BA 23 Handouts for Chapters 4 & 5
Strategy Formulation
IV. Business Strategies
o Value Chain Analysis
-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 reach its eventual end users or consumers.
o Supply Chain Management
-broad continuum of specific activities employed by a company
Supply Management
-purchasing/procurement
-identifying material & service needs
-locating and selecting suppliers/negotiating and closing contracts
-acquiring the needed materials, services, equipment
-monitoring inventory Stock Keeping Units (SKU)
-tracking supplier performance
-managing supplier relationships, identifying strategic sources, accurately forecasting demand
requirements, understanding inventory management
GOAL: to obtain the right materials by 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.
1.) Sourcing and Ordering
-SKU: date, identification number, originating department, account to be charged, complete
description of the raw material
-identify and analyze sources of supply (request of quotation, request of proposal and request
for bid)
-compare and evaluate from potential suppliers; terms of contract
-PO purchase order
-confirm the order
-invoice clearing and payment follows
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.
2.) Inventory Management
- ordering the right quantity of SKU’s at minimum inventory costs
-to buffer uncertainty
• unprocessed purchased input
• WIP (Work-in-process)
• Finished goods (completed products from shipment)
• Maintenance, repair, and operating supplies (MRO)- materials used when producing the
products but are not parts of the product
Formula: Ordering costs + Carrying costs = Inventory costs
Ø Ordering Costs: “set-up costs” variable costs associated with placing an order with the
supplier like managerial and clerical costs in preparing the purchase
Ø Carrying Costs: “holding costs” costs incurred for holding inventory in storage like
handling charges, warehousing expenses, insurance, pilferage, shrinkage, taxes and costs
of capital.
“how much to order?” and “when to order?”
Production and Operations
1.) Manufacturing
-process of producing goods using people or machine resources, “industrial production”
2.) Assembly
-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.
Logistics (Logistics Circle)
1.) Warehousing -physically packing finished goods
2.) Scheduling -organizing inventory units and booking them for shipping
3.) Dispatching -products are for transfer
4.) Transportation -goal is to minimize transportation costs (location site, ease, or gravity of
traffic, safety and labor requirements)
5.) Delivery- specified site is undertaken, closed the entire logistics circle
Marketing and Sales
-offer competitive pricing, special offers, quantity discounts, and volume sales
-advertisements (newspaper, magazines, radio, billboard, TV, social media, etc.)
-developing salespeople through result-oriented sales trainings, giving competitive salaries
Growth Strategies
-to achieve its main objectives of increasing in volume and turnover
*Accounting: number of times an asset (cash, inventory, raw materials) is replaced/ revolves
during an accounting period
-Internal and Integrative Growth Strategies
Internal Growth Strategies
Ø Market penetration
- selling more of its products/services to its current customers/buyers; least
risky
Ø Market Development
- sell more of its current products by seeking and tapping new markets. (Pastel
to Visayas and Luzon)
Ø Product Development
- sells new product to an existing market. (Downy with perfume scent)
Ø Diversification
- creating differentiated products for new customers (new products for new
customers)
Competitive Strategies
- essentially long-term action plans prepared with the end goal of directing how an
organization will survive and compete.
-formulated to help them gain competitive advantage after evaluating and comparing
their strengths and weaknesses against their competitors.
Competitive Strategies (Porter 2008)
Competitive
Strategies
Cost Leadership
Differentiation
Cost
Leadership
Low-cost
leadership
strategy
Best-cost
provider
strategy
Differentiation
Market Niche
Best-cost provider
strategy
Focused Lower Cost
Strategy
Broad
differentiation
strategy
Focused
Differentiation
Strategy
1.) Low-cost Leadership Strategy
- offer products and services at the lowest cost possible in the industry (Piso fare)
2.) Broad Differentiated Strategy
- provide variety of products, services or product/service features that competitors do
not or are not able to offer to consumers. (Sierra del Oro, Paragliding)
3.) Best-cost Provider Strategy
- combination of the low-cost leadership and broad differentiated strategies. Goal:
keeping its customer (Aizylim, ukay-ukay, Kaking, etc.)
4.) Focused Lower Cost Strategy
- concentrates on a limited market segment and creates a market niche based on lower
costs (purchase stocks in bulk, avail in discounts, and therefore sell at low prices: plastic
cellophane business)
5.) Focused Differentiated Cost Strategy
- concentrates on a limited market segment and creates a market niche based on
differentiated features like design, utility, and practicality. (Rolex. Usually applies to
branded)
Other Competitive Strategies
1.) Innovation Strategy
-difficult to implement, new and original
2.) Operational Effectiveness Strategy
-avoid financial leaks and inefficiencies, harnessing better facility and equipment
maintenance, increasing work force productivity
3.) Economies of Scale
- lowers costs because of volume. (more product is produced, the lower the costs of
producing the product)
4.) Technology Strategy
- going digital (accounting, marketing and purchasing etc.)
Enterprise Resource Planning- facilitates processes to radical speed by shortening completion
time.
Life Cycle Strategies
-lifespan that a commodity/service undergoes from its introduction stage to its growth,
maturity, and decline stages.
Ø Introduction stage: launching the product/service for acceptance (promotion, giving
discounts, market development)
Ø Growth stage: gains acceptance by the consumers, sales slowly increase (continuous
market development and improvement, branding, building customer loyalty, promoting
repeat business through customer patronage)
Ø Maturity Stage: established products tends to be steady (start reinventing, formulation
of marketing strategies)
Ø Decline stage: reach its lowest point, sales and profits decline (aggressive marketing or
simply exit the market)
Stability Strategies
- Decide to keep the status quo
- -not adopting any growth or competitive strategy
- Comfortable with their current market niche
Retrenchment Strategies- encounters serious difficulties
1.) Liquidation-losing, business may be terminated and its assets may be sold
2.) Divestment-when the company does not fit well in the organization, stockholders would sell
it or set it as a separate corporation
3.) Turnaround Strategy
-climate and culture
-infrastructure
-products and services
-finance
-production and operations
V. Corporate Strategies
Integrative Growth Strategies
-external growth strategies, involve investing the resources of the organization in
another company or business to achieve growth goals.
-Acquisition Strategies
1.) Horizontal Integration
- acquires another competing business
-eliminate potential/real competitors- deadly threats to an organization
-expand its market demographically
-help increase its revenues
2.) Vertical Integration
-Backward and Forward Integration
-consolidation into an organization other companies involved in all aspects of a
product’s process from raw materials to distribution.
• Backward Integration: buys one of its suppliers (more reliable and cost effective
supply of input, secures quality output, help increase profitability)
• Forward Integration: buys distributors or companies that are part of its
distribution chain. (eliminating distribution costs, reinvent its marketing outlook)
Global Strategies
1.) International Strategies- sells their excess products outside their home markets
2.) Multinational Strategies- involved in a number of markets outside the home country
3.) Global Strategies- treats or considers the world as a whole, one market and one source of
supply with slight local variations
•
•
Market share: relative sales percentage of a company in relation to the total sales
percentage of the market in consideration.
-How the company stands with respect to the market and its competitors
Market growth: refers to an increase in demand over time.
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Reference: Young, Felina C. (2015). Strategic Management Made Simple. Philippines: Rex Book Store, Inc.
Prepared by: Toni Rose T. Tahil, RN, CFMP, MBA