BUSINESS

STRATEGIES
Learning Outcomes:
Particularly at the end of this chapter, the students should be able
to:
1. discuss the components of supply chain management;
2. define and explain the importance of inventory management;
3. contrast manufacturing from assembly;
4. examine the interrelationships of the sequential processes of the
logistics circle ;
5. asses the different popular competitive strategies;
6. distinguish the mle of innovation as a competitive strategy; and
7. explain why companies opt to implement stability or
retrenchment strategies.
BUSINESS STRATEGIES

— encompass a wide range of approaches aimed at achieving specific

objectives. They typically include components such as market analysis,
competitive positioning, target audience identification, marketing tactics,
operational plans, financial considerations, and risk management.
 ✧ VALUE CHAIN ANALYSIS

— refers to a sequence of interlinked undertakings that an organization operation

in a specific industry engages in.
SUPPLY CHAIN MANAGEMENT

✧
✧ — is a broad continuum of specific activities employed by a
company.
✧ — refers to the planning, coordination, and control of the flow
of goods, services, information, and finances from the point of
origin to the point of consumption.
consists of the following:
• purchasing or supply management
which includes the sourcing, ordering
and inventory storing of 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.
•marketing and sales which includes
promoting and selling to customers.
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, identifying material
and service needs, locating and selecting
suppliers, negotiating and closing
contracts, acquiring the needed materials,
services, and equipment, monitoring
inventory stock keeping units and tracking
SOURCING AND ORDERING

— are essential components of supply chain

management that involve the procurement of goods and
services from suppliers to fulfill the needs of a business
or organization.
Following are the steps to take when an organization needs to source out
raw materials or parts:

1. Specify the need clearly by writing down the details.

2. Identify and be considered.
a. Use a Request for Quotation when the need is clear, the commodities are
in constant use, and quotations are easily obtainable.
b. Use a Request for Proposal when the buyer has complex requirements
and plans to use negotiation to determine price and terms.
c. Lastly, use a Request for Bid when the desire is a competitive bid
process.
3. Ask potential suppliers for their respective quotations,
proposals, and bids.

4. Compare and evaluate submitted documents, then

select the suppliers.

5. Prepare, place, follow up, and expedite the purchase

order (PO).

6. Confirm that the order placed has actually arrived in

good condition and at the quantity.

7. Lastly, Invoice clearing and payment foll

ows.
— In sourcing and ordering, value is generated when supplier relationships are
created and managed in delivering quality products, delivering on time, delivering
at competitive prices providing good service back up when needed, and keeping
promises.
INVENTORY MANAGEMENT

— is the process of overseeing and controlling the flow of goods or materials

within an organization's supply chain. It involves balancing the need to maintain
sufficient inventory levels to meet customer demand while minimizing the costs
associated with holding excess inventory.
✧ There are 4 broad categories of inventories;
✧
✧ 1. All unprocessed purchased input or raw for manufacturing.
✧ 2. Work in process (WIP)
✧ 3. Finished goods include all completed products for shipment.
✧ 4. Maintenance, Repair, and Operating supplies (MRO) include the materials
and supplies used when producing the products but are not parts of the
products.
INVENTORY MODELS

— is ordering the right quantity of SKU’s at minimum inventory costs.

INVENTORY COST

— is the sum total of ordering costs and carrying costs.

ORDERING COST ( SET UP COSTS )

— are variable costs associated with placing an order with the supplier like
managerial and clerical cost preparing the purchase.
CARRYING COST ( HOLDING COSTS )

— are costs incurred for holding inventory in storage like handling charges,
warehousing expenses, insurance, pilferage, shrinkage, taxes, and costs of
capital.
The inventory model answers two questions:

"how much to order?" and "when to order?" The question,

how much to order, is answered by determining the
ECONOMIC ORDER QUANTITY (EOQ) seeks to determine an
optimal order quantity where the sum of the annual order
costs and annual carrying costs is minimized. On the
other hand, the question, when to order, is answered by
computing for the REORDER POINT (RP).
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

commonly refers to industrial production where raw materials are converted into
finished goods.
ASSEMBLY

— is the process of putting together raw materials into a desired output.

Quality raw materiais 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 appealing product designs,
quality and reliability, efficient service performance, accessible location site attractive
store displays, affordable prices, and good customer service.
 The logistics circle

The logistics circle refers to the complete cycle of processes in managing the
flow of goods from the point of origin to the point of consumption. It includes:

1. Procurement: Sourcing and buying raw materials.

2. Production: Manufacturing or creating the products.
3. Inventory Management: Storing and tracking the products.
4. Warehousing: Keeping the products until they're needed.
5. Distribution: Getting the products to retailers or consumers.
6. Customer Service: Handling queries and complaints about the products.
7. Reverse Logistics: Managing returned products or recycling.

Each process is interconnected and essential for ensuring the efficient and
effective delivery of goods to the end consumer.
 Marking and sales

Marketing is the process of promoting and selling products or services. It

involves understanding customer needs, creating awareness about a
product or service, and attracting potential customers. Marketing strategies
can include advertising, social media promotion, email marketing, and market
research.
Sales, on the other hand, is the process of actually selling the product or
service to the customer. It involves direct interaction with potential customers
to persuade them to make a purchase. This can be done through various
methods such as face-to-face selling, telemarketing, or online selling.

In essence, marketing generates interest and leads for a product or service,

and sales converts these leads into purchases. Both are crucial for the
success of any business.
 Growth strategies
Growth strategies are plans that businesses develop to increase their market
share, sales, or number of customers. Here are some common types of growth
strategies:

1. Market Penetration: This involves increasing sales of existing products or

services in current markets. This can be achieved through aggressive marketing
tactics or competitive pricing.
2. Market Development: This strategy involves selling existing products or services
to new markets. This could mean expanding to new geographical areas or
targeting new customer segments.
3. Product Development: This involves developing and selling new products or
services to existing markets. This could be through innovation, upgrading existing
products, or expanding the product range.
4. Diversification: This involves introducing new products or services to new
markets. It's a riskier strategy as it involves stepping into an unfamiliar market with
a new product.
5. Acquisition: This involves buying another business to grow your own. This can
provide instant access to new markets and customers.
 Internal growth strategies

Internal growth strategies, also known as organic growth strategies, refer to the
methods a company uses to grow from within, using its own resources and capabilities.
Here are some common types of internal growth strategies:

1. Market Penetration: This involves increasing sales of existing products or services in

current markets. This can be achieved through aggressive marketing tactics, competitive
pricing, or improving product quality.
2. Product Development: This involves creating and introducing new products or services
to existing customers. This could be through innovation, upgrading existing products, or
expanding the product range.
3. Operational Efficiency: This involves improving the efficiency of operations to reduce
costs and increase profit margins. This could be achieved through process
improvements, adopting new technologies, or improving supply chain management.
4. Employee Development: This involves investing in employees to improve their skills and
productivity. This could be through training, career development programs, or improving
workplace culture.
5. Customer Retention: This involves strategies to keep existing customers and increase
their loyalty. This could involve improving customer service, creating loyalty programs, or
enhancing product quality.
 Competitive strategies
Competitive strategies are approaches that businesses use to gain a competitive advantage in
the marketplace and outperform their rivals. Here are some common types of competitive
strategies:

1. Cost Leadership: This strategy aims to become the lowest-cost producer in the industry. By
minimizing costs through efficient operations, economies of scale, or effective supply chain
management, a company can offer products or services at lower prices than competitors.
2. Differentiation: This strategy involves creating unique and distinctive products or services
that stand out from competitors. Differentiation can be achieved through product features,
quality, design, branding, or customer service, which allows a company to charge premium
prices.
3. Focus: This strategy focuses on serving a specific niche market or customer segment. By
tailoring products or services to the specific needs and preferences of a particular group, a
company can become a specialist and gain a competitive advantage in that market.
4. Innovation: This strategy involves continuous innovation and development of new products,
services, or processes. By staying ahead of the curve and offering innovative solutions, a
company can differentiate itself and attract customers.
5. Collaboration: This strategy involves forming strategic partnerships or alliances with other
companies to gain a competitive edge. Collaborations can provide access to new markets,
technologies, or resources that would be difficult to achieve alone.
 Low cost leadership strategy

Low-cost leadership strategy is a business approach where a company aims

to become the lowest-cost producer or provider of a product or service
within its industry. The goal is to offer products or services at lower prices
than competitors while maintaining acceptable levels of quality.

In a low-cost leadership strategy:

1. Cost Efficiency: The company focuses on achieving operational efficiency

and cost reduction throughout its value chain. This can be achieved through
streamlining processes, optimizing the supply chain, and controlling
expenses.
2. Economies of Scale: By producing goods or services in large volumes, the
company can take advantage of economies of scale. This means that as
production increases, the cost per unit decreases, allowing for lower prices
while maintaining profitability.
3. Cost Control: The company closely monitors and controls costs in all areas
of its operations. This includes areas such as procurement, production,
logistics, and overhead expenses.
4. Simplified Offerings: The company may offer a simplified range of products
or services to reduce complexity and costs associated with product variety.
This allows for standardized processes and lower production costs.
5. Price Leadership: The company sets prices lower than competitors to
attract price-sensitive customers. By offering the same or similar products at
a lower price, the company aims to gain market share and customer loyalty.
 Broad differentiation strategy

A broad differentiation strategy is a business approach where a company

aims to differentiate its products or services from competitors across a wide
market. The goal is to create a unique and appealing brand image that sets
the company apart and attracts a broad range of customers.

In a broad differentiation strategy:

1. Unique Features: The company focuses on developing and offering

products or services with unique features or attributes that make them stand
out from competitors. These features could include design, technology,
performance, or functionality.
2. Superior Quality: The company emphasizes delivering products or services
of exceptional quality. This can involve using high-quality materials,
implementing stringent quality control measures, and ensuring superior
craftsmanship.
3. Branding and Marketing: The company invests in building a strong brand
image and effectively communicates the unique value proposition of its
offerings. This includes branding, advertising, and marketing efforts that
highlight the distinctiveness and benefits of the products or services.
4. Customer Experience: The company prioritizes providing an exceptional
customer experience. This involves delivering excellent customer service,
personalized interactions, and going the extra mile to meet customer needs
and preferences.
5. Innovation and Continuous Improvement: The company focuses on
continuous innovation and improvement to stay ahead of competitors. This
can involve introducing new features, technologies, or product
enhancements to maintain differentiation.
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.
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.
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.
It sells limited editions of watches. One look and one can immediately say that
the persen is wearing a Rolex watch. Cost, design, quality, and branding are
district features of Rolex watches.
Other Competitive Strategies

Other competitive strategies include innovation strategy, operational

effectiveness strategy, economies of scale, and technology strategy.
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. Some 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.
Economies of Scale. When 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. As 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.
Enterprise resource planning facilitates processes to radical speed by
shortening completion time. Technology applications allow organizations to
perfect their products and services to a high degree of accuracy and quality,
thus, adding to marketability. A technological organization naturally creates a
monopolistic paradigm and as a result, allows the organization to dictate
prices in the business world. These are generally true for technology
start-up organizations to bring about significant improvements by
redesigning through research and development and re-engineering their
products and services.
Technology Strategy—The advantage of gearing toward technology cannot be
overemphasized . Technology can be applied system - wise through digital
integration As organizations realize the benefits of going digital . they
aggressively pursue this thrust .
Life Cycle Strategies—In the context of the horizontal boundaries of the firm , it i
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 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 .
The growth stage is the phose where the product / service gains acceptance
by the consumers . In this phase , sales and profit slowly increase and
emphasis is now on contin ucus market development and improvement .
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 .
The decline stage is the period where the product'service begins to reach or
is reaching its lowest point . Here , sales and profits decline and price
competition is intense . An organization can choose to keep the status quo ,
reduce prices to generate more sales , consolidate with other organizations ,
or simply exit the market .
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 .
For example , there are businesses that are successful monopolies in their
own right with no new entrants . They continue to enjoy their profits . On 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 , companles encounter serious
difficulties . When 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 :

[Link]— is the most radical action a company takes when the company
is losing money and thus , is further compounded by a disinterest on the
part of the stockholders to do anything more to save It . In such cases , the
business may be terminated and its assets sold .

[Link]—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 .

[Link] 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 .
Climate and Culture —The toughest and most challenging area for any
organization undergoing a turnaround strategy is the climate and culture .
Generally , a new chief executive officer comes in and takes over the critical
organization .
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 .
Production and Operations—In the implementation of turnaround strategies ,
this is the easiest phase to sort out and manage . The CEO 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 —When an organization needs a turnaround strategy , it is because
finances are waving a red flag " This may mean that the organization is losing
money or is marginally profitable , causing concerns to investors .
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