MGT 405 - Sloan (Ch. 5-7)

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Mass Customization

a marketing and manufacturing technique that combines the flexibility and personalization of custom-made products with the low unit costs associated with mass production

competitive parity (cost leadership)

firm's achievement of similarity with competitors in respect to low cost, differentiation, etc

Unscaling to create a combination strategy

firms build small scale operations that meet needs of customers efficiently

Value Chain Activities: Differentiation: operations

flexibiliyt and speed to changes in manufacturing low defect rates to improve quality

Atlas Door

found in niche market, manufacturing custom-made doors very quickly

unrelated diversification

hierarchical relationship

related diversification

horizontal relationship

retrenchment strategy: piecemeal productivity improvements

increase productivity to improve costs

Retrenchment Strategy

selectively cutting unprofitable market segments and asset investments

Retrenchment strategy: asset and cost strategy

selling assets to free up cash

Value Chain Activities: Differentiation: firm infrastructure

superior MIS facilities that promote firm image widely respected CEO

Value Chain Activities: Differentiation: technology development

superior material handling and sorting technology excellent application engineering support

Value Chain Activities: Differentiation: inbound logistics

superiro material handling to minimze damage quick transfer of inputs to manufacturing process

profit pool

total profits in an industry at all points along value chain

Levi Example of Mass Customization

using machines to cut fabrics for specific body types

unrelated diversification

- restructuring/parenting - portfolio management

Pitfalls of focus strategy: Focusers can become too focused to satisfy buyer needs

- some firms might have too narrow product or service - Ace & true Value losing to Home Depot and Lowes because they offer full line - national chains have so much power, specialty retailers have a hard time attain parity on cost

Value Chain Activities: Overall Cost Leadership: Service

- thorough service repair to minimize repeat maintain calls - use of single type of vehicle to minimize repair costs

Related Diversification: economies of scope

-sharing activities (3m) -core competencies (polaris)

Diversification through: (4)

1. M&A 2. strategic alliances 3. joint ventures 4. internal development

Strategies in Decline Stage

1. Maintaining 2. Harvesting 3. Exiting the Market 4. Consolidation

2 variants of focus strategy

1. cost focus (create cost advantage) 2. differentiation focus (differentiation)

Value Chain Activities: Overall Cost Leadership: Procurement (2)

1. effective policy guidelines to ensure low-cost raw materials 2. shared purchasing operations with other business units

Value Chain Activities: Overall Cost Leadership: Technology Development (2)

1. effective use of automated technology to reduce scrappage rates 2. expertise in process engineering to reduce manufacturing costs

Atlas Pro: Strategy is highly sustainable

1. exert power over customers because of ability to deliver quality product in short amount of time 2. high barriers to entry because of dominance

Value Chain Activities: Overall Cost Leadership: Firm Infrastructure (2)

1. few management layers to reduce overhead costs 2. standardize accounting practices to minimize personnel required

Value Chain Activities: Overall Cost Leadership: Support Activities (4)

1. firm infrastructure 2. human resource management 3. technology development 4. procurement

Differentiation & 5 Forces

1. high barriers to entry 2. reduces buyer power 3. reduces supplier power 4. reduces threats from substitutes (brand loyalty) 5. protects against rivalry

Value Chain Activities: Overall Cost Leadership: Primary Activities (5)

1. inbound logistics 2. operations 3. outbound logistics 4. marketing and sales 5. Service

Do managers learn from media?

1. managers are sensitive to media and temporal orientation 2. temporal orientation doesn't affect stock market evaluations 3. stock market and media evaluations are independent of each other

Value Chain Activities: Overall Cost Leadership: Human Resource Mangement

1. minimize costs assocaited with employee turnover through effective policies 2. effective orientation and training programs to maximize employee productivity

Reasons Diversification fails

1. paying premium for company 2. failing to integrate activities of new business into corporate family 3. diversification efforts can be easily imitated

Overall Cost Leadership & 5 Forces

1. protects firm from rivalry 2. protects from powerful buyers 3. flexibility with supplier demands 4. barriers to entry substitute products

6 pitfalls to overall cost leadership

1. too much focus on one or a few value-chain activities 2. increase in cost of inputs 3. strategy can be imitated easily 4. lack of parity on differentiation 5. reduced flexibility 6. obsolescence of the basis of cost advantage

Atlas Con: Strategy can be easily imitated or substituted

1. uses well known technology 2. rival could imitate JIT 3. hire away atlas talent (human capital) or have large resource base 4. rival "leapfrog" technology

Aldi can offer products __% lower than competing markets

40

How does Primark balance low costs and environmental sustainability?

- leveraging streamline logistics - low market budget -large scale helps bargain with suppliers -makes up for low margins by selling at higher volume than rivals

Indochino Case

- mass customization - leverages technology to improve efficiency -Indochino has people take measurements online then order a custom-made suit; offer in-store locations based on where people order online and 1 yr after store opens, people return to online sales

related diversificaition: market power:

- pooled negotiation (conagra) - vertical integration (shaw industires)

Value Chain Activities: Overall Cost Leadership: Marketing and Sales

- purchase of media in large blocks - sales force use is maximized by territory management

______ is a low-cost leader and differentiator

Walmart

What type of strategy does Primark use?

Overall cost leadership

Making diversification work:

Related Businesses (horizontal relationship) i.e. sharing tangible/intangible resources Unrelated Businesses (hierarchical relationships) i.e. value creation derives from corp office, leveraging support activities

Value Chain Activities: Differentiation: outbound logistics

accurate/responsive order processing effective product replenishment to reduce customer inventory

Overall cost leadership

broad target market + low cost position

broad differntiation

broad target market + superior value by customer

experience curve (cost leadership)

business learns to lower costs and gains experience with production processes

Cost-leadership does not mean offering cheap prices, cost is how much it ____ ____ ___ _____

costs you to make

Value Chain Activities: Differentiation: marketing and sales

creative/innovative advertising programs fostering relationships with customers

retrenchment strategy: selective product and market pruning

discontinued product lines and focus resources on few core profitable areas

Value Chain Activities: Overall Cost Leadership: Inbound Logistics

effective layout of receiving dock operations

Value Chain Activities: Overall Cost Leadership: Outbound Logistics

effective use of delivery fleets

Value Chain Activities: Overall Cost Leadership: Operations

effective use of quality control inspectors to minimze rework

Aldi Example: limits number of products to ...

ensure product turn, easier stocking, increase power over suppliers

Primary example balances low costs with ______ ________

enviornmental sustainability

corportate resturctureing/parenting

kkr- uses parent compant for advice on cost savings and growth plans

Focus strategy requires firms have either (3)

low cost position, high differentiation or both

Mass Customization other name

made-to-order or built-to-order

if you're a cost leader in marketing and sales in the value chain, you want to purchase ____ in large blocks to take advantage of ______

media, discounts

Aldi sells private-label products to

minimize costs

Focus strategy

narrow competitive scope within an industry

Cost focus

narrow target markets + low cost position

Differentiation focus

narrow target markets + superior value by customer

portfolio managemetn

novartis uses resource allocation and reward systems

Exploiting Profit Pool for Competitive Advantage

one of the ways to combine overall cost leadership and differentation

Berkshire Hathaway and Virgin Group create value through

parenting expertise (unrelated diversification)

Value Chain Activities: Differentiation: Human Resource Management

programs attract talented engineers and scientist provision of training and incentives to ensure strong customer service orientation

Value Chain Activities: Differentiation: procurement

purchase of high quality parts use prestige outlets

Value Chain Activities: Differentiation: service

rapid response to CS requests complete inventory of replacement parts and supplies


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