SCM 470 - Quiz #3 Review
What is the Balance Sheet? What information is included on it?
(AKA the Statement of Financial Position) Is a financial snapshot of the firm at a specific point in time - Assets - Liabilities - Owner's Equity
Given the following information, calculate measures of Liquidity, Activity, Profitability, and Leverage (Debt) for 2021: *Balance Sheet* - Cash: (2021) $300, (2022) $250 - Accounts Receivable: (2021) $200, (2022) $250 - Inventory: (2021) $200, (2022) $150 - Total Current Assets: (2021) $700, (2022) $650 - Plant & Equipment: (2021) $800, (2022) $850 - Total Assets: (2021) $1500, (2022) $1500 - Notes Payable: (2021) $300, (2022) $350 - Accounts Payable: (2021) $300, (2022) $300 Total Current Liabilities: (2021) $600, (2022) $650 - Total Liabilities: (2021) $1200, (2022) $1300 - Owner's Equity: (2021) $300, (2022) $200 - Total Liability and Equity: (2021) 1500, (2022) 1500 *Income Statement* - Net Sales: (2021) $2100, (2022) $2000 - COGS: (2021) $1500, (2022) $1450 - Gross Profit: (2021) $600, (2022) $550 - SG&A: (2021) $300, (2022) $275 - EBIT: (2021) $300, (2022) $275 - Interest: (2021) $50, (2022) $60 - Taxes: (2021) $100, (2022) $86 - Net Income: (2021) $150, (2022) $129
- *Liquidity:* Current Ratio = 1.17, Quick Ratio = 0.833 - *Activity*: Inventory Turnover = 7.5 Turns/Year, Average Collection Period = 34.8 Days, Total Asset Turnover = 1.4 Turns/Year - *Profitability*: Gross Profit Margin = 28.6%, Profit Margin = 7.14%, ROE = 50%, ROA = 10% - *Leverage (Debt)*: Debt-to-Equity = 4.0, TIE = 6.0
According to Hayes and Wheelwright, no matter how tightly focused and coordinated a company might be, any change in the relative positioning of a firm's products/processes will expose it to two kinds of danger. What are these two types of danger?
- A Change in One Dimension (e.g., Products) without a Corresponding Change in the Other (e.g., Processes); this reduces focus and coordination between Manufacturing and Marketing - Responding to a Change in One Dimension (e.g., Products) by broadening activity in the Other (e.g., Processes)
According to Michael Porter, there are various risks associated with the employment of a common Generic Strategy. What are they?
- A Diversified Firm will impose a particular Generic Strategy on a Business Unit whose Industry will not support it - A Business Unit will be misunderstood because of circumstances in its industry that are not consistent with the prevailing generic strategy - Business units may have their strategy undermined by Senior Management
In a Responsive Supply Chain, what are the four main tools that a company can use to cope with Demand Uncertainty?
- Accept that Uncertainty is inherent in Innovative Products - Reduce Uncertainty by using Data as an Indicator or by having Different Products share Common Components - Avoid Uncertainty by Reducing Lead Times and Increasing the Flexibility of its Supply Chain - Hedge Against Uncertainty with Inventory Buffers
According to Hayes and Wheelwright, what are the two ways in which Product Growth can occur?
- Adding more Standardized Products while Maintaining Existing, Less Standardized Products - Adding Special Features to an Existing, More Standardized Product Line
When matching Supply Chain Strategies (Responsive and Efficient) with Products (Functional or Innovative), what are the two most efficient combinations?
- An Efficient Supply Chain Strategy and a Functional Product - A Responsive Supply Chain Strategy and an Innovative Product
According to Lecture, what must Firms do to achieve High-Performance Design?
- Assess Customer Needs - Translate Customer Needs into a Design that performs at the "Higher End" of their Specifications
According to Michael Porter, the Competitive Strategy of a firm depends on what two factors? How do firms determine these factors?
- Attractiveness (Long-Term Profitability): The Five Forces Model - Positioning: Generic Strategies (i.e., Differentiation, Cost Leadership, etc)
A Focuser takes advantage of sub-optimization in either direction (i.e., Differentiation or Cost Leadership) by Broadly-Targeted Competitors. Describe each of these sub-optimizations and explain how a Focuser would exploit them
- Broadly-Targeted Competitors may be Underperforming in meeting the needs of a particular segment, which opens the possibility for a Differentiation Focus - Broadly-Targeted Competitors may also be Overperforming in meeting the needs of a segment, which means that they are bearing higher than necessary cost in serving it
What are the three conditions under which a firm can simultaneously achieve both Cost Leadership and Differentiation?
- Competitors are Stuck in the Middle - Cost is Strongly Affected by Market Share or Interrelationships - A Firm Pioneers a Major Innovation
What are the Advantages of the Centralized Supply Structure?
- Consolidates Purchase Volumes (Which results in Greater Brand Recognition and Lower Prices per Unit) - Reduced Duplication of Purchasing Effort - Improved Coordination (e.g., Purchasing Plans, Research, Control of Policies and Procedures) - Ability to Establish and Manage Strategy - Ability to Coordinate and Manage Companywide Purchasing Systems (E-Systems), which enables Visibility - Ability to pay for Talent (i.e., Purchasing Executives who report to the CEO) - Greater Buying Specialization of Employees
Based on your understanding of Innovative Products, fill in the following information: - Contribution Margin: ________ (Low/High) - Product Variety: _______ (Low/High) - Average Margin of Error in Forecast: _____% (Low/High) - Average Stockout Rate: _____% (Low/High) - Average Forced End-of-Season Markdown as Percentage of Full Price: _______% - Lead Time Required for MTO Products: _________ (Short/Long)
- Contribution Margin: 20-60% (High) - Product Variety: High - Average Margin of Error in Forecast: 40-100% (High) - Average Stockout Rate: 10-40% (High) - Average Forced End-of-Season Markdown as Percentage of Full Price: 10-25% - Lead Time Required for MTO Products: 1 Day to 2 Weeks (Short)
Based on your understanding of Functional Products, fill in the following information: - Contribution Margin: ________ (Low/High) - Product Variety: _______ (Low/High) - Average Margin of Error in Forecast: _____% (Low/High) - Average Stockout Rate: _____% (Low/High) - Average Forced End-of-Season Markdown as Percentage of Full Price: _______% - Lead Time Required for MTO Products: _________ (Short/Long)
- Contribution Margin: 5-20% (Low) - Product Variety: Low - Average Margin of Error in Forecast: 10% (Low) - Average Stockout Rate: 1-2% (Low) - Average Forced End-of-Season Markdown as Percentage of Full Price: 0% - Lead Time Required for MTO Products: 6 Months to One Year (Long)
According to lecture, what are the three main Generic Strategies proposed by Michael Porter?
- Cost Leadership - Differentiation - Focus (Cost Focus or Differentiation Focus)
According to Michael Porter, what are the Risks associated with the Cost Leadership Strategy?
- Cost Leadership is not Sustained (e.g., Competitor Imitation, New Technology, Bases of Cost Leadership Erode) - Parity on the basis of Differentiation is Lost - Cost Focusers achieve even lower Cost in Targeted Segments
For each form of Generic Strategy, describe its placement on the following dimensions: Scope (Y-Axis) and the Source of Competitive Advantage (X-Axis)
- Cost Leadership: Broad Scope (Y-Axis), Cost (X-Axis) - Differentiation: Broad Scope (Y-Axis), Differentiation (X-Axis) - Cost Focus: Narrow Scope (Y-Axis), Cost (X-Axis) - Differentiation Focus: Narrow Scope (Y-Axis), Differentiation (X-Axis)
What are the two Liquidity Ratios primarily used in this Course?
- Current Ratio - Quick Ratio
Of the 8 Competitive Priorities, which are concerned with Flexibility?
- Customization - Volume Flexibility
What are the two Leverage Ratios primarily used in this Course?
- Debt-to-Equity - Times Interest Earned (TIE)
What is the Objective of a Differentiation Focus Strategy? What is the Objective of a Cost Focus Strategy?
- Differentiation Focus: A firm seeks Differentiation in its Target Segment. That is, it exploits the special needs of buyers in certain segments. - Cost Focus: A firm seeks Cost Advantage in its Target Segment. That is, it exploits differences in cost behavior in certain segments
According to Michael Porter, what are the Risks associated with the Differentiation Strategy?
- Differentiation is not Sustained (e.g., Competitor Imitation, Bases of Differentiation Erode) - Parity on the basis of Cost is Lost - Differentiation Focusers achieve even greater Differentiation in Targeted Segments
How can a firm achieve Cost Reductions by Moving Vertically along the Product-Process Matrix (i.e., No Change in the Product Used)?
- Economies of Scale - Improved Materials-Handling Technology - Better Tools and Equipment - Automation
According to Fisher, what are the "Matching Pairs" for Supply Chains and Products?
- Efficient Supply Chains with Functional Products - Responsive Supply Chains with Innovative Products
According to Fisher, what are the "Mismatches" for Supply Chains and Products?
- Efficient Supply Chains with Innovative Products - Responsive Supply Chains with Functional Products
What are the Disadvantages of a Decentralized Supply Structure?
- Encourages Users to not Plan Ahead - Emphasizes Operational Rather than Strategic Purchasing - Ignores Better (e.g., More Global) Sources of Supply - No Critical Mass of Volume and Lacks Clout - No Critical Mass of Visibility/Effectiveness - Business Unit Preferences may not be congruent with Corporate Preferences - Limited Expertise Requirements of Purchasing Staff - Lacks Standardization Across Facilities - Cost of Supply is Relatively High
Of the eight Competitive Priorities, which are aligned with the Jumbled Flow Process?
- Fast Delivery - Developmental Speed - High-Performance Design - Customization - Volume Flexibility
Of the eight Competitive Priorities, which are aligned with the Responsive Supply Chain Strategy?
- Fast Delivery - Developmental Speed - High-Performance Design - Customization - Volume Flexibility
Of the 8 Competitive Priorities, which are concerned with Time?
- Fast Delivery Time - On-Time Delivery - Developmental Speed
As a BOD Member, you must be involved with a number of committees. Name the committees mentioned in the Toastmasters International Video
- Finance Committees - Compensation Committees - Nominating and Guidance Committees
According to lecture, Financial Ratios are important to the success of a firm for what three reasons?
- Financial Ratios look at *Multiple Dimensions* to assess the Holistic Financial Health of the Business - Financial Ratios look for *Trends over Time* - Financial Ratios can be compared to *appropriate Benchmarks* (e.g., Dun and Bradstreet's Key Financial Ratios or RMA "Annual Statement Studies")
According to Hayes and Wheelwright, what are the benefits associated with maintaining a position Above the Diagonal?
- Flexibility to Change (e.g., Products, Processes, Production Volumes) - Reduced Capital Needs
When one classifies products on the basis of their Demand Patterns, what are the two main categories of products?
- Functional Products - Innovative Products
What are the four Profitability Ratios primarily used in this Course?
- Gross Profit Margin - Net Profit Margin - Return on Equity (ROE) - Return on Assets (ROA)
According to Lecture, what are the four main types of Growth / Expansion?
- Growth in Volume of Existing Product Line - Expansion of Product Line (i.e., Product Proliferation) - Expansion of Process Structure (i.e., Vertical Integration) - Expansion into New Products and Markets
According to Theodore Levitt, what are the six factors tend to prolong the Introduction Stage of the Product Life Cycle and therefore raise the Risk of Failure?
- High Product Complexity - Product Newness and Distinctiveness - Less Influenced by Fashion - Several People influence a Single Buying Decision - High Costs - Large Shifts in a Customer's Usual Behavior
Of the 8 Competitive Priorities, which are concerned with Quality?
- High-Performance Design - Consistent Quality
What are the two types of Quality Competitive Priorities?
- High-Performance Design - Consistent Quality
In the context of the Five Forces Model, Michael Porter claims that all industries are not alike from the standpoint of inherent profitability. What does this mean?
- In industries where the Five Forces are Favorable (i.e., the industry is likely to yield long-term profits), many competitors can earn attractive returns - In industries where the pressure from one or more of the Five Forces is intense, few firms command attractive returns despite the best efforts of management
What are the four main stages of the Product Life Cycle?
- Introduction / Market Development - Growth - Maturity - Decline
What are the three Activity Ratios primarily used in this Course?
- Inventory Turnover - Average Collection Period - Fixed Asset Turnover
According to Theodore Levitt, what are the three main reasons that explain the importance of Extension Strategies?
- It generates an Active Product Policy rather than a Reactive Product Policy - It lays out a long-term plan designed to infuse new life into the product at the right time - This practice forces the company to adopt a wider view of the nature of the product it is dealing with
According to the Toastmasters International Video, what are the three main reasons why one should want to be a member on the Board of Directors?
- It gives you an opportunity to be Creative - It allows you to be Strategic (i.e., Idea --> Plan --> Action) - It allows you to work with a Great Team
What are the Disadvantages of the Centralized Supply Structure?
- Lack of Business Unit (Local) Focus - Narrow Specialization and Job Boredom of Purchasing Staff - Cost of Central Unit and Purchasing Operating Costs are Highly Visible - Corporate Staff appears Excessive - Staff tends to Minimize Legitimate Differences in Plant Requirements - Lack of Recognition of Unique Business Unit Needs - Focus is on Corporate Requirements, not SBU Requirements - Even Common Suppliers behave differently across Geographic and Market Segments - Delays in Time, Length of Distance, and Bureaucracy in Communication from Plants to Corporate
According to Hayes and Wheelwright, what are the consequences associated with maintaining a position Below the Diagonal?
- Lack of Flexibility - High Capital Investment
According to Lecture, Hybrid Supply Structures are known by several other names. List a few of them
- Lead Division Buying - Regional Buying Groups - Global Buying Committees - Corporate Purchasing Councils - Corporate Steering Committees
What are the four main Financial Ratios most commonly used when performing a Financial Analysis?
- Liquidity Ratios - Activity Ratios - Profitability Ratios - Leverage Ratios
Of the eight Competitive Priorities, which are aligned with the Line Flow Process?
- Low Cost - On-Time Delivery - Consistent Quality
Of the eight Competitive Priorities, which are aligned with the Efficient Supply Chain Strategy?
- Low Cost - On-Time Delivery - Consistent Quality
What are the 8 Main Competitive Priorities?
- Low-Cost Operations - High-Performance Design - Consistent Quality - Fast Delivery Time - On-Time Delivery - Developmental Speed - Customization - Volume Flexibility
Fisher (1997) Article
- Main Points of Article - Interesting Facets of the Article
What are the 4 main Alternatives available for Products in the Decline Stage?
- Maintain the Product - Harvest the Product - Discontinue or Sell the Product - Liquidate Remaining Inventory
According to Lecture, how can firms reduce Delivery Time?
- Manufacturers can store Inventory (i.e., Hedge Uncertainty with Inventory Buffers) - Manufacturers and Service Providers can have Excess Capacity Available (e.g., Equipment, People, etc) at any given time in order to reduce Wait Time
How do Manufacturers measure On-Time Delivery? How do Distributors and Retailers measure On-Time Delivery?
- Manufacturers: The percentage of Customer Orders Shipped by the Promised Date - Distributors/Retailers: The percentage of the time that a desired Product/Service is available for Immediate Purchase
Generally, what two factors influence Price?
- Market Forces - Competitive Forces
According to Lecture, what two factors play a defining role in Development Speed?
- Market Needs - Technological Developments
According to Fisher, a Supply Chain performs two distinct types of Functions. What are these Functions?
- Physical Function - Market Mediation Function
According to Lecture, what is the difference between Price and Cost?
- Price is reflected by the Price Sticker on the Product - Cost is captured through the Income Statement
According to Theodore Levitt, Demand has to be "created" during the Introduction Phase of the Product Life Cycle. What are the four factors that influence the duration of this process?
- Product Complexity - Degree of Newness - Fit with Customer Needs - Presence of Substitutes
How can a firm achieve Cost Reductions by Moving Horizontally across the Product-Process Matrix (i.e., No Change in the Process Used)?
- Product Redesign - Product-Line Simplification - Development of Improved Raw Materials and Parts - Increased Sales Volume - Use of Less Costly Distribution Channels - Experience
What are the Marketing Implications of the Introduction Stage?
- Product: Branding and quality levels are established, patents are secured - Pricing: High to recover R&D Costs - Placement: Selective, until the Market is established - Promotion: Seeks to Educate Customers about the Product/Service - aimed at Early Adopters
What are the Marketing Implications of the Maturity Stage?
- Product: Features may be enhanced in an effort to Differentiate from Competitors - Pricing: Price may decline due to heavy Competition; Margins are Decreased - Placement: More Intensive; Incentives may be introduced to overshadow the Competitor's offerings - Promotion: Emphasizes Product Differentiation
What are the Marketing Implications of the Growth Stage?
- Product: Quality is maintained, additional support service features may be added - Pricing: Maintained, increasing Revenue with little competition - Placement: More Channels are added as more customers accept the Product/Service - Promotion: Aimed at a Broader Audience
As mentioned by Theodore Levitt, DuPont Chemical implemented four different strategies in an effort to achieve growth and profit expansion for its Nylon-based products. What were these four strategies?
- Promoting more *Frequent Usage* of the Product among *Current Users* - Developing more *Varied Usage* of the Product among *Current Users* - Creating *New Users* for the Product by Expanding the Market - Finding *New Uses* for the Basic Material
According to Hayes and Wheelwright, companies typically pursue four major types of growth in a sequence. What are they?
- Simple Growth - Product Growth - Vertical Integration - New Market Growth
What are the Advantages of a Decentralized Supply Structure?
- Speed and Responsiveness to Coordinate and Communicate with User and Customer Requirements - Understanding of Unique Operational Requirements (e.g., Tailored to Geographical, Cultural, Political, Environmental, Social, Language, and Currency Appropriateness) - Establishes Business Unit Autonomy (i.e., Intangible Ownership of Local Personnel who have Undivided Authority and Responsibility of Purchasing) - Provides Product Development Support (able to involve Local Suppliers early in the Product Design Process, etc.) - Hides the Cost of Supply
How is a firm's Strategy different than its Structure?
- Strategy refers to a Long-Term plan that sets a direction to achieve a particular Goal or Objective with a given set of Resources - Structure refers to how a firm is Organized. Usually, the CEO selects the firm's structure based on their own preferences for Information Control and Flow
According to Michael Porter, what are the Risks associated with the Focus Strategy?
- The Focus Strategy is Imitated - The Target Segment becomes Unattractive (e.g., Industry Structure Erodes, Demand Disappears) - Broadly-Targeted Competitors overwhelm the Segment (e.g., the Targeted Segment's differences from the other segments disappear, advantages of a Broad Line increase) - New Focusers Sub-Segment the Industry
According to Michael Porter, Overall Differentiation and Focus are perhaps the most often confused strategies in practice. What is the difference between these two strategies?
- The Overall Differentiator bases its strategy on widely valued attributes - The Focused Differentiator seeks out segments with special needs and meets them better
What are the elements of Porter's Five Forces Model?
- Threat of New Entrants - Threat of Substitutes - Bargaining Power of Buyers - Bargaining Power of Suppliers - Rivalry Among Existing Competitors
According to Lecture, what are the seven main Growth Decisions? (Please Verify)
- Timing - The Direction - Strategic Fit - Knowledge and Skills - Financial Support - Preference - Opportunity
According to the Toastmasters International Video, what are the three main purposes of a BOD?
- To Protect and Represent the Shareholders' Interests - To Provide Checks and Balances with layers of Judgment and Protection - To establish a Shared Sense of Institutional Purpose
According to the Toastmasters International Video, what are the four main objectives of a BOD?
- To Select, Encourage, Advise, Evaluate, and Compensate the Management Team - To Approve the Strategy and Direction in which Management Proposes to take the Company - To Monitor Performance and the way in which Management Operates the Corporate Business - To take the Perspective of Policy (i.e., Articles of Incorporation)
What are the two measures of Flexibility?
- Volume Flexibility - Customization
How does the Supervision of a Cellular Manufacturing Process differ from that of a Traditional Manufacturing Process?
- With a Straight Line, each station tends to have its own Supervisor - With a Cell, Supervisors will need to be cross-trained to better supervise all stations
According to Hayes and Wheelwright, what is the "Creeping Breakeven" phenomenon?
1) In an effort to stimulate demand, a company enters a new market or introduces a new product 2) This step is successful at first, but the existing process is incapable of meeting the added scale and complexity without additional investment (e.g., more capacity, better equipment, etc) 3) The increased investment raises the company's Breakeven Point, offsetting the Expected Gains from the Increased Sales Volume
According to the Toastmasters International Video, how long can a BOD member expect to spend in meetings on average?
157 hours a year on average
According to Lecture, what is Strategy?
A *Long-Term Plan* that makes the *best use of our Resources* in order to *achieve our Objectives/Goals*
According to Lecture, a Business Units' Strategy should align with what?
A Business Units' Strategy should align with the Corporate Strategy, Supply Chain Strategy, and the Customer's Competitive Priorities
According to the Product Process Matrix, when is a Jumbled Flow Process likely to be used?
A Jumbled Flow Process is likely to be used for Low Volume Production Processes
According to the Product Process Matrix, when is a Line Flow Process Likely to be used?
A Line Flow Process is likely to be used for Standardized, High Volume Production Processes
What is Vertical Integration?
A business decision that involves integrating additional services or production within the business (e.g., Insourcing)
Describe the Learning Curve of a company that operates On the Diagonal of the Product Process Matrix
A company that follows a path similar to the Diagonal can often achieve faster Rates of Learning than those consistently Above it, but slower Rates of Learning than those Below it - When it reaches a given level of Product Standardization, it achieves a 80% Learning Curve after each doubling of Cumulative Volume - However, such an approach takes advantage of potential Cost Improvements coming from both dimensions while maintaining Flexibility to respond to Market Shifts
According to Fisher, what is a definite sign that a company needs to make its Products Functional?
A definite sign that a company needs to make its Products Functional is when its Product Line is characterized by the following: - Frequent Introductions of New Offerings - Great Variety - Low Profit Margins
What is the Objective of the Differentiation Strategy?
A firm that adopt the Differentiation Strategy seeks to be unique in its industry along some dimensions that are widely valued by buyers - The firm selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs - It is rewarded for its uniqueness with a premium price
In a general sense, what is the Objective of a Focus Strategy?
A firm that adopts a Focus Strategy selects a segment or group of segments in the industry. and tailors its strategy to serving them to the exclusion of others - By optimizing its strategy for the Target Segments, the Focuser seeks to achieve a Competitive Advantage in its Target Segments even though it does not possess a Competitive Advantage overall - The essence of the Focus Strategy is the exploitation of a narrow Target's Differences from the balance of the Industry
What is High-Performance Design?
A form of design that is focused on the level of specific attributes for a Product or Service (e.g., superior features, quality of employees, convenience of location, etc) - High-Performance Design typically includes "State of the Art" Materials and Design - High-Performance Design also refers to the level of Functionality that Operations must achieve to produce a Product or Service
What is a Plant-Within-A-Plant?
A layout in which several different plants/manufacturing lines operate within the same facility
What is the Product Process Matrix?
A matrix developed by Hayes and Wheelwright to best align the Customer Volume and the Manufacturing Configuration (both its Structure and Infrastructure) - Hayes and Wheelwright found that the best businesses operated on the diagonal with one of five production processes
What is Groupthink? Should it be present in a Board of Directors Meeting?
A phenomenon whereby group members agree with other group members for the sole purpose of reaching an agreement - Groupthink has no place in a BOD meeting. Members should be independent thinkers and present their true feelings
What is Mass Customization? Describe its placement on the Product Process Matrix
A process that allows a customer to Personalize or Design certain Made-to-Order Features of a Product while keeping Costs at or near Mass Production Prices - Mass Customization is similar to a Job Shop, but is able to achieve Higher Volumes - EX: Modern Auto Assembly lines allow for Modular Selection of Alternatives (e.g., three types of engines, and color of seating)
What is the Income Statement? What information is included on it?
A statement that reports the performance of the firm over a period - Net Sales - COGS - Gross Profit - SG&A - EBIT - Interest - Taxes - Net Income
What is a Centralized Supply Structure?
A structure in which the Corporate Office is responsible for most Purchasing Decisions for All Facilities (and locations)
What is a Decentralized Supply Structure?
A structure in which the personnel at each Facility (i.e., each Location) is responsible for purchasing all of the requirements for that Facility (i.e., Location)
What is a Hybrid Supply Structure?
A structure that combines the following approaches: - Centralized Approach for Purchased Items that are Common to Several Business Units (i.e., the same item is used across all factories and locations) - Decentralized Approach to satisfy Unique Requirements (i.e., items that are only used in particular factories and locations)
According to Hayes and Wheelwright, what path do most industries take on the Product-Process Matrix?
An industry usually progresses down the Diagonal of the Matrix
What is Corporate Strategy?
An overarching strategy of the diversified firm - Consists of Business Strategy and Functional Strategies - EX: In which businesses should we compete?
According to Hayes and Wheelwright, a Company's involvement in New Markets subjects it to pressures to expand its Product Line. Subsequently, companies are forced to retreat Horizontally on the Product Process Matrix. Why does this tend to be challenging for companies?
By expanding its Product Line, both the Production and Marketing Sides of the Business encounter problems at about the same time - Marketing is trying to adapt to a new market for which its process is not adequately suited - Production is trying to adapt to new products that put analogous strains on its process
Describe the Learning Curve of a company that operates Above the Diagonal of the Product Process Matrix
By following a path Above the Diagonal, a company limits its Cost Reduction opportunities - When it reaches a given level of Product Standardization, it achieves a 90% Learning Curve after each doubling of Cumulative Volume - However, the company will preserve its Flexibility to follow market movements quickly, and it will limit its Capital Investment
Describe the Learning Curve of a company that operates Below the Diagonal of the Product Process Matrix
By following a path Below the Diagonal, a company may achieve even greater Cost Reductions for a given level of Product Standardization than those pursuing a path on the Diagonal - When it reaches a given level of Product Standardization, it achieves a 70% Learning Curve after each doubling of Cumulative Volume - The danger of operating Below the Diagonal is that these Cost Reductions may make the company very Inflexible to Product Changes, and the benefits may be short lived
Although it is essentially the industry average, moving down the diagonal is a much less likely pattern for any individual company to follow. Why is this?
Companies tend to make only one kind of change at a time - either a Product Structure Change or a Process Structure Change - Progression down the diagonal, if it occurs, usually involves a series of alternating Vertical and Horizontal Steps - Both the size and the frequency of these "steps" are dictated more by the rate of Product Maturation and Technological Innovation than by Corporate Wishes
According to Michael Porter, Competitive Advantage grows fundamentally out of what?
Competitive Advantage grows fundamentally out of Value that a firm is able to create for its buyers that exceeds the firm's costs of creating it
What is the link between between a Firm's Business Strategy and its Supply Chain Strategy?
Competitive Priorities form the link between a Firm's Business Strategy and its Supply Chain Strategy
What is Competitive Strategy? What is its main objective?
Competitive Strategy is the search for a favorable Competitive Position in an industry - Competitive Strategy aims to establish a profitable and sustainable position against the forces that determine Industry Competition
Given the following information, calculate measures of Liquidity, Activity, Profitability, and Leverage (Debt) for 2022: *Balance Sheet* - Cash: (2021) $300, (2022) $250 - Accounts Receivable: (2021) $200, (2022) $250 - Inventory: (2021) $200, (2022) $150 - Total Current Assets: (2021) $700, (2022) $650 - Plant & Equipment: (2021) $800, (2022) $850 - Total Assets: (2021) $1500, (2022) $1500 - Notes Payable: (2021) $300, (2022) $350 - Accounts Payable: (2021) $300, (2022) $300 Total Current Liabilities: (2021) $600, (2022) $650 - Total Liabilities: (2021) $1200, (2022) $1300 - Owner's Equity: (2021) $300, (2022) $200 - Total Liability and Equity: (2021) 1500, (2022) 1500 *Income Statement* - Net Sales: (2021) $2100, (2022) $2000 - COGS: (2021) $1500, (2022) $1450 - Gross Profit: (2021) $600, (2022) $550 - SG&A: (2021) $300, (2022) $275 - EBIT: (2021) $300, (2022) $275 - Interest: (2021) $50, (2022) $60 - Taxes: (2021) $100, (2022) $86 - Net Income: (2021) $150, (2022) $129
Complete
According to Fisher, what is the first step in devising an effective Supply Chain?
Consider the Nature of Demand for your Product
Explain the relationship between Consumers of Functional Products and Companies that implement an Efficient Supply Chain. According to Fisher, what common action has the potential to destroy this relationship?
Consumers of Functional Products offer companies Predictable Demand in exchange for a Good Product at a Reasonable Price - The challenge of this relationship is to avoid actions that would destroy the inherent simplicity of this relationship (e.g., Price Promotions)
How is Contribution Margin calculated?
Contribution Margin = (Price - Variable Cost) / Price
What is Customer Value?
Customer Value is a function of Quality/Time/Flexibility relative to Price - Value is comprised of the Customer Benefit Bundle
According to Lecture, what must drive Competitive Priorities and Business Strategy?
Customer Value must drive Competitive Priorities and Business Strategy
According to Lecture, what are the three main implications of Customization for an Operating System?
Customization implies that the Operating System must be able to do the following: - Flexible to Receive Individualized Customer Orders - Adjust Designs Accordingly - Create the Requested Product or Service
According to Fisher, what is the Manufacturing Focus of a Responsive Supply Chain?
Deploy Excess Buffer Capacity
According to Fisher, what is the Inventory Strategy of a Responsive Supply Chain?
Deploy Significant Buffer Stocks of Parts or Finished Goods
Describe the Maturity Stage of the Product Life Cycle
During this phase, strong Growth diminishes and Competition is more aggressive - The primary objective of this phase is to protect Market Share while Maximizing Profit - Cost is increasingly emphasized during this phase
Describe the Growth Stage of the Product Life Cycle
During this phase, the firm seeks to build Brand Preference and increase its Market Share - Demand begins to accelerate and the size of the Total Market expands rapidly - It is also known as the "Takeoff" Stage
Describe the Introduction Stage of the Product Life Cycle
During this phase, the firm seeks to build product awareness and create demand - There is not yet a proven Demand for the Product - Sales are Low and creep along Slowly
Describe the Decline Stage of the Product Life Cycle
During this phase, the product begins to lose customer appeal and sales drift downward - As Demand declines, the Overcapacity that was already apparent during the Maturity Stage becomes even more severe - Production becomes concentrated into fewer hands, prices decline, and consumers get bored
According to Lecture, what are the five main characteristics of an Efficient Supply Chain? What type of product is typically adopt an Efficient Supply Chain Strategy?
Efficient Supply Chain Strategies should be used when the following conditions apply: - Stable Demand - High Volume, Standardized Products - Infrequent New Product Introductions - Low Margins - Low Product Variety - Product Type: Functional Products
Describe the Market Mediation Function of a Supply Chain. How are Costs generated by this Function?
Ensures that the variety of products reaching the marketplace match what consumers want to buy - Costs are generated when Supply exceeds Demand (i.e., the Product is sold at a reduced Price) or when Demand exceeds Supply (i.e., Lost Sales)
Michael Porter notes that while "Stuck-in-the-Middle" Competitors can allow a firm to achieve both Differentiation and Low Cost, this state of affairs is often temporary. Why is this?
Eventually, a Competitor will choose a Generic Strategy and begin to implement it well, which exposes the tradeoffs between cost and differentiation - Even if a firm is initially successful in its pursuit of both Low Cost and Differentiation, it will be vulnerable to capable competitors who make a choice and invest aggressively to implement it - A firm must choose the type of Competitive Advantage it intends to preserve in the Long-Term
According to Hayes and Wheelwright, what is Product Growth?
Expansion of the Product Line within a Single Market, using an Existing Structure - Product Growth is also known as Product Proliferation
What are Focused Factories?
Factories that focus on the production of a narrow product mix - EX: Plants that exclusively manufacture highly-standardized products
True or False: A Functional Product with a Responsive Supply Chain Strategy is NOT a Mismatch
False
True or False: During the Introduction Stage of the Product Life Cycle, the Originator depends heavily on the positive efforts of retailers and distributors to help sell their product. This trend persists during the Maturity Stage of the Product Life Cycle
False - Although the Originator depended heavily on the positive efforts of retailers and distributors during the Introduction Stage of the Product Life Cycle, retailers and distributors are often reduced to being merchandise-displayers and order-takers during the Maturity Stage of the Product Life Cycle
True or False: Typically, a firm can control both its Costs and Market Prices
False - Firms can control their own Costs by managing the efficiency of their operations, but they typically cannot control fluctuations in Market Prices
True or False: The economic gain from reducing stockouts and excess inventory (for both Innovative and Functional Products) is so great that intelligent investments in Supply Chain Responsiveness will always pay for themselves
False - The economic gain from reducing stockouts and excess inventory (for *Innovative Products*) is so great that intelligent investments in Supply Chain Responsiveness will always pay for themselves
True or False: A firm pursuing a Differentiation Strategy does not need to concern itself with its Cost Position
False - A Differentiator cannot ignore its Cost Position, because its Premium Prices will be nullified by a markedly inferior Cost Position - A Differentiator must achieve Cost Parity or Proximity relative to its competitors by reducing cost in all areas that do not affect Differentiation
True or False: Most Firms can successfully understand and deliver on all Competitive Dimensions
False - A Firm cannot be successful if it attempts to be the best on all dimensions. This tends to confuse management and disorganize the resources - Instead, Firms should seek to understand one to two of the Customer's most critical priorities
True or False: A firm in a very attractive industry will always earn attractive profits, even if it has chosen a poor Competitive Position
False - A Firm in a very attractive industry may still NOT earn attractive profits if it has chosen a poor Competitive Position - Conversely, a firm in in an excellent Competitive Position may be in such a poor industry that it is not very profitable
True or False: Industry Leadership leads to Competitive Advantage
False - Competitive Advantage leads to Industry Leadership - "Industry Leadership is not a cause, but an effect of Competitive Advantage" - Michael Porter
True or False: A firm's Competitive Strategy is shaped and influenced by its environment. However, a firm cannot influence the environment with its Competitive Strategy
False - Competitive Strategy not only responds to the environment, but it also attempts to shape the environment in a firm's favor - Both Industry Attractiveness (i.e., Long-Term Profitability) and Competitive Position can be shaped by a firm - A firm can improve or erode its position within an industry through its choice of Strategy
True or False: A firm pursuing a Cost Leadership strategy does not need to concern itself with the bases of Differentiation
False - Cost Leaders must achieve parity/proximity in terms of Differentiation relative to competitors - If a product is not perceived as comparable or acceptable by buyers, a cost leader will be forced to discount prices well below competitors' to gain sales
True or False: According to Fisher, recent technological advances have made it so that all supply chains are performing better than ever before
False - Despite the technological advances made in recent years, several supply chains are performing worse today than ever before - This is due to poor relations among Supply Chain Partners, dysfunctional industry practices (i.e., over-reliance on price promotions), inability to predict demand, etc
True or False: According to Michael Porter, imbalances in Supply and Demand have a greater influence on Long-Term profitability than Industry Structure
False - Even though Short-Term Fluctuations in Supply and Demand can affect Short-Term Profitability, Industry Structure underlies Long-Term Profitability
True or False: If prices are decreased without a proportional improvement in processes or efficiency, Profit Margins are unaffected
False - If Prices are decreased without a proportional improvement in processes or efficiency (Cost), Profit Margins are Decreased - The same effect applies to the effect of Rising Costs - Additionally, Price must always exceed Cost. Otherwise, the business is doomed to economic failure.
True or False: Every firm should strive to be all things to all people. That is, it should adopt more than one of the Generic Strategies proposed by Michael Porter
False - If the company tries to be all things to all people, it is "Stuck in the Middle" - The Leaders of a company must make a conscious decision of its Strategy, or else it will be stuck in the middle - Being "Stuck in the Middle" does not afford a firm any Competitive Advantage
True or False: Firms should always prioritize Cost Reduction, regardless of what the consequences may be
False - If you are decreasing your Costs but also decreasing Quality/Time/Flexibility, you are not actually improving
True or False: The effect of a missing operator on Manufacturing Operations is just as profound in Cellular Manufacturing as it is in Traditional Manufacturing
False - In a Cellular Manufacturing Layout, the impact of a missing operator on Manufacturing Operations will be felt less with a Cell than with a Straight Line (Traditional Manufacturing Layout)
True or False: Industry Profitability is a function of what the product looks like and whether it embodies high or low technology
False - Industry Profitability is a function of Industry Structure - Some very mundane industries (e.g., postage meters, grain trading, etc) are extremely profitable, while some of the glamorous industries (e.g., personal computers, cable television, etc) are not profitable for many participants
True or False: A company is always aware of when it gravitates from a Functional to an Innovative Sphere
False - It is easy for a company, through its Product Strategy, to gravitate from the Functional to the Innovative Sphere without realizing that anything has changed - The firm's managers start to notice that service has mysteriously declined and inventories of unsold products have increased
True or False: Most new products follow a classical Product Life Cycle
False - Most new products don't have any sort of classical life cycle curve at all - These products instead have an infinitely descending curve from the outset
True or False: Fast Delivery and On-Time Delivery are synonymous with one another
False - On-Time Delivery emphasizes Reliability (i.e., fulfilling Delivery promises) - Fast Delivery is concerned with completing the Delivery as soon as possible
True or False: According to Wickham Skinner, Focused Manufacturing plants are quite common in the modern marketplace
False - Skinner's research indicates that Focused Manufacturing Plants are quite rare - Instead, the Conventional Factory produces many products for numerous customers in a variety of markets, thereby demanding the performance of many manufacturing tasks at once from one set of assets. The rationale for this approach is "Economies of Scale" and Lower Capital Investment
True or False: Reducing Cost always involves a sacrifice in Differentiation
False - Sometimes Dramatic Cost Savings can be achieved with no impact on Differentiation at all if a firm has not concentrated on Cost Reduction previously
True or False: Structure is highly correlated with Strategy
False - Structure does NOT correlate with Strategy or Organizational Performance
True or False: The greater the Cost of Goods Sold (COGS), the greater the Gross Profit Margin
False - The Greater the Cost of Goods Sold (COGS), the lower the Gross Profit Margin
True or False: The Life Cycle of a given product is the same for different companies in the same industry at the same point in time
False - The Life Cycle of a given product may be different for different companies in the same industry at the same point in time - This affects different companies in the same industry differently
True or False: Given that a company's movement down the diagonal on the Product-Process Matrix is largely determined by Product Maturation and Technological Innovation, there is nothing that it can do to influence its movement along the diagonal
False - Through consistency in its decisions over time, a company can "lean" in one direction or the other (i.e., moving roughly parallel to the diagonal) or to stay as close to the diagonal as possible
True or False: In any given industry, the Five Forces are exclusively influenced by factors that are outside of a firm's control. That is, a firm cannot influence the Five Forces
False - Through their Strategies, firms can influence the Five Forces - If a firm can shape an Industry's Structure, it can fundamentally change its Attractiveness for better or for worse - Many successful strategies have shifted the rules of competition this way
True or False: Achieving Cost Reduction is the same as achieving a Cost Advantage
False - When faced with capable Competitors also striving for Cost Leadership, a firm will ultimately reach the point where further Cost Reduction requires a sacrifice in Differentiation
True or False: As part of their Strategic Planning Process, many diversified firms categorize business units by using a system such as Build, Hold, or Harvest. In a sense, these categorizations can be thought of as strategies
False - While such categorizations may be useful in thinking about resource allocation in a diversified firm, it is very misleading to mistake them for strategies - Build, Hold, and Harvest are the results of a Generic Strategy
True or False: Within an organization, it is adequate for managers to have different perceptions of their organization's Critical Customers
False - Within the organization, managers must identify and agree on who the Critical Customers are - An understanding of the criteria of the Critical Customers will support the definition of Customer Value
What is the objective of the Cost Leadership Strategy?
Firms that adopt the Cost Leadership Strategy strive to become *the* Low-Cost Producer in the Industry
According to Wickham Skinner, in what way is a Focused Factory a "Competitive Weapon"?
Focused Factories can be used as a Competitive Weapon because its entire apparatus is focused on accomplishing a particular manufacturing task demanded by the company's overall Strategy and Marketing Objective
According to Fisher, what is the Inventory Strategy of an Efficient Supply Chain?
Generate High Turns and Minimize Inventory throughout the chain
How is the Demand for a Functional Product different than that of an Innovative Product?
Given that Functional Products satisfy Basic Needs, they tend to have Predictable Demand. - The Demand for Innovative Products, on the other hand, is inherently Unpredictable
Describe the effect of Demand for Innovative Products on the complexity of Market Mediation
Given the Unpredictability of Demand for Innovative Products, Market Mediation costs are emphasized over Physical Costs
According to lecture, how is Gross Profit Calculated?
Gross Profit = Net Sales - COGS
In terms of Operating Systems, what is Volume Flexibility?
Handling large fluctuations in Demand by quickly Accelerating or Decelerating the Rate of Production or Service
What is Development Speed? What is the emphasis of this Competitive Priority?
How quickly a new Product or Service is Introduced - from Idea Generation through the Final Design to Production - Development Speed captures the ability to Innovate - Those businesses with High Development Speed are often termed "Market Leaders"
In the context of the Product Life Cycle, what does it mean for a product to "reverse direction"?
If a product has "reversed its direction" on the Product Life Cycle, it has moved away from a more Standardized Production Process shortly after moving towards it
What is Simple Growth?
Increased Sales Volume with an Existing Product Line and an Existing Production Process
According to Michael Porter, what does Industry Structure determine? How does the value of a product influence the importance of Industry Structure?
Industry Structure determines who keeps what proportion of the Value a Product creates for Buyers (i.e., who captures the Value in an industry) - If an Industry's Product does not create much Value for its Buyers, there is little value to be captured by firms regardless of the other elements of the industry Structure - If the product creates a lot of value, Industry Structure becomes critical
Describe the flow of information for an Innovative Product
Information flows not only within the Supply Chain, but also from the Marketplace to the Supply Chain
Describe the flow of information for a Functional Product
Information flows within the Supply Chain - Suppliers, Manufacturers, and Retailers coordinate their activities in order to meet Predictable Demand at the Lowest Cost
According to Theodore Levitt, what is the "Used Apple" Policy?
Instead of aspiring to be the first company to see and seize an opportunity, a firm will systematically avoid being first - These companies avoid "taking the first bite" and allow other firms to do the pioneering - These companies are willing to eat off of a "used apple", but they try to be alert enough to make sure it is only slightly used
According to Theodore Levitt, the ensuing fight for the consumer's patronage during the Market Growth phase of the Product Life Cycle poses an entirely new set of problems to the originating producer. What are these challenges?
Instead of seeking ways of getting consumers to try the product (i.e., creating demand), the originator now faces the more compelling problem of getting them to prefer their brand (i.e., capturing demand)
According to lecture, why would a firm adopt a Hybrid Supply Structure?
Intense Global Competition requires firms to develop Organizational Designs that capture the advantages of both Centrally Led and Decentralized Purchasing - Thus, most Companies will likely evolve toward a Hybrid Organization Structure
According to Fisher, what is the Lead-Time Focus of a Responsive Supply Chain?
Invest Aggressively in ways to Reduce Lead Time
Of the 8 Competitive Priorities, which are concerned with Cost?
Low-Cost Operations
According to Fisher, what is the Manufacturing Focus of an Efficient Supply Chain?
Maintain High Average Utilization Rate
According to Fisher, why haven't new and technology-driven Supply Chain Solutions resulted in improved performance?
Managers lack a framework for deciding which Supply Chains are best for their particular company's Situation
According to Fisher, what is the Product-Design Strategy for an Efficient Supply Chain?
Maximize Performance and Minimize Cost
Why can Porter's Five Forces be used to determine Industry Profitability?
Porter's Five Forces influence the elements of Return on Investment (i.e., Prices, Costs, and Required Investment of firms in an industry)
According to Michale Porter, the second central question in Competitive Strategy is a firm's relative position within its industry (i.e., its choice of Generic Competitive Strategy). What does Positioning determine?
Positioning determines whether a firm's profitability is Above or Below the Industry Average - A firm that can Position itself well may earn high rates of return even though Industry Structure is unfavorable and the average profitability of the industry is modest
What is an Experience Curve / Learning Curve?
Posits that Product Costs (in constant dollars) should decline at a steady rate every time cumulative Production Volume Doubles - The Experience Curve depicts the total improvements in unit costs obtainable by combining Product Evolution with Process Evolution
What are Liquidity Ratios?
Ratios that are used to determine how capable a Supplier is of meeting Short-Term Cash Needs
What are Activity Ratios?
Ratios that are used to determine how effectively a Supplier is managing its assets
What are Profitability Ratios?
Ratios that determine how profitable a Supplier is (i.e., the Rate of Return earned by the Supplier)
What are Leverage Ratios?
Ratios used to determine if a Supplier is "over-Leveraged" (i.e., if they have excessive amounts of debt)
According to Lecture, what are the five main characteristics of a Responsive Supply Chain? What type of product typically adopts a Responsive Supply Chain Strategy?
Responsive Supply Chain Strategies should be used when the following conditions apply: - Unpredictable Demand - Requires Excess Buffer Capacity - Frequent New Product Introductions - High Margins - High Product Variety - Product Type: Innovative Products
According to lecture, how is Revenue calculated?
Revenue = Volume (Number of Units) x Price per Unit
According to Fisher, how do Efficient Supply Chains select Suppliers?
Select Primarily for Cost and Quality
According to Fisher, how do Responsive Supply Chains select Suppliers?
Select Primarily for Speed, Flexibility, and Quality
According to Fisher, what is the Lead-Time Focus of an Efficient Supply Chain?
Shorten Lead Time as long as it doesn't Increase Cost
What conditions must be present in order for Simple Growth to occur?
Simple Growth requires that extremely stable conditions exist (e.g., competitors, technology, market tastes), with the only change occurring in the Size of the Market - In the context of a Single Product Line and a Single Process Structure, Incremental Changes in each reflect a type of Simple Growth
What are Functional Strategies?
Strategies that emphasize Short and Medium Term plans, but are limited to the domain of each Department's Functional Responsibility - EX: Marketing, New Product Development, Human Resources, Financial, Legal, Operational, Supply Chain, Information Technology Management, etc
Of the four Entrance-Exit Strategies proposed by Hayes and Wheelwright, which was previously regarded as a strategy for the "little guys" and eventually became increasingly attractive to companies? What caused several companies to become attracted to this method?
Strategy A - This strategy became increasingly attractive to companies that prefer not to compete in High-Volume, Low-Margin Businesses - This strategy is also attractive to highly diversified companies whose managers look on their job as one of managing a portfolio of assets
Of the four Entrance-Exit Strategies proposed by Hayes and Wheelwright, which was considered the "normal" or most desirable until recently?
Strategy B
Of the four Entrance-Exit Strategies proposed by Hayes and Wheelwright, which was particularly favored by large national or multinational companies? Why was this?
Strategy C - This strategy is favored by large national or multinational companies whose production systems emphasize High Stable Volumes and Low Variable Costs - These companies can exploit their large sales forces' distribution channels, advertising expertise, and overall "market clout," and they have easy access to capital markets for the funds required by the scale and capital intensity of their mode of competition
Of the four Entrance-Exit Strategies proposed by Hayes and Wheelwright, which is the least likely to be pursued internationally? Why is this?
Strategy D - This strategy is hardly ever pursued internationally since there is not sufficient time to reap the rewards necessary to justify the initial investment
According to Lecture, Suppliers should be selected based on what?
Suppliers should be selected based on their alignment with the Firm's Strategies and Competitive Priorities
In our Lecture on Business Strategy, the Battle of Bull Run / Battle of Manassas (1861) was used to illustrate what point?
The Battle of Bull Run (1861) was used to illustrate that a lack of strategy will negatively impact the "battle" and will needlessly waste resources
According to Theodore Levitt, what entity faces the greatest pressure and has the most to lose when a new product is introduced into the marketplace? Why is this?
The Company with the most at stake is the Original Producer (i.e., the company that launches the entirely new product) - This company generally bears most of the costs, the tribulations, and the risks of developing both the product and the market
What is the Objective of a Generic Strategy?
The Generic Strategy specifies the fundamental approach to Competitive Advantage a firm is pursuing, and provides the context for the actions to be taken in each Functional Area
Describe the effect of Demand for Functional Products on the complexity of Market Mediation. How is this beneficial for companies?
The Predictable Demand of Functional Products makes Market Mediation simple - With Functional Products, there is a nearly perfect match between Supply and Demand - This enables companies to efficiently produce Functional Products and focus exclusively on minimizing Physical Costs
How is the Product Life Cycle for a Functional Product different than that of an Innovative Product?
The Product Life Cycle for a Functional Product is much longer (i.e., More than 2 Years) than that of an Innovative Product (i.e., 3 Months to 1 Year)
According to Fisher, why do Functional Products tend to have Low Profit Margins relative to Innovative Products? How do many companies attempt to avoid these Low Margins?
The Stability of Functional Products invites Competition and often leads to Low Profit Margins - To avoid Low Margins, many companies introduce Fashion or Technological Innovations to their Functional Products
What is the Customer Benefit Bundle?
The Tangible and Intangible things that a customer wants - Within this set, there are Core and Non-Core (or Peripheral) Items
What is Business Strategy?
The aggregated strategies of a single Strategic Business Unit (SBU) - According to Michael Porter, a firm's Business Strategy must be either Cost Leadership, Differentiation, or Focus in order to achieve competitive success
According to Theodore Levitt, what is the best way of determining the current stage of a given product in the Product Life Cycle? What three virtues are associated with this approach?
The best way of seeing one's current stage is to try to foresee the next stage and work backwards - It forces one to look ahead - Looking ahead gives more perspective to the Present than looking at the present alone - The value of knowing what stage a product occupies at any given time resides only in the way in which that fact is used
In terms of Operating Systems, what is Flexibility?
The characteristics of a Firm's Operations that allow it to react to Customer Needs Quickly and Efficiently
Describe the Physical Function of a Supply Chain. How are Costs generated by this Function?
The conversion of Raw Materials into Components and Finished Goods - Costs are generated by Manufacturing, Transportation, and Inventory Storage Needs
According to Fisher, a company can escape the "Efficient Supply Chain - Innovative Product" Mismatch in one of two ways. What are these two methods? How can a firm determine which one it should use?
The correct decision depends on whether the Product is sufficiently Innovative to generate enough additional Profit to cover the cost of making the Supply Chain Responsive - Method 1: Make its Products Functional - Method 2: Make its Supply Chain Responsive
What is Fast Delivery Time (Lead Time)?
The elapsed time between Receiving a Customer's Order and Filling it
What is Forward Vertical Integration?
The firm acquires Downstream Channels of Distribution and/or Retail Sources
What is Backward Vertical Integration?
The firm acquires Upstream Supply Channels of Parts and Raw Materials
As explained by Hayes and Wheelwright, describe Entrance-Exit Strategy B. What is its position on the Product-Market Dimension Matrix?
The firm enters early and grows up with the industry, seeking to be a major factor in the business throughout the Product's entire Life Cycle - Entrance: Start-Up, Exit: Decline
As explained by Hayes and Wheelwright, describe Entrance-Exit Strategy A. What is its position on the Product-Market Dimension Matrix?
The firm enters the market early, and then leaves to exploit other companies' (i.e., those following Strategy C) superior flexibility and technological skills in the introductory phases of some new product - The firm leaves when Technology Stabilizes, Profit Margins Narrow, and the Larger Companies following Strategy C begin to appear - Entrance: Start-Up, Exit: Maturity
According to Hayes and Wheelwright, what are the consequences associated with maintaining a position Above the Diagonal?
The firm may will be vulnerable to Competitors who can do the following: - Undercut its Price - Offer Greater Delivery Dependability - Offer Tighter Product Specifications
As explained by Hayes and Wheelwright, describe Entrance-Exit Strategy C. What is its position on the Product-Market Dimension Matrix?
The firm waits on the sidelines until some degree of Product and Process Stabilization has occurred and then enters the Industry - This is done so that the firm can better exploit the industry's massive Production, Distribution, and Marketing Resources - Entrance: Rapid Growth, Exit: Decline
As explained by Hayes and Wheelwright, describe Entrance-Exit Strategy D. What is its position on the Product-Market Dimension Matrix?
The firm waits to enter, fails to gain a Sustainable Market Position, and consequently chooses to Withdraw without having made an adequate Return on its Investment - Entrance: Rapid Growth, Exit: Maturity
According to Theodore Levitt, what is the first sign that a product has reached the Maturity Stage of the Product Life Cycle? What does this mean?
The first sign that a product has reached the Maturity Stage of the Product Life Cycle is Market Saturation - This means that most consumer companies or households that are sales prospects will already be owning or using the product
According to Fisher, the rate of New-Product Introductions has skyrocketed in many industries. Why has this been the case? What has been the result of this trend?
The increase in New-Product Introductions is due to an Increase in the number of Existing Competitors and the tendency for existing competitors to protect or increase Profit Margins - As a result, many companies have tried to turn traditionally Functional Products into Innovative Products
What is a Cell? What is the most desirable type of Cell?
The layout of machines or other manufacturing assets (e.g., processes, people, etc) performing different operations in a tight sequence (e.g., U-Shape or L-Shape) to permit Single Piece Flow and Flexible Deployment of Human Effort - The most desirable Cell is one that caters to a Product Family
Generally speaking, the more producers there are of a new product, the more effort goes into developing a market for it. What is the net result of this?
The net result is more rapid and steeper growth of the Total Market - The Originator's Market Share may fall, but their total sales and profits may rise more rapidly
What is Distinctive Competence?
The notion that each company should identify and exploit the resources, skills, and organizational characteristics that give it a comparative advantage over its competitors
What is Manufacturing Strategy?
The pattern of decisions and investments in products, services and processes used to implement an organization's Business Strategy and to create Customer Value
What is On-Time Delivery? What does it emphasize?
The rate at which Delivery-Time Promises are met - On-Time Delivery focuses on *Reliability*, NOT on how quickly the Product was delivered (which is Fast Delivery Time)
What is Consistent Quality?
The rate at which a Product or Service meets the Specifications of its Design - Note that Customers will Demand the level of Quality that they have been promised, that they have seen advertised, or that they have come to expect
What are Competitive Priorities?
The relative weighting of the dimensions of Customer Value that link the Business Strategy with the Functional Strategies (Supply Chain, Marketing, and Finance) - Competitive Priorities are an Interpretation of what Customers Value - The goal is to achieve synergy between the Customer and the firm's Strategy
According to Fisher, what is the root cause of the problems facing many Supply Chains today?
The root cause of the problems plaguing many Supply Chains is a mismatch between the Type of Product and the Type of Supply Chain
According to Michael Porter, when is the temptation to blur a Generic Strategy particularly great for a Firm? Why is this?
The temptation to blur a Generic Strategy (i.e., become "Stuck in the Middle") is particularly great for a Focuser once it has dominated its Target Segments - Success can lead a Focuser to lose sight of the reasons for its success and compromise its focus strategy for growth's sake - Rather than compromise its Generic Strategy (i.e., Focus), a firm is usually better off finding new industries in which to grow where it can use its Generic Strategy again or exploit interrelationships
What is Industry Structure? According to Michael Porter, what are the main elements of Industry Structure?
The underlying economic and technical characteristics of an industry. Its main elements include the following: - The Threat of New Entrants - The Bargaining Power of Buyers - The Bargaining Power of Suppliers - The Threat of Substitutes - The Intensity of Rivalry Among Existing Competitors
What is Cellular Manufacturing? Describe its position on the Product-Process Matrix
The use of a Low-Volume Manufacturing Layout that is capable of changing over to another Product quickly - Cellular Manufacturing is similar to a Line Process, but produces in Low Volumes
How are Focused Factories different from a Plant-Within-A-Plant?
These factories separate the following elements: - Facilities - Staff - Management - Leadership - Incentives - Note: MILFS
Explain the following element of Porter's Five Forces Model: Rivalry Among Existing Competitors
This element considers factors such as Industry Growth, Overcapacity, Brand Identity, Diversity of Competitors, Switching Costs, and Exit Barriers - "How fierce is the Rivalry amongst the Competition?"
Explain the following element of Porter's Five Forces Model: Threat of New Entrants
This element considers factors such as the Government, Investment Costs, Economies of Scale, Marketing/Brand Identity, and Switching Costs - "How easy/difficult is it for New Competitors to enter the Market?"
Explain the following element of Porter's Five Forces Model: Bargaining Power of Suppliers
This element considers factors such as the Number of Potential Suppliers, Switching Costs of Suppliers, Importance of Volume, and Importance of Differentiation - "How powerful are the Suppliers?"
Explain the following element of Porter's Five Forces Model: Threat of Substitutes
This element considers factors such as the Price/Cost of Alternatives, the Ability of the Product to meet the Customers' Needs, and the General Attitude towards Alternatives - "What Substitutes would the Consumer consider if our Product/Service is not available?"
Explain the following element of Porter's Five Forces Model: Bargaining Power of Buyers
This element considers two primary factors: (1) Bargaining Leverage of Buyers (e.g., Backwards Integration) and (2) Price Sensitivity - "How Powerful are the Customers?"
What does it mean to have Proximity in Differentiation?
This means that the price discount necessary to achieve an acceptable Market Share does not offset a Cost Leader's Cost Advantage - Hence, the Cost Leader earns above average returns
According to Fisher, what is the primary purpose of a Responsive Supply Chain?
To Respond Quickly to Unpredictable Demand in order to Minimize the following: - Stockouts - Forced Markdowns - Obsolete Inventory
What is the relationship between a firm's Business Strategy and its Functional Strategies?
To be effective, a firm's Functional Strategies must align with the Business Strategy - This is achieved through the understanding of Competitive Priorities
According to Lecture, how can firms compete effectively on the basis of Cost?
To compete effectively on the basis of Cost, a Firm must be able to control the Costs of Labor, Materials, Scrap, Overhead, and any other factors that affect its Cost Structure - Firms must work with these factors to reduce the Cost per Unit - Generally, Lowering Costs will require Investment in Equipment and other Facilities
What is the main purpose of the Cellular Manufacturing Layout?
To have an arrangement of people, machines, materials, and methods in such a way that One Piece/Small Batch will Flow - Cellular Manufacturing also improves Flow, Communication, and Equipment Access
According to Lecture, what must Firms do to achieve Consistent Quality?
To provide Consistent Quality, a Firm must closely Design (e.g., reducing Variability) and Monitor its Operations to Minimize Errors
According to lecture, why do we conduct Financial Analyses?
To see the whole image of what the company represents - All categories of the Financial Analyses help us understand the Strengths and Weaknesses of the company, not just its profitability
According to Fisher, what is the primary purpose of an Efficient Supply Chain?
To supply Predictable Demand Efficiently and at the Lowest Possible Cost
True or False: A Firm's Structure and Critical Customer Base can change over time
True
True or False: A Innovative Product with an Efficient Supply Chain Strategy is a Mismatch
True
True or False: A slower rate of Consumer Acceptance might extend a Product's Life Cycle and raise the Total Profits it yields
True
True or False: Competition determines the appropriateness of a firm's activities that can contribute to its performance, such as innovations, a cohesive culture, or good implementation
True
True or False: During the Maturity Stage of the Industry Life Cycle, the Originator is increasingly forced to appeal to the consumer on the basis of Price, Marginal Product Differences, or both
True
True or False: If a Focuser's Target Segment is not different from Other Segments, the Focus Strategy will NOT succeed
True
True or False: In most industries, some firms are much more profitable than others, regardless of what the average profitability of the industry may be
True
True or False: In the early 2000s, many organizations struggled with Ethics
True
True or False: Innovations in Technology and Fashion depend on Consumers changing some aspect of their Values or Lifestyle
True
True or False: Products that are physically the same can be either Functional or Innovative
True
True or False: Quality involves both Tangible Attributes and Customer Perceptions (Intangible) about the Product or Service
True
True or False: The Market Maturity Stage can be passed through rapidly, or it can persist for generations
True
True or False: Unless a firm strictly separates the Business Units pursuing different Generic Strategies, it may compromise the ability of any of them to achieve its Competitive Advantage
True
True or False: While several firms have been successful in turning traditionally Functional Products into Innovative Products, they have typically failed to shift from an Efficient Supply Chain to a Responsive Supply Chain
True
True or False: The presence of competitors both dictates and limits what can easily be tried
True - The policies and tactics now adopted will be neither freely the sole choice of the Originating Producer, not as Experimental as they might have been during the Introduction Phase
True or False: The more unique or distinctive the Newness of the Product, the longer it generally takes to get it successfully off the ground
True - When the product's Newness is distinctive and the job it is designed to do is unique, the public will generally be less quick to perceive it as something it clearly needs or wants - The more distinctive the Newness, the greater the risk of failure resulting either from insufficient working capital or from the inability to convince investors/bankers to put up more money
True or False: A firm should always aggressively pursue all Cost Reduction opportunities that do not sacrifice Differentiation
True - A firm should also pursue all Differentiation Opportunities that are not costly - Beyond this point, a firm should be prepared to choose what its ultimate Competitive Advantage will be and resolve the tradeoffs accordingly
True or False: Industry Structure shapes the Supply/Demand Imbalance and the duration of Imbalances
True - Additionally, Industry Structure is fundamental to both the speed of adjustment of Supply to Demand and the relationship between Capacity Utilization and Profitability
True or False: Although Innovation can enable a company to achieve higher Profit Margins, Newness can make Demand Unpredictable
True - Additionally, the Life Cycle for Innovative Products is relatively short due to imitators
True or False: The concept of Generic Strategies also has implications for the role of Culture in Competitive Success
True - Differentiation may be facilitated by a Culture encouraging Innovation, Individuality, and Risk-Taking - Cost Leadership may be facilitated by Frugality, Discipline, and Attention to Detail - Culture can powerfully reinforce the Competitive Advantage that a Generic Strategy seeks to achieve, if the culture is an appropriate one
True or False: The elapsed time varies greatly in Acceptable Duration
True - EX: A year for a complex project - EX: Minutes for a pizza ordered
True or False: Volume Flexibility supports a number of other Competitive Priorities
True - EX: Development Speed or Fast Delivery Time - The time between "peaks" may be years, hours, etc
True or False: According to Theodore Levitt, the Maturity Stage of the Product Life Cycle typically lasts until there is a major change or shift
True - EX: Important Competitive Substitutes, Drastic Shifts in Value Systems, Major Changes in Dominant Fashions, Changes in the Demand for Primary Products that use the Product, Changes in the Rate of Obsolescence, etc
True or False: Even before entering the Introduction Stage of the Product Life cycle, the Originator should make a judgment regarding the probable length of the Product's normal life, taking into account the possibilities of expanding its uses and users
True - Having a clear idea of future product development possibilities and market development opportunities should reduce the likelihood of becoming locked into forms of undesirable merchandising
True or False: Competitive Advantage in one industry can be strongly enhanced by Interrelationships with business units competing in related industries, if these interrelationships are possible to achieve
True - Interrelationships among business units are the principal means by which a Diversified Firm creates Value, and thus provide the underpinnings for Corporate Strategy
True or False: Even when a company is at capacity, it can sometimes be extremely difficult to get a consensus on a decision to narrow the product line
True - Marketing believes that "good service" requires a "full line" - Manufacturing thinks that almost any sale can be shown to make a net contribution to overhead and fixed costs
True or False: The benefits of optimizing the firm's strategy for a particular target (i.e., Focus) cannot be gained if a firm is simultaneously serving a broad range of segments (i.e., Cost Leadership or Differentiation)
True - Sometimes, a firm may be able to create two largely separate business units within the same Corporate Entity, each with a different Generic Strategy
True or False: Changes in Industry Structure can affect the bases on which Generic Strategies are built and thus alter the balance among them
True - Structural Change can shift the relative balance among the Generic Strategies in an industry, since it can alter the sustainability of a Generic Strategy or the size of the Competitive Advantage that results from it
True or False: Industry Structure is relatively stable, but can change over time as an industry evolves
True - Structural Change shifts the overall and relative strength of the Competitive Forces, and can thus positively or negatively influence industry profitability - The industry trends that are the most important for strategy are those that affect Industry Structure
True or False: If a product has Modular Components, it has greater customization potential
True - The Flexibility of Modular Components allow customers to customize certain aspects of a product
True or False: The Cellular Manufacturing layout influences the Flow of Materials
True - The flow of materials, WIP, and GFI will change with the adoption of a Cellular Layout - EX: Forklifts might take different paths and may move more/less often
True or False: In some industries, market leaders do NOT enjoy the best performance because Industry Structure does not reward Leadership
True - The pursuit of Leadership for its own sake seems to have sometimes diverted attention from achieving and maintaining Competitive Advantage
True or False: Often, firms make strategic choices without considering the long term consequences for Industry Stucture
True - These firms see the potential for gain in their Competitive Position if a move is successful, but they fail to anticipate the consequences of Competitive Reaction - A Firm must balance its own competitive position against the health of the industry as a whole
True or False: When Vertically Integrating, a company may have to think in terms of an additional matrix for a different component part or raw material and develop strategies that are very different than those selected for the original end product
True - This is a common challenge faced by many firms that have Vertically Integrated
In Cellular Manufacturing, most Cells are typically "U-Shaped". Why is this?
U-Shaped Cells are often used when it is beneficial to have Operators close nearby (e.g., to communicate, collaborate, assist, etc) - Additionally, having Inputs and Outputs Enter or Leave near the same spot can allow Mixing and improves Material Handling
According to Fisher, what is the Product-Design Strategy for a Responsive Supply Chain?
Use Modular Design in order to postpone Product Differentiation for as long as possible
Entrance and Exit Strategies
View Reading and Recorded Lecture
According to Hayes and Wheelwright, what is Vertical Integration?
When a company maintains existing Processes and adds one of the following in the hopes of increasing sales volume and market responsiveness or reducing costs and improving dependability: - Less Standardized, More Flexible Processes (Forward Integration) - More Standardized, Less Flexible Processes (Backward Integration)
What does it mean to "Harvest" a product?
When one attempts to "Harvest" a product, they reduce its cost and offer it to a Niche Market
What does it mean to "Maintain" a product?
When one attempts to "Maintain" a product, they might try to rejuvenate it by adding new features or finding new uses/users
If several firms in a given industry were to adopt a Cost Leadership Strategy, how would this affect Industry Structure?
When there is more than one aspiring Cost Leader, Rivalry among them is usually fierce because every point of Market Share is viewed as crucial. This is the worst possible situation for an Industry's Structure (i.e., Profitability) - The intensity of competition among firms pursuing a low cost strategy ultimately reduces the Long-Term Profitability of an Industry - The past and present choice of Generic Strategies by Competitors has an impact on the choices available to a firm and the cost of changing its Position
Once an Originating Company/Innovator demonstrates the presence of demand for its product, many competitors and imitators enter the market in order to facilitate market growth. How does the increase in the volume of New Entrants influence the gains realized by the Originating Company?
While the increased volume of New Entrants will increase Market Growth, the Originating Company's Growth Stage truncates because it now has to share the market with new competitors - Thus, the potential rate of acceleration of the Originating Company's Growth Stage is diminished and may actually fail to last as long as the industry's - Note that this occurs not only because there are so many new competitors, but also because these new competitors often enter the market with Product Improvements and Lower Prices
According to Lecture, Consistent Quality has become an increasingly important feature to customers. Describe the effect of this trend on the success of Firms in the marketplace
With the emergence of this trend, a Firm will generally be judged by the lowest level of quality that it produces - Thus, Inconsistent Production is quite costly
Why might a strategy that changes an Industry's Structure be perceived as a "double-edged sword"?
With these strategies, a firm can destroy Industry Structure and Profitability as readily as it can improve it - EX: A new product design that undercuts Entry Barriers or increases the volatility of Rivalry may undermine the long-term profitability of an industry, even if the initiator enjoys higher profits for a short period
