
What’s also new is that AI, machine learning, and IoT are no longer just buzzwords.
Today they’re market-proven technologies that are streamlining supply chains and
driving business agility in companies worldwide. With these capabilities now being
built directly into cloud solutions, customers can harness their potential right out of
the box. This means you can get started with truly business-changing technologies
without the need to invest in complex projects or costly, hard-to-find skillsets.

Conclusion -

- Strategy describes how a firm creates and sustains value for its current
shareholders. By adding sustainability, future generations are taken into
account.
Shareholders own one or multiple shares in the company.
Stakeholders are indirectly and directly influenced by the activities of the firm.
Firms focus more and more on stakeholders.
- The Triple Bottom Line captures an expanded spectrum of values by
evaluating a firm against the following criteria:
Social Responsibility: Pertains to fair and beneficial business practices toward
labour, the community, and the region in which a firm conducts its business;
Economic Prosperity: The firm’s obligation to compensate shareholders who
provide capital via competitive returns on investment;
Environmental Stewardship: The firm’s impact on the environment and
society.

- If you want to integrate an Operations and Supply Chain Strategy with the
operations capabilities of a firm, you must make decisions about the design of
the process and infrastructure needed to support these processes.
Process design is selecting the right technology, arranging the process over
time, determining the role of inventory in the process and determining the
location of the process.

Infrastructure decisions involve the logic associated with the planning and
control systems, quality assurance and control approaches, work payment
structure and organization of the operations and supply functions.

- Operations capabilities is a portfolio best suited to adapting to the changing

product and/or service needs of a firm’s customers.
There are seven major competitive dimensions forming the competitive position of a
firm.
Cost or price: The choice to either make the product or deliver the service cheap.
Quality: The firm’s definition of how the product or service is to be made;
Delivery speed: The firm’s ability to make the product or deliver the service quickly;
Delivery reliability: The firm’s ability to deliver the product when promised;
Coping with changes in demand: The firm’s ability to respond to the change in
demand;
Flexibility and New-Product introduction speed: The firm’s ability to be flexible in
order to offer a wide variety of production to its customers in a given time;
Other product-specific criteria relate to specific products or situations: Special
services can increase sales of manufactured products such as technical liaison and
support, meeting a launch date, supplier after-sale support, environmental impact
and other dimensions.

3Q.
A traditional pharmacy company is planning to start online channel to reach
better geographic location. Company spends huge amount of money in
technology to improve supply chain. Company also took help from third party
logistics to deliver the orders.
a. Explain existing situation of company with respected to industry life cycle.
ANS-

INTRODUCTION - Industry life cycle analysis is part of the fundamental analysis of a

company involving the examination of the stage an industry is in at a given point in
time. There are four stages in an industry life cycle: expansion, peak, contraction,
trough. An analyst will determine where a company sits in the cycle and use this
information to project future financial performance and estimate forward valuations.
Though not necessarily the case, the life cycle of a particular industry will follow the
general economic cycle. Moreover, an industry life cycle may lead or lag an
economic cycle, and can vary from an economic cycle's phases in terms of
expansion or contraction percentages or duration of peak and trough stages. During
an expansion phase in open and competitive markets, an industry will experience
revenue and profit growth, drawing in more competitors to meet the growing demand
for that industry's goods or services. The peak occurs when growth drops to zero;
demand in the cycle has been met and prevailing economic conditions do not
encourage additional purchases. Industry profits flatten out.
The contraction phase of the life cycle begins at some point after the peak arrives,
characterized by falling profits as current period sales are lower relative to prior
period sales (when demand was on the rise). The contraction phase could be
concomitant with a recession in the economy or merely a reflection that short-term
demand in the industry has been exhausted. During the contraction phase, the
industry undergoes production capacity adjustments, whereby marginal players get
shaken out and stronger companies lower their production volumes. Industry profits
decrease.
This adjustment process, combined with a firming of the economy observed in
employment and personal income numbers and the consumer confidence index,
lead to the trough phase of the industry life cycle. At this stage, lower levels of
industry demand are matched by the output capacity. As the economy gathers
strength, the industry life cycle begins again with the expansion phase. As
mentioned at the outset, an industry life cycle is typically tied to the economic cycle.
The entertainment and leisure industry is an example of such an industry. The
technology industry, on the other hand, has exhibited life cycle movements at
variance with the economic cycle. For instance, industry profits have boomed even in
times of no economic growth.

SUMMARY - Analysts and traders often use industry life cycle analysis to measure
the relative strength and weakness of a particular company's stock. A company's
future growth prospects may be bright (or dim) depending on the stage that it is in
during an industry life cycle. Porter's five economic forces change as an industry
matures. For example, rivalry is most intense between companies in a sector during
the growth stage. Start-ups slash prices and ship products as quickly as possible in a
bid to garner as many customers as possible. During this time, the threat of new
entrants eating into an existing company's market share is high. The scenario
changes in the maturity stage. Less competitive start-ups and inferior products are
weeded out or acquired. The risk of new entrants is low and the industry's product is
mature enough to be accepted in mainstream society. Start-ups become established
firms during this stage but their future growth prospects are limited in existing
markets. They must search out new avenues and markets for profits or risk
extinction.
Fundamental balance sheet analysis is an integral part of the investment process.
Prior to purchasing a particular stock, one of the first steps involves dissecting a
corporation's financial statements to determine the firm's financial health. For
example, a growing debt burden combined with a stable or even declining cash
position could serve as a potential signal of overleveraging. Similarly, a situation in
which a company shows strong net income growth, yet consistently fails to
demonstrate an appreciating cash balance, may be a red flag of earnings
manipulation.
In order to properly examine the balance sheet for indicators of strength, weakness
or potential fraud, the financial documents must be studied as a whole. Adjustments
in accounting policies, modifications to operations and historical balance sheet
comparisons all provide vital quantitative measures to assess the financial strength
of a company. While numerical figures such as ratios and revenue forecasts are
undoubtedly vital to investment decisions, the qualitative analysis offers another
useful tool.
Qualitative Factors -
Various qualitative factors can be easily attained from public information about the
company of interest. A proper system of corporate governance that adheres to
principles of integrity and transparent disclosures will mitigate the risks of fraudulent
behaviour. Furthermore, a valid system of checks and balances whereby
independent third parties assess the integrity of corporate financial statements and
monitor management's behaviour is correlated with positive long-term stock returns.

Other qualitative considerations could include how well the company adapts to
social, technological, economic, and political change. Firms with strong political
connections may often be severely crippled once this support system is removed.
Similarly, if a company is entirely dependent on a current social phenomenon (such
as a fad) or a single technology, changes in these variables may cripple the firm.
This type of analysis is often more difficult than analysis based
on fundamentals because it requires creating hypotheses that cannot easily be
answered.

Porter's Five Forces -

Porter's five-force framework is a qualitative tool that applies to investment analysis.

The framework helps analyse a firm's competitive stance in its industry. Porter's
forces examine industry-specific conditions and help investors determine how well a
corporation is positioned to adapt to changes in its target market .
Porter's five forces -
- The threat of substitute products or services
- The threat of increased competition from rivals in the market
- The threat of new entrants into the market
- The bargaining power of suppliers
- The bargaining power of customers1
Using these forces requires a solid understanding of the general industry/market,
corporate business model, and an appreciation for how the business can adapt to
changes in market conditions. Basically, investors must analyze how a company can
respond to the underlying threats. For example, it's common for a company to rank
high in terms of competitive resistance on four forces and fail horribly on the fifth.
Inevitably, determining how such a scenario would affect an investment's appeal is
up to the investor.
1. The Threat of Substitute Product or Services
The threat of substitute products or services arises when customers can easily
switch to alternative products (not necessarily alternative brands). For example, in a
society that experiences drastic population growth, people might begin substituting
their method of primary transportation from motor vehicles to either bicycles or public
transit. Such changes in behavioural patterns would hinder the performance of the
auto industry.
However, to determine whether such a threat is realistic, various considerations must
be made such as switching costs and the practicality of alternative products. In the
previous example, if most individuals generally commute short distances on a day-
to-day basis, bicycles could become a real threat to carmakers. On the other hand, if
the average daily distance one must travel is significant, people may be less inclined
to switch to either buses or bikes.
2. Threats of Increased Competition from Rivals
Market saturation will often prevent a single player from gaining an overriding sales
advantage and experiencing a surge in revenue. This internal threat is present in
almost every industry that is not dominated by a monopoly. When analyzing the sort
of threat that competition imposes, a wide variety of factors must be considered,
such as brand equity, market position, advertising expertise, and technological
innovation. In many situations, the largest player in the industry may become
obsolete if it's lacking in the traits that ensure a stable and ongoing competitive edge.
Two common metrics used to determine the competitiveness of a market are
the Herfindahl-Hirschman Index and the concentration ratio. While the HHI measures
market concentration and the level of competition, the concentration ratio provides a
measure of the percentage of the total market share held by the largest companies
in the sector.
3. A Threat of New Entrants
Barriers to entry are one of the most crucial components of Porter's framework.
Barriers to entry can exist in the form of patents, substantial capital requirements,
government regulations, access to a proper distribution network, and technological
expertise. Essentially, new entrants into a market will have to overcome multiple
barriers if they are to compete with the already established companies. If the industry
requires significant initial capital expenditures, smaller firms will simply be unable to
enter the market.
Quite often, a firm will be the first on the market with an innovative technology or
service that either automatically creates or revolutionizes the way business is done
in a particular market. Unless there are firm barriers to entry, competitors can easily
enter the market and replicate the prosperous firm's business model, thus
diminishing the original company's returns. When entry barriers are lacking, those
companies already in the industry will see their margins reduced and experience a
subsequent share price decline as competition forces the convergence to normal
profit levels.
4. Bargaining Power of Suppliers
The threat of disproportionate supplier bargaining power is typically a problem for
smaller companies that are exclusively dependent on the inputs provided by one
seller. For example, if a restaurant that specializes in unique dishes is only able to
purchase the ingredients from a single provider, that supplier can easily increase the
prices it charges. This will either decrease margins for the restaurant or the
restaurant will have to pass the additional costs of the ingredients on to its diners.
One of the main factors that determine pricing is the law of supply and demand.
Large retailers such as Walmart and Target are generally not at the mercy of their
suppliers since they have access to a wide distribution network. Smaller niche
businesses, however, may face a realistic threat of price hikes from suppliers.
Gaining access to this type of information—who a business's suppliers are and what
the existing relationship between the buyers and sellers is—usually requires
extensive research.
5. Bargaining Power of Customers
When Walmart and Target are viewed as the customers of a transaction, they exert
a substantial amount of buying power. Many businesses are dependent on large
retail chains to continue purchasing from them—therefore buyers can negotiate
favourable price contracts and minimize the revenue potential of their suppliers. This
threat is the opposite of the bargaining-power-of-suppliers concern.
Similar to the basic portfolio theory, which states that investors should diversify
their holdings in order to minimize their exposure to any one security, safe
companies should not be entirely dependent on a single customer. If one customer
does not renew its contract, for example, this should not be enough to bankrupt the
supplier. Having a diverse customer base is key to mitigating this threat.

CONCLUSION - The important criteria to determine the stability of a corporation.

High threat levels typically signal that future profits may deteriorate and vice versa.
For example, a hot firm in a growing industry might quickly become obsolete if
barriers to entry are not present. Likewise, a company selling products for which
there are numerous substitutes will not be able to exercise pricing power to improve
its margins, and it may even lose market share to its competitors.
The qualitative measures introduced by Michael Porter in Porter's five-force
framework allow investors to draw conclusions about a corporation that are not
immediately apparent on the balance sheet but will have a material impact on future
performance. Although quantitative factors such as the price/earnings
and debt/equity ratio are often the primary concerns for investors, qualitative criteria
play an equal role in uncovering stocks that will provide long-term value.
b. Explain different competitive advantage that ultimately help company to get
better position in market.
ANS –
INTRODUCTION - Competitive advantage refers to the ways that a company can
produce goods or deliver services better than its competitors. It allows a company to
achieve superior margins and generate value for the company and its shareholders.
A competitive advantage is something that cannot be easily replicated and is
exclusive to a company or business. This value is created internally and is what sets
the business apart from its competition. A competitive advantage is what sets a
company apart from its competitors, in the eyes of its consumers.
These advantages allow a company to achieve and maintain superior margins, a
better growth profile, or greater loyalty among current customers.
A competitive advantage is often referred to as a “protective moat.”
Strong and repeatable competitive advantages can create sustained success for a
business and attract capital more readily and cheaply.
Competitive advantages come in many shapes and sizes. They include, but are not
limited to, some of the following:
- Access to natural resources not available to competitors
- Highly skilled labour
- Strong brand awareness
- Access to new or proprietary technology
- Price leadership
Components of Competitive Advantage
For a competitive advantage to be established, it is important to know the following:
1. Value Proposition – A company must clearly identify the features or services
that make it attractive to customers. It must offer real value in order to
generate interest.

2. Target Market – A company must establish its target market to further

engrain best practices that will maintain competitiveness.

3. Competitors – A company must define competitors in the marketplace, and

research the value they offer; this includes both traditional as well as non-
traditional, emerging competition.
To build a competitive advantage, a company must be able to identify its value
proposition that will be sought after by the target market, which cannot be replicated
by competitors.
SUMMARY –
Three strategies for establishing a competitive advantage: Cost
Leadership, Differentiation, and Focus
1. Cost Leadership
The goal of a cost leadership strategy is to become the lowest cost manufacturer or
provider of a good or service. This is achieved by producing goods that are of
standard quality for consumers, at a price that is lower and more competitive than
other comparable product(s).
Firms employing this strategy will combine low profit margins per unit with large
sales volumes to maximize profit. Companies will seek the best alternatives in
manufacturing a good or offering a service and advertise this value proposition to
make it impossible for competitors to replicate.
2. Differentiation
A differentiation strategy is one that involves developing unique goods or services
that are significantly different from competitors. Companies that employ this strategy
must consistently invest in R&D to maintain or improve the key product or service
features.
By offering a unique product with a totally unique value proposition, businesses can
often convince consumers to pay a higher price which results in higher margins.
3. Focus
A focus strategy uses an approach to identifying the needs of a niche market and
then developing products to align to the specific need area. The focus strategy has
two variants:
- Cost Focus: Lowest-cost producer in a concentrated market segment
- Differentiation Focus: Customized or specific value-add products in a
narrow-targeted market segment.
Building a brand offers your business many benefits but is particularly useful when
you have many direct competitors. A strong brand makes your products instantly
recognizable and adds value beyond the product’s tangible benefits. Understanding
your target market and what appeals to them and then developing your branding
based on this knowledge ensures your efforts hit the mark. You can then use this to
your advantage to build a loyal customer base and keep your business way ahead of
the competition.
Competitive Advantage in the Marketplace
Three notable examples are:
1- Walmart: Walmart excels in a cost leadership strategy. The company offers
“Always Low Prices” through economies of scale and the best available prices
of a good.
 2- Apple: Apple uses a differentiation strategy to appeal to its consumer base. It
provides iconic designs, innovative technologies, and, therefore, highly
sought-after products; this ensures that consumers are willing to pay a
premium for Apple devices.

3- Whole Foods Market: Whole Foods Market’s advantage relies on a

differentiation focus strategy. The company is a leader in the premium grocery
market and charges more premium prices because its products are unique.
This is appealing to a niche market with higher disposable income.
CONCLSUION -
A competitive advantage is what sets a business apart from its competitors. It is
essential in order for a business to succeed, whether it’s by ensuring higher margins,
attracting more customers, or achieving greater brand loyalty among existing
customers.
Higher margins, a better growth profile, and lower customer churn tend to also be
very popular among both investors and creditors – making capital more readily
available (and cheaper) for firms that are able to maintain a strong competitive
advantage among their peers, creating a sustainable competitive advantage for your
products isn’t easy, but you can apply all these tactics and communicate your brand
effectively to your target market.