BUSINESS

STRA TEGIE
S
LEARNING OBJECTIVES
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 logistic circle;
5.As s e s s the different popular competitive
strategies;
6. Distinguish the role of innovation as a competitive
strategy; and
7.Explain why companies opt to implement stability or
retrenchment strategies.
VALUE CHAIN ANALYSIS
A s global markets widen, businesses have to pay closer attention to where their raw materials
come from, how they are produced, how finished products are stored and transported, and what
their end products users are really asking for.

The main business definition of any organization is to produce g o o d s or render services, and to
achieve these set goals and objectives, it engages in a series of activities. If an organization
wants to be profitable, it has to sell value to its buyers - value that is worth paying for. Thus, the
whole concept of value chain analysis comes to the picture.

Value chain is a general term that refers to a sequence of interlinked undertakings that an
organization operating in a specific industry engages in. It looks at every phase of the business
from the time of procurement of raw materials to the time its products reaches its eventual
end users or consumers. The value chain concept is concretized in supply chain management.
Here, value creation is greatly emphasized.
SUPPLY CHAIN MANAGEMENT
Supply Chain Management is a broad continuum of specific activities employed by a company.
p urchasing o r sup p ly m anag em ent w hich includ es the so urcing , o rd ering , and invento ry sto ring o f
raw materials, parts, and services;
production and operations, also known as manufacturing and assembly;
logistics which is the efficient warehousing, inventory tracking, order entry, management, distribution and
delivery to customers; and
marketing and sales which includes promoting and selling to customers.
SUPPLY MANAGEMENT
Supply management is now a popular term used for purchasing which was formerly termed as
procurement. It is a key business function that is responsible for:
(1) identifying material and service needs;
(2) locating and selecting suppliers; negotiating and closing contracts;
(3) acquiring the needed materials, services, and equipment;
(4) monitoring inventory stock keeping units; and
(5) tracking supplier performance.

The goal of supply management is to obtain the right materials b y meeting quality
requirements in the right quantity, for delivery at the right time and the right place, from
the right source, with the right service, and at the right price.

In addition, supply management objectives include improving the organization's

competitive position, providing uninterrupted flow of materials, supplies, and services,
keeping inventory and loss at a minimum, maintaining and improving quality, finding
best-in-class suppliers, purchasing at lowest total costs, and achieving harmonious
relations with suppliers.
SOURCING & ORDERING
Following are the steps to take when an organization needs to source out raw materials or parts.

Specify the need clearly b y writing down the details. Normally, the stock keeping unit (SKU) is c oded with
brief but complete details.
Identify and analyze possible sources of supply. Generally, more than one supplier should be considered.

1.Use a Request for Quotation when the need is clear, the commodities are
in constant use, and quotations are easily obtainable.
2.Use a Request for Proposal when the buyer has complex requirements and
plans to use negotiation to determine price and terms.
3. Lastly, use a Request for B id when the desire is a competitive bid process.

A s k potential suppliers for their respective quotations, proposals, and bids.

Compare and evaluate submitted documents, then select the suppliers. Both buyers and suppliers agree
and determine the terms of the contract.
Prepare, place, follow up, and expedite the purchase order (PO). The purchase order is a written requisition
placement to purchase supplies.
Confirm that the order placed has actually arrived in g o o d condition and at the quantity. Forward the
shipment to its destination, properly document and register the receipt, and forward it to the
accepting party/parties.
Lastly, invoice clearing and payment follows
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 g o o d service back-up when
needed, and keeping promises.

INVENTORY MANAGEMENT
Another facet of supply management is inventory management.

The role of inventory is to buffer uncertainty, It includes all Work-in-process (WIP)

purchased materials and goods, partially completed materials and
component parts, and finished goods. There are four broad Finished goods include all
categories of inventories. completed products for
shipment.

All unprocessed purchased input or raw materials for Maintenanc e, rep air, and
manufacturing. Companies purchase supplies for any of operating supplies
the following reasons: to avail of quantity discounts, include the materials (MR andO )
to anticipate future price increases, to safeguard supplies used when producing
against supplier problems, to minimize transportation the products but are not
costs, and to avoid supply shortage. parts of the products
 INVENTORY MODELS
Inventory manag ement is ord ering the
rig ht quantity of SKUs at minimum inventory costs.

Inventory cost is the sum total of ord ering c osts

and carrying costs.

Ordering cost (setup costs) are variable costs

associated with placing an order with the supplier The inventory model answers two questions:
like managerial and clerical costs in preparing the "how much to order?" and "when to
purchase. order?".
The q uestion, how m uc h to ord er,
answered by determining is the
C arrying costs (hold ing c osts) are c osts inc urred order quantity (EOQ). It seeks to determine
for hold ing inventory in storag e like hand ling an optimal order quantity whereec onom ic of
the sum
charges, warehousing expenses, the annual order costs and al carrying costs
shrinkage, taxes, and costs of capital. insuranc e, is minimized. O n the other
q uestion, w hen hand , the to ord er,
is
puting for the reorder point answ ered
(RP).
by
The application of the E O Q Model presupposes that the following are known and constant:
demand, order lead time, price, carrying cost, and ordering cost. Likewise, this model assumes at
replenishment is instantaneous and stockouts are not allowed. Lead time refers to the span of
time it takes for a stock to be delivered from the time it was ordered, while instantaneous
implenishment is delivery of stocks all at the same time.

The value of inventory management is evidently reflected in the minimization of costs. This is
achieved when organizations develop efficient ways of procuring their raw materials like
accurately recasting demand and ordering in bulk to avail of quantity discounts. Reduction in
carrying costs are handling costs, storage expenses, and costs of capital. Optimum ordering of
stocks increases effciency while scheduled purchases contribute to a decrease in inventory costs
PRODUCTION AND OPERATIONS
Production and operations are processes that transform operational input into output to satisfy
consumer needs and requirements. This transformational process consists of manufacturing and
assembly.

Manufacturing is the process of producing goods using people or machine resources. It commonly
refers to industrial production where raw materials are converted into finished goads.

Assembly is the process of putting together raw materials into a desired output. Quality raw
materials and parts, efficient production layouts and processes, and employees with skills and
motivation are essential to effective transformational processes. Once achieved, value can be
generated through pealing product designs, quality and reliability, efficient service performance,
accessible location re attractive store displays, affordable prices, and g o o d customer service.
THE LOGISTICS CIRCLE
Warehousing is the function of physically packing finished g o o d s or merchandises a building, room, or
any space for temporary storage. While these items are stocked storerooms, they are timetabled for
release to customers or buyers.

Scheduling is the act of organizing these inventory units and booking them for delivery.

Dispatching products are for transfer; this may include posting, mailing, shipping and transmitting,
forwarding, or releasing commodities.

Transportation scheduling and other logistics are necessary to make dispatching efficient. The goal is
to minimize transportation costs. Therefore, considerations have to be prioritized in terms of location
site, ease, or gravity of traffic, safety, and lat requirements.

Delivery to the specified site is undertaken. It closes the entire logistics circle.
 MARKETING AND SALES
Products are produced and services are rendered for
ultimate release to customers. Therefore there is a need
to market these merchandise to interested buyers.
Companies can adopt different modes of marketing to
attract and sell to customers. They can study the unique
purchasing patterns of buyers and determine what will
translate their desire for the products into actual
purchase. Aside from coming up with g o o d and distinct
products, businesses can offer competitive pricing
special offers, quantity discounts, and volume sales,
a mo n g others. They can aggressively promotes the
products through advertisements in newspapers,
magazines, radio, television, and other forms of
promotional mediums. In all instances, while marketing
their products and services, company will need to
complement their efforts with developing salespeople
through result-oriented sales trainings, giving
competitive salaries that will motivate them to contract
sales, providing g o o d working conditions for better
productivity coupled with inspirational leadership.
In summary, supply chain management is a complete
sequence of processes that includes purchasing, INTERNAL GROWTH
production and operations, delivery, and marketing and
sales. It is actually a complete management cycle where
STRATEGIES
efficiency
Internalbetween
growthand a mo n g are
strategies the approaches
procedures essentially
adopted within the company. These broad growth strategies can
brings
be about
any ofoptimum output.market penetration, market development, product development, and diversification.
the following:

GROWTH STRATEGIES
The adoption and implementation of a growth strategy is one of the most important
considerations for every organization. Particularly, growth strategies are carefully
studied and deliberately carried out b y organizations for the following reasons: they
want to survive the hypercompetitive environment and not perish; they want to
increase their earnings or income; they want to create their advantage a mo n g
competitors; or they may want to increase their market leadership in a given industry.
Growth strategy is a mode adopted b y an organization to achieve its main objectives of
increasing in volume and turnover. Growth strategies can be internal or integrative
Market penetration suggests that for an organization to increase its growth, market penetration can be
actualized b y selling more of its current products/services to its current customers or buyers. It is the least
risky for any company to pursue. For example, if we are selling a six-pack of Coca-Cola, then we can push for a
12-pack, 24-pack, and s o on.

Market development is the process where a company can sell more of its current products b y seeking and
tapping new markets. It is a little more challenging. For example, if a company has a chicken fast-food chain
in Luzon, then it can open new outlets in the Visayas and eventually, in Mindanao.

Product development is an internal growth strategy where the company sells "new" products to an existing
market. In this strategy, there is a need for the organization to be more creative in coming up with
differentiated products and services. The products or services need not be new in its truest essence but
instead, may be results of product/ service enhancement, redesign, or reinvention. For example, a company
develoos a versatile shampoo product that can be used without wetting the hair.
Diversification is a product/market mix growth strategy that involves creating differentiated products for new
customers. In short, it is "new" products for new customers. Oftentimes, it is going to another product/
service area that is N O T related to one's current business or operations. For example, an aircraft
manufacturer can diversify and g o into the restaurant business or an accounting firm can manufacture a new
robot pilot for airline companies.

In summary, growth strategies are adopted b y organizations to deal with the competitiveness in the industry
milieu. There are different forms of growth strategies like market development, product development, and
diversification. The interplay of these strategies may greatly help these organizations.
 COMPETITIVE STRATEGIES
Organizations cannot avoid the permeating co m p etitio n
existing in the b usiness enviro nm ent.
Thus,
strategies co reality
are designed to deal with this so-called m p etitive
of
hypercompetition. Competitive strategies are essentially
long-term action plans prepared with the end goal of
directing how an organization will survive and compete.
These strategies are formulated to help organizations gain
competitive advantage after evaluating and comparing their
strengths and weaknesses against their competitors.

Competition comes in distinctive forms. It may be in the product/service of the company like
design, functionality, and versatility, pricing of products/services offered, and the benefits
accompanying the product/service offerings like warranties and after-sales services. Types of
competitive strategies consist of low-cost leadership strategy, broad differentiation strategy,
best-cost provider strategy, focused/market-niche strategy based on lower cost, and focused/
market-niche strategy based on differentiation.
 COMPETITIVE STRATEGIES
Organizations cannot avoid the permeating competition existing in the business environment. Thus,
competitive strategies are designed to deal with this so-called reality of hypercompetition.
Competitive strategies are essentially long-term action plans prepared with the end goal of
directing how an organization will survive and compete. These strategies are formulated to help
organizations gain competitive advantage after evaluating and comparing their strengths and
weaknesses against their competitors.Low-cost Leadership Strategy. The objective of the low-cost
leadership competitive strategy is to offer products and services at the lowest cost possible in the
industry.
This strategy is implemented when the organization makes every effort to be the most effective, if
not the overall, low-cost provider of a service or product. For example, Cebu Pacific Airlines uses
the low-cost leadership strategy to capture the broadest reach of air traveling customers by
offering airfares at low prices.

Broad Differentiation Strategy. The objective of the broad differentiation competitive strategy is to
provide a variety of products, services or product/service features that competitors d o not offer or
are not able to offer to consumers. This strategy is implemented when the organization offers a
unique product/service with distinct traits and features that will appeal better to its
customers/buyers. A mobile phone with a television feature is a broad differentiation strategy
product. This is true of fast foods with playgrounds like slides and see-saws.
 COMPETITIVE STRATEGIES
Best-cost Provider Strategy. This strategy is a combination of the low-cost leadership and broad
differentiation strategies. It is implemented when the organization gives its customers more value for
money by emphasizing both low cost products and services with unique features. The end goal is
keeping its customers. For example, Baclaran increases its customer base by selling varied, wide-
ranged numbers, and low-cost products in large quantities.

Focused/market-niche Lower Cost Strategy. This strategy is implemented when the organization
concentrates on a limited market segment and creates a market niche based on lower costs. For
example, there are low-cost condominium units that cater to middle class employees. A n affordable
and relaxed dwelling residence is an example of using a focused/market-niche lower cost strategy.
Another example is a specialized audio and video equipment store that sells only these two types of
products. Being dedicated, the store can purchase stocks in bulk, avail of price discounts, and
therefore, sell at low prices.

Focused/market-niche Differentiation Strategy. This strategy is implemented when the organization

concentrates on a limited market segment and creates a market niche based on differentiated
features like design, utility, and practicality. A n example of this focused/market-niche differentiation
strategy is Rolex. Rolex has an elite clientele base. It sells limited editions of watches. One look and
one can immediately say that the person is wearing a Rolex watch. Cost, design, quality, and branding
are distinct features of Rolex watches.
 OTHER COMPETITIVE STRATEGIES
Innovation Strategy. Although innovation, in the strictest sense of the word, is anything that
is new and original, this strategy is difficult to implement. The goal of a competitive
innovation strategy is to radically catapult or leapfrog the organization by introducing
completely new and highly differentiated products and services that give an organization a
competitive posturing. Robotics is a concrete example where automation, engineering,
science, computing, and manufacturing are collaboratively used to create a cybernetics
product.

Operational Effectiveness Strategy, S o m e organizations operate with a high degree of

inefficiencies in their internal business processes like wastes, downtime, longer cycle times,
complaints, rejects, loses, absences, and others. These forms of incompetence,
wastefulness, and inadequacies translate into financial leaks and reduction in potential
profits. The objective of an operational effectiveness strategy is to make an organization
perform better by making the structure lean, streamlining wasteful and inefficient
processes, harnessing better facility and equipment maintenance, and increasing work force
productivity.
 OTHER COMPETITIVE STRATEGIES

Economies of Scale. W h e n applied as a competitive strategy, economies of scale lowers

costs because of volume. In other words, the more a product/service is produced, the
lower the costs are for producing the product and rendering the service.

Technology Strategy. The advantage of gearing toward technology cannot be

overemphasized. Technology can be applied system-wise through digital integration. A s
organizations realize the benefits of going digital, they aggressively pursue this thrust.
Functional activities like accounting, marketing, purchasing, human resource management,
production, and operations are interconnected using enterprise resource planning.
 LIFE CYCLE STRATEGIES
In the context of the horizontal boundaries of the firm, it is worth reviewing the product life
cycle. The life cycle of any product/service refers to the lifespan that a
commodity/service undergoes from its introduction stage to its growth, maturity, and
decline stages.

The phases in the life cycle of a product/service are sequential in development. While a
product undergoes its life cycle, external and internal forces in the environment affect the
product/service ranging from consumer expectations, technological development, and
competition to other wide-ranging issues and challenges. In many instances, organizations
have little control over forces. Take note too, that products and services have different life
cycle patterns.

The introduction stage is the period of launching the product/service for acceptance.
In this phase, the product/service is new; hence, there is a need to create awareness.
Strategies include promotions, giving discounts, and market development, among others.
Depending on the type of product/service, the acceptance phase may either be short or
long.
 LIFE CYCLE STRATEGIES
The growth stage is the phase where the product/service gains acceptance by the consumers.
In this phase, sales and profit slowly increase and emphasis is now on continous market
development and improvement, Competition becomes more challenging. Here, the
organization can focus on branding, building customer loyalty, and promoting repeat business
through customer patronage.

The maturity stage is the period where the product has reached its penultimate level. Here,
the established product tends to remain steady and the number of competitors increases.
Although sales and profits generally reach their peak, it is in this phase where the organization
should start reinventing its products/services to maintain their current levels. Product
differentiation is recommended in this stage, as well as efficient operations and formulation of
creative marketing strategies.

The decline stage is the period where the product/service begins to reach or is reaching its
lowest point. Here, sales and profits decline andprice competition is intense. A n organization
can choose to keep the status quo, reduce prices to generate more sales, consolidate with
other organizations, or simply exit the market. Implementing strategies like product/service
reinvention and aggressive marketing can be helpful.
 STABILITY STRATEGIES

For organizations that are doing fine or are doing better in their existing businesses, they may
choose not to implement any growth strategy. They may not want to apply any
competitive strategy and hence, decide to keep the status quo. Not adopting any growth or
competitive strategy is a choice that organizations make. Stable with their current businesses.
some organizations are comfortable with their current market niche and any loud strategy
may attract the attention of competitors.

For example, there are businesses that are successful monopolies in their own right with no
new entrants. They continue to enjoy their profits. O n the other hand, there are organizations
that have not decided to expand and become big. They are just content with what they have.
RETRENCHMENT STRATEGIES
Sometimes, companies encounter serious difficulties. W h e n a company's survival is threatened or when it is not
competing effectively, it usually takes time to sit down and review its current situation. There are different modes
of dealing with this situation. They are the following:

Liquidation is the most radical action a company takes when the company is losing money and thus, is further
compounded b y a disinterest on the part of the shockholders to d o anything more to save it. In such cases,
the business may be tern mated and its assets sold

Divestment is implemented when a company consistently fails to reach the set objectives or when the
company does not fit well in the organization. Thus, the stockholders would preferably sell it or set is as a
separate corporation.

A turnaround strategy is adopted when the organization has reached a significant level of non-performance,
non-productivity, demoralization, and unprofitability ,and therefore, has to implement restorative strategies.
Organizations in this level have serious problems that may lead to possible closure. Once an organization
decides to continue, turnaround strategies are implemented. In a turnaround strategy, the organization should
focus on the following areas: climate and culture, products and services, production and operations,
infrastructure, and finances.
Climate and Culture. The toughest and most challenging area for any organization undergoing a turnaround
strategy is the climate and culture.

Products and Services. A review of the products offered and services rendered is needed; ask questions like
what products/services are marketable in the industry, which of these products and services need some
improvements or major redesign, and what distinct features can be introduced to attract buyers. Note that
some products and services that were once saleable and attractive may eventually lose their customer appeal.

Production and Operations. In the implementation of turnaround strategies, this is the easiest phase to sort out
and manage. The C E O can look into the processes of the organization, determine which processes are
redundant and defective, and undertake piecemeal improvements.

Infrastructure. Turnaround strategies can easily achieve significant improvements when the infrastructure is
correctly assessed and appropriate interventions are introduced or reinforced. Technology is the best
infrastructure strategy that can bring about radical improvements.

Finances. W h e n an organization needs a turnaround strategy, it is because it finances are waving a "red flag."
This may mean that the organization is losing money or is marginally profitable, causing concerns to
investors. Once the aspect of climate and culture, products and services, production and operations, ant
infrastructure have been adequately confronted and substantial interventions hav been successfully
implemented, the financial aspect will take care of itself.