BUSINESS STRATEGIES

Topic 5
Learning Outcomes
Particularly at the end of this chapter, the students
should be able to:
1) discuss the components of supply chain
management
2) define and explain the importance of inventory
management
3) contrast manufacturing from assembly
4) examine the interrelationships of the sequential
processes of the logistics circle
Learning Outcomes (cont’n)
Particularly at the end of this chapter, the students
should be able to:
5) assess the different popular competitive strategies
6) distinguish the role of innovation as a competitive
strategy
7) explain why companies opt to implement strategy
nor retrenchment strategies
 VALUE CHAIN ANALYSIS
VALUE CHAIN
– Is a general term that refers to a sequence of
interlinked undertakings that an organization
operating in a specific industry engages in
 SUPPLY CHAIN MANAGEMENT
Logistics
• Warehousing
• Scheduling
• Transportation
Supply Management
• Delivery
• Sourcing and ordering Organization
• Inventory Management Marketing and Sales
• Promotion
• Selling
Production/Operations
• Manufacturing
• Assembly
 SUPPLY CHAIN MANAGEMENT
SUPPLY CHAIN MANAGEMENT
– is a broad continuum of specific activities employed
by a company. It consists of the following:
1) purchasing or supply management which includes
the sourcing, ordering, and inventory storing of raw
materials, parts, and services
2) Production and operations, also known as
manufacturing and assembly
 SUPPLY CHAIN MANAGEMENT
(cont’n)
3) Logistics which is the efficient warehousing,
inventory tracking, order entry, management,
distribution and delivery to customers
4) Marketing and sales which includes promoting and
selling to customers
 SOURCING AND ORDERING
Steps to source out raw materials or parts:
1) Specify the need clearly by writing down the details. The
stock keeping unit (SKU) is coded with brief but complete
details:
– Date
– identification number
– the originating department
– the account to be charged
– complete description of the raw material/service
– date needed
– any special instruction
– signature of authorized person making the request
 SOURCING AND ORDERING (cont’n)
2) Identify and analyse possible sources of supply;
more than one supplier should be considered.
Criteria for choosing suppliers are the following:
– Sound business sense and attitude
– Good record of accomplishment
– Sound financial base
– Suitable technical capability
– Quality orientation
– Customer service mentality
– Effective logistical arrangements
SOURCING AND ORDERING (cont’n)
3) Ask potential suppliers for their respective
quotations, proposals, and bids
4) Compare and evaluate submitted documents, then
select the suppliers. Both buyers and suppliers
agree and determine the terms of the contract.
5) Prepare, place, follow up, and expedite the
purchase order (PO). The purchase order is a
written requisition placement to purchase supplies
 SOURCING AND ORDERING (cont’n)
6) Confirm that the order placed has actually arrived
in good condition and at the correct quantity.
Forward the shipment to its destination, properly
document and register the receipt, and forward it
to the accepting party/parties
7) Lastly, invoice clearing and payment follows
 SOURCING AND ORDERING (cont’n)

In sourcing and ordering, value is generated when

supplier relationships are created and managed in
delivering quality products, delivering on time,
delivering at competitive prices, providing good service
back-up when needed, and keeping promises.
 INVENTORY MANAGEMENT
• The role of inventory is to buffer uncertainty.
• It includes all purchased materials and goods, partially
completed materials and component parts, and finished
goods.
• The aim is to order the right quantity of SKUs at minimum
inventory costs
 INVENTORY MANAGEMENT (cont’n)
• Four broad categories of inventories:
1) All unprocessed purchased input or raw materials for
manufacturing
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 MANAGEMENT (cont’n)
• Four broad categories of inventories:
1) All unprocessed purchased input or raw materials for
manufacturing. Why purchase?
– to avail of quantity discounts
– to anticipate future price increases
– to safeguard against supplier problems
– to minimize transportation costs
– to avoid supply shortage
 INVENTORY MODELS
Terminologies to remember:
• Ordering costs (Set-up costs)
– Are variable costs associated with placing an order with the
supplier like managerial and clerical costs in preparing the
purchase
• Carrying costs (Holding costs)
– Are costs incurred for holding inventory in storage like handling
charges, warehousing expenses, insurance, pilferage, shrinkage,
taxes, and costs of capital

Inventory cost = Ordering costs + Carrying costs

 INVENTORY MODELS (cont’n)
The inventory model answers 2 questions:
• How much to order?
– Determine the economic order quantity (EOQ), or the optimal
order quantity where the sum of the annual order costs and
annual carrying costs is minimized
• When to order?
– Computing for the reorder point
 INVENTORY MODELS (cont’n)
• LEAD TIME
– the span of time (in days) it takes for a stock to be delivered
from the time it was ordered

• INSTANTANEOUS REPLENISHMENT
– is delivery of stocks all at the same time

• The EOQ model presupposes that the following are known and
constant:
 INVENTORY MODELS (cont’n)
• The EOQ model presupposes that the following are
known and constant:
1) Demand
2) Order lead time
3) Price
4) Carrying cost
5) Ordering cost

• The EOQ model assumes that replenishment is

instantaneous and stockouts are not allowed
 INVENTORY MODELS (cont’n)
• The value of inventory management is evidently
reflected in the minimization of costs
• Value has been created when the organization made
savings in its activities that can be translated into
lower prices for the consumers

• Ex. JIT of Toyota

PRODUCTION AND OPERATIONS
– are processes that transform operational input into output
to satisfy consumer needs and requirements
– usually applies to manufacturing and assembly

Production and Operation Model

Transformational OUTPUT
INPUT
Process
• VALUE can be generated in manufacturing and
assembly through:
1) Appealing product designs
2) Quality and reliability
3) Efficient service performance
4) Accessible location site
5) Attractive store displays
6) Affordable prices
7) Good customer service
• LOGISTICS MANAGEMENT includes the supervision of sequential
processes as shown in the illustration

THE LOGISTICS CIRCLE

Delivery Warehousing

LOGISTICS
Transportation CIRCLE Scheduling

Dispatching
 MARKETING AND SALES
1) Study the purchasing patterns of consumers/buyers
2) Advertise the product
3) Promote the product using different mediums
4) Develop salespeople
5) Give competitive salaries
 SUMMARY
• SUPPLY CHAIN MANAGEMENT is a complete
sequence of processes that includes purchasing,
production and operations, delivery, and marketing
and sales that essentially brings about optimum
output
 GROWTH STRATEGIES
• GROWTH STRATEGY is a mode adopted by an
organization to achieve its main objectives of
increasing in volume and turnover. Growth strategies
can be:
1) Internal
2) Integrative
 INTERNAL GROWTH STRATEGIES
• Market penetration
– Selling more of its current products/services to its current
customers or buyers
• Market development
– Sell more of its current products by seeking and tapping new
markets
• Product development
– Sells “new” products to an existing market
• Diversification
– Creating differentiated products for new customers
 COMPETITIVE STRATEGIES
Competitive Cost Leadership Differentiation Market Niche
Strategies
Cost Leadership Low-cost Best-cost Focused/Market
Leadership Provider Strategy Niche Lower Cost
Strategy Strategy
Differentiation Best-cost Broad Focused/Market
Provider Strategy Differentiation Niche
Strategy Differentiation
Strategy
 OTHER COMPETITIVE STRATEGIES
1) INNOVATION STRATEGY – introducing completely new and
highly differentiated products and services
2) OPERATIONAL EFFECTIVENESS STRATEGY – making the
structure lean, streamlining wasteful and inefficient
processes, harnessing better facility and equipment
maintenance, and increasing work productivity
3) ECONOMIES OF SCALE – lowers costs because of volume
4) TECHNOLOGY STRATEGY – digital integration of functional
activities
 LIFE CYCLE STRATEGIES
• INTRODUCTION STAGE – need awareness; strategies:
promotions, discounts, market development, etc.
• GROWTH STAGE – focus on branding, building customer loyalty,
and promoting repeat business through customer patronage
• MATURITY STAGE – reinvent products/services; product
differentiation, efficient operations, creative marketing
strategies
• DECLINE STAGE – can: keep the status quo, reduce prices,
consolidate w/ other organizations, or exit the market. May
also: product/service reinvention and aggressive marketing
 STABILITY STRATEGIES
• Status quo to avoid attracting competitors
 RETRENCHMENT STRATEGY
• LIQUIDATION – terminate the business and sell the
assets
• DIVESTMENT – sell the company or set it as a
separate corporation
• TURNAROUND STRATEGY – organization focus on the
following areas:
RETRENCHMENT STRATEGY (cont’n)
• Climate and Culture – new CEO should study first the
organization and adopt people strategies
• Products and Services – review the products offered and
services rendered
• Production and Operations – conduct facility, equipment,
production, and operation review
• Infrastructure – review its technological structure and system
• Finances – troubleshoot the abovementioned areas and the
financial aspect will take care of itself
QUIZ
• Explain the importance of inventory management.
• Why is value chain analysis important in the determination of the
status of the business?
• How can a business achieve growth? What strategies can it adopt?
• What can you (as a student) do to achieve personal growth?