Chapter 4 4.

Monitoring inventory stock keeping

BUSINESS STRATEGIES units
5. Tracking supplier performance
Value Chain Analysis ● Important Points
● Is a general term that refers to a sequence of ➔ Create “value” by establishing and
interlinked undertakings that an organization managing supplier relationships,
operating in a specific industry engages in. identifying strategic sources, accurately
● looks at every phase of the business from the forecasting demand requirements, and
time of procurement of raw materials to the time understanding inventory management
its products reach its eventual end users or ● Goals of Supply Management:
consumers. ➔ Obtain the right materials by meeting
● The value chain concept is concretized in supply quality requirements in the right
chain management. quantity, for delivery at the right time
● Here, the value creation is greatly emphasized. and the right place, from the right
source, with the right service, and at the
Supply Chain Management right price.
● Broad continuum of specific activities employed ● Objectives of Supply Management
by a company. ➔ Improving the organization’s
● Supply chain management is a complete competitive position
sequence of processes that includes purchasing, ➔ Providing uninterrupted flow of
production and operations, delivery, and materials, supplies, and services
marketing and sales. It is actually as complete ➔ Keeping inventory and loss at a
management cycle where efficiency minimum
● between and among the procedures essentially ➔ Maintaining and improving quality
brings about optimum output. ➔ Finding best-in-class suppliers at lowest
● It consist of the following: total costs
- purchasing or supply management ➔ Achieving harmonious relations with
which includes the sourcing, ordering, supplier
and inventory storing of raw materials,
parts, and services; Sourcing and Ordering
- production and operations, also known ● Steps in sourcing out raw materials or parts:
as manufacturing and assembly; 1. Specify the need clearly by writing
- logistics which is the efficient down the details.
warehousing, inventory tracking, order 2. Identify and analyze possible sources of
ent management, distribution and supply.
delivery to customers 3. Ask potential suppliers for their
- marketing and sales which includes respective quotations, proposals, and
promoting and selling to customers. bids.
4. Compare and evaluate submitted
Supply Management documents, then select the suppliers.
● now a popular term used for purchasing which 5. Prepare, place, follow up, and expedite
was formerly termed as procurement. a key the purchase order (PO).
business function that is responsible for: 6. Confirm that the order placed has
1. Identifying material and service needs actually arrived in good condition and at
2. Locating and selecting suppliers; the quantity.
negotiating and closing contracts 7. Lastly invoice clearing and payments
3. Acquiring the needed materials, follows.
services, and equipment
Inventory Management
 ● Another facet of supply chain management
● Inventory management is ordering the right ● Manufacturing is the process of producing
quantity of SKUs at minimum inventory costs. goods using people or machine resources.It
● The role of inventory is to buffer uncertainty. It commonly refers to industrial production where
includes all purchased materials and goods, raw materials are converted into finished goods.
partially completed materials and component ● Assembly is the process of putting together raw
parts, and finished goods. materials into a desired output.
● 4 Categories of Inventories
1. All unprocessed purchased input or raw
materials for manufacturing. The Logistics Circle
2. Work-in-process (WIP)
3. Finished goods include all completed
products for shipment.\
4. Maintenance, repair, and operating
supplies (MRO) include the materials
and supplies used when producing the
products but are not parts of the
products.

Inventory Models ● Logistics management includes the supervision

● Inventory cost is the sum of the total of ordering of certain sequential processes.
costs and carrying costs. ● Logistics Management Processes:
● Ordering costs (set-up costs) are variable costs 1. Warehousing is the function of
associated with placing an order with the physically packing finished goods or
supplier like managerial and clerical costs in merchandises in a building, room, or
preparing the purchase. any space for temporary storage
● Carrying costs (holding costs) are costs incurred 2. Scheduling is the act of organizing these
for holding inventory in storage like handling inventory units and booking them for
charges, warehousing expenses, insurance, delivery.
pilferage, shrinkage, taxes, and costs of capital. 3. Dispatching products are for transfer;
● The inventory model answers questions: how this may include posting, mailing,
much to order?” and “when to order?” shipping out, transmitting, forwarding,
● How much to order? – is answered by or releasing commodities.
determining the economic order quantity (EOQ). 4. Transportation scheduling and other
● Economic Order Quantity (EOQ) seeks to logistics are necessary to make
determine an optimal order quantity where the dispatching cost efficient.
sum of the annual costs and annual carrying 5. Delivery to the specified site is
costs is minimized. undertaken.
● When to order? – is answered by computing the
reorder point (RP). Marketing and Sales
● Products are produced and services are rendered
Production and Operations Model for ultimate release to customers. Therefore,
● Production and operations are processes that there is a need to market these merchandise to
transform operational input into output to satisfy interested buyers.
consumer needs and requirements. ● Companies can adopt different modes of
marketing to attract and sell to customers
Growth Strategies Low – cost Leadership Strategy
● Growth strategy is a mode adopted by an ● The objective of the low-cost leadership
organization to achieve its main objectives of competitive strategy is to offer products and
increasing in volume and turnover. One services at the lowest cost possible in the
important consideration for every organization is industry.
the adoption and implementation of growth Board Differentiation Strategy
strategies. ● The objective of the broad differentiation
● Internal Growth Strategies: Are approaches competitive strategy is to provide a variety of
adopted within the company. products, services or product/service features
that competitors do not offer or are not able to
offer to consumers.
Best – cost Provider Strategy
● The strategy is a combination of the low-cost
Table: Product/Market Mix Internal Growth Strategy leadership and broad differentiation strategies.
Focused/market-niche Lower Cost Strategy
Market Penetration – suggests that for an organization ● This strategy is implemented when the
to increase its growth, market penetration can be organization concentrates on a limited market
actualized by selling more of its current segment and creates a market niche based on
products/services to its current customers or buyers. lower costs.
Market development – is the process where a company Focused/market-niche Differentiation Strategy
can sell more of its current products by seeking and ● This strategy is implemented when the
tapping new markets. organization concentrates on a limited market
Product development – is an internal growth strategy segment and creates a market niche based on
where the company sells “new” products to an existing differentiated features like design, utility, and
market. practicality.
Diversification – is a product/market mix growth
strategy that involves creating differentiated products for Other Competitive Strategies
new customers. 1. Innovation Strategy
➔ The goal of a competitive innovation
In summary, growth strategies are adopted by strategy is to radically catapult or
organizations to deal with the competitiveness in the leapfrog the organization by introducing
industry milieu. There are different forms of growth completely new and highly
strategies like market development, product differentiated products and services that
development, and diversification. The interplay of these give an organization a competitive
strategies may greatly help these organizations. posturing, Robotics s is a concrete
example where automation, science,
Competitive Strategies computing, and manufacturing are
● Competitive strategies are designed to deal with collaboratively used to create a
hypercompetition. cybernetics product. engineering
● Competitive strategies are essentially long-term 2. Operational Effectiveness Strategy.
plans prepared with the end goal of directing ➔ The objective of an operational
how an organization will survive and compete. effectiveness strategy is to make an
organization perform better by making
the structure lean, streamlining wasteful
and inefficient processes, harnessing
better facility and equipment
maintenance, and increasing workforce
productivity.
Competitive Strategies (Porter 2008)
 Product Life Cycle Model
3. Economies of Scale. ● Introduction stage is the period of launching
➔ When applied as a competitive strategy, the product/service for acceptance.
economies of scale lowers costs because ● Growth stage is the phase where the
of volume. In other words, the more a product/service gains acceptance by the
product/service is produced, the lower consumers.
the costs are for producing the product ● Maturity stage is the period where the product
and rendering the service. has reached its penultimate level.
4. Technology Strategy. ● Decline stage is the period where the
➔ The advantage of gearing toward product/service begins to reach or is reaching its
technology cannot be overemphasized. lowest point.
Technology can be applied system-wise
through digital integration. As Stability Strategies
organizations realize the benefits of ● For organizations that are doing fine or are doing
going digital, they aggressively pursue better in their existing businesses, they may
this thrust. Functional activities like choose not to implement any growth strategies.
accounting, marketing, purchasing,
human resource management, Retrenchment Strategies
production, and operations are Different modes:
interconnected using enterprise resource 1. Liquidation – the most radical action a
planning. company takes when the company is losing
money, thus, is further compounded by a
Summary: disinterest on the part of the stockholders to do
● Enterprise resource planning facilitates anything more to save it.
processes to radical speed by shortening 2. Divestment – is implemented when a company
completion time. consistently fails to reach the set objective or
● Technology applications allow organizations to when the company does not fit well in the
perfect their products and services to ahigh organization.
degree of accuracy and quality, thus, adding to 3. Turnaround strategy – is adopted when the
marketability. organization has reached a significant level of
● A technological organization naturally creates a non- performance, non-productivity,
monopolistic paradigm and as a result, allows demoralization, and unprofitability, and
the organization to dictate prices in the business therefore, has to implement restorative
world. strategies.
● These are generally true for technology start-up
organizations to bring about significant
improvements by redesigning through research
and development and re-engineering their
products and services.

Life Cycle Strategies

Turnaround Strategy Model

 a. Climate and Culture
➔ The toughest and most challenging area
for any organization undergoing a
turnaround strategy is the climate and
culture.
b. Products and Services
➔ A review of the products offered and
services rendered is needed; ask
questions like what products/services
are marketable in the industry, which of
these products and services need some
improvements or major redesign, and
what distinct features can be introduced
to attract buyers.
c. Production and Operations
➔ This is the easiest phase to sort out and
manage.
d. Infrastructure
➔ An organization seeking to turn itself
around can look at its structure and
system and implement needed step-ups
and enhancements.
e. Finances
➔ This may mean that the organization is
losing money or is marginally profitable,
causing concerns to investors.

SUMMARY:
● Products generally follow a life cycle –
introduction, growth, maturity, and decline. In
every stage, certain unique strategies can be
adopted to bring about greater sales.
● Some companies are able to prevent atrophy
(death of a business/organization) if more
creative strategies are implemented.
● In addition, there are organizations that opt for
maintaining the status by applying stability
strategies. For organizations that seem to be on
the verge of closing because of certain reasons,
retrenchment strategies can be employed.