Name: RENANTE L. CONSOLACION Program: PhD DAEG CASE STUDY I. Title of the Case American Greetings: Through the Tides of a Volatile Market and Dynamic Environment II. Facts of the Case As part of an industry with generous profit margins and high barriers to entry, American Greetings had spent decades in a comfortable position. Beginning at the turn of the 20th century, it had helped to create a mass market for the greeting card and had presided over its growth into a multi-billion-dollar industry. Because the manufacturing of cards—especially those with special designs or attachments—could be complex, and because customers were used to choosing from a large selection of cards, it was difficult for new players to offer the big, established card companies any serious competition. By the end of the 20th century, American Greetings was the second-largest greeting card company in the world, after Hallmark, and had bought out several of its lesser competitors. It had expanded its expertise to become a major manufacturer of gift wrap, party goods, stationery, calendars, and other “social expression” products. And it had also been successful as the creator of licensed characters such as Holly Hobbie, Strawberry Shortcake, and Care Bears. But the core of its business remained the profitable greeting card. As senior vice president and executive supply chain officer Michael Goulder put it, “The average card has 25 to 40 cents of variable cost in it, we wholesale it for a buck or so, and the retailer sells it for $3.00. What a wonderful industry!” However, by the late 1990s, the business had become more challenging. Growth in greeting card sales stagnated, and existing customers began to turn to online cards. At the same time, the company began to experience pressure from retailers who wanted an increasingly larger share of the healthy margins. Greeting cards were still a wonderful industry, but there were worries about the future. As executives began to look for cost-cutting strategies, it was clear that the manufacturing process needed to be re-examined. In Goulder’s words, “because of the way the industry worked for a long time, we were late in focusing on the efficiency of operations.” But the question turned out to be complex, because American Greetings had incomplete data on its manufacturing costs and no data on outsourcing alternatives. Before it could decide on a plan for reducing costs, it had to more precisely measure the company’s current costs for machinery, production, labor, and transportation. Then the company had to decide on the most effective way to economize. Two main options rose to the top: improvements in process and technology, and outsourcing to China. A number of executives assumed that the answer lay in moving production overseas, but others argued that more savings could be obtained by improving existing facilities and upgrading legacy equipment. In March 2005, partisans of outsourcing and partisans of upgrading were both making their cases, as the company looked to determine the future of manufacturing. III. Problems of the Case Problem 1 By the late 1990s, the business had become more challenging. Growth in greeting card sales stagnated, and existing customers began to turn to online cards. At the same time, the company began to experience pressure from retailers who wanted an increasingly larger share of the healthy margins. Greeting cards were still a wonderful industry, but there were worries about the future. Problem 2 American Greetings had incomplete data on its manufacturing costs and no data on outsourcing alternatives. Before it could decide on a plan for reducing costs, it had to more precisely measure the company’s current costs for machinery, production, labor, and transportation. Problem 3 The company had to decide on the most effective way to economize. Two main options rose to the top: improvements in process and technology, and outsourcing to China. IV. Alternative Courses of Action For Problem 1, the following alternative courses of action are given: Alternative Course of Action 1: Scale down operations and production Since American Greetings has experienced stagnation in sales, the company should make appropriate changes in its cost structure. The company may reduce its operation and production commensurate to the market demand of paper printed greeting cards. Alternative Course of Action 2: Innovate market strategy A couple of businesses have based almost all their company model on ensuring that the service they offer to their clients is amongst one of the most innovative. Consumers buy the brand-new item instead of the old. Additionally, businesses are trying to concentrate on initiatives which best take advantage of the carrier's abilities and particular niche in the market, and creating brand-new techniques to track trends and create strategies for altering business directions if a specific effort isn't panning out as anticipated. American Greetings should identify new and existing markets, create innovative products efficiently, and research and test on the market demands rigorously. The advances of technology have changed the views and methods of social interaction. Instead of using physical greeting cards to express gratitude or emotions, people have begun utilizing the internet to send electronic cards. In this view, American Greetings need to re-engineer their operations to remain competitive. The company needs to transition and conceptualize business strategy on how to strengthen electronic cards as a viable option against printed paper cards. For Problem 2, the following alternative courses of action are given: Alternative Course of Action 1: Have a brainstorming session, do some financial analysis and make estimations of quantitative parameters. The executives of the company can review and extract its past financial statements and from these statements make intelligent estimations or assumptions of the manufacturing costs. Alternative Course of Action 2: Create a department or assign a team tasked to keep and update company’s financial records such as sales, orders, operational costs or expenditures, revenue, among others. Relevant data of the company regarding sales, orders, operational costs or expenditures, revenue, among others are very critical in decision making and strategy devising, thus, there is a need that a particular department or team should be taking charge in keeping and updating a record of these matters. Figures or data of the company are essential in making financial analysis as well as financial modelling. Results of which can help the company to determine the future course of action, boost the confidence of investors and creditors, and serve as basis for investment decisions. For Problem 3, the following alternative courses of action are given: Alternative Course of Action 1: Streamlining and automating domestic production The company could best maintain the quality and efficiency of operations by streamlining manufacturing in the United States and investing in upgraded equipment. Alternative Course of Action 2: Outsource card production Outsourcing is already a trend. The company can look for a site country or state, which in this case is China, that will bring the advantages of cheaper labor and higher productivity. The greatest advantage to outsourcing will be the expected reduction in labor costs. V. Conclusions In the face of a highly volatile market, technological advancement, and changing demands of the customers, American Greetings is confronted with problems demanding urgent decisions. The questions of what stays, what goes, and how to improve what stays are really needed to be examined in order for the company to remain on top of the situation. There is a great challenge to analyze the problems correctly so that the company would neither leave potential savings on the table nor jeopardize service levels with an unreliable supply chain. So, for the case under study the following conclusions are hereby drawn: Conclusion 1: On scaling down operations and production Recession is a normal, albeit unpleasant, part of the business cycle (Investopedia, 2021). As economy experiences recession characterized by cascading declines in output, employment, income, and sales that feed back into a further drop in output, spreading rapidly from industry to industry and region to region, any business can also face at some point decline or shrinkage. In times when demand for the product declines, and the trend goes on for some time, the company should scale down its operation and production. Balancing capacity and the projected demand is needed. If the company set capacity too low and so produce less than it should, the company won’t be able to meet demand, and it will eventually lose sales and customers. If the company set capacity too high and turn out more cards than it should produce, it will just waste resources and inflate its operating costs. Conclusion 2: On innovating market strategy As a general rule, demand is a function of consumer preferences and behavior, the market environment, internal factors more or less under the control of the project, that is, the marketing approach, and other factors such as product life cycle. Demand decreases as a result of product obsolescence, or new technology offers a worthy substitute (such as optical fibers vs. copper wire). Some producers are forced out of the business as profitability shrinks (Kurowski and Sussman 2011). Greeting card market continuously contracts as the demand for it declines. Substitution of greeting cards of other forms of social expression products, the ease of using alternative forms as smart phones, electronic social networking and digital imaging, as well as rapid expansion of social media networks are some of the reasons that drive market contraction. American Greetings should respond to these challenges by using technology to innovate. They can make an extensive collection of electronic cards that will make it easy for customers to send cards electronically. They can also use online shopping platforms or maintain a website that will allow customers to order paper greeting cards via internet and have the cards delivered directly to the recipients. The role of innovation in marketing is to explore new markets to increase sales and profitability. Innovation marketing believes in the dynamics of business world that are changing on regular basis and so as the marketing strategies as well. Marketers know that conventional marketing techniques are not effective anymore and the businesses are surrounding by advanced technology. Innovative strategies in marketing allow marketers to trace the performance alter the strategies to better cater the customers’ needs (marketing tutor.net). Conclusion 3: On having a brainstorming session, doing some financial analysis and making estimations of quantitative parameters Information is gathered not only about markets per se, but the entire spectrum of factors on which they are dependent: within the enterprise and the commercial and wider domains. One of the first tasks is to decide what information is available and what is needed to fill the gaps. Some primary data can be obtained by informal means from individuals and groups involved in production, consumption, or distribution of the product (Kurowski and Sussman, 2011). In the absence of primary data, discussions with knowledgeable persons on production aspects would be the best move to have some estimations of quantitative parameters. Financial analysis is of extreme importance, but data should be supplied or made available first. Through analysis, the executives can accurately evaluate the stability, profitability and liquidity of the company. Conclusion 4: On creating a department or assigning a team tasked to keep and update company’s financial records such as sales, orders, operational costs or expenditures, revenue, among others According to Kastelle (2012) “If you are willing to do the hard thinking required to practice evidence-based management, if you want to reap its benefits, you need to recognize your blind spots, biases, and your company’s problems and take responsibility for finding and following the best data and logic.” This implies the importance of keeping records. An organization’s records are used to budget and forecast the future and are checked by banks, tax officials and external auditors to make sure that everything balances out. Businesses operating in a fast-paced and dynamic environment, the task of keeping records can fall secondary to everyday business operations. However, failing to efficiently keep up-to-date and comprehensive records can hurt your business’s long term operations. Probably the most important reason behind sound record-keeping is that it allows the company to learn and grow from its own business experiences. Keeping the records in check will help the management understand the current situations of the business and also project future profit or losses. In addition, good record keeping will also show them business aspects which need improvement or re-invention. Conclusion 5: On streamlining and automating production Investing in technology as automating manufacturing or production aspect of the business or any aspect of the business operations that can be automated is a good business decision. A computer-aided manufacturing (CAM) software system determines the steps needed to produce the component and instructs the machines that do the work. Because CAD and CAM programs can “talk” with each other, companies can build components that satisfy exactly the requirements set by the computer-generated model. CAD/CAM systems permit companies to design and manufacture goods faster, more efficiently, and at a lower cost, and they’re also effective in helping firms monitor and improve quality (Skripak, 2018). By automating and integrating all aspects of a company’s operations, computerintegrated manufacturing (CIM) systems have taken the integration of computer-aided design and manufacturing to a higher level—and are in fact revolutionizing the production process. CIM systems expand the capabilities of CAD/CAM. In addition to design and production applications, they handle such functions as order entry, inventory control, warehousing, and shipping. In the manufacturing plant, the CIM system controls the functions of industrial robots—computer-controlled machines used to perform repetitive tasks that are also hard or dangerous for human workers to perform. Conclusion 6: On outsourcing production According to Skripak (2018) outsourcing has become an increasingly popular option among manufacturers. For one thing, few companies have either the expertise or the inclination to produce everything needed to make a product. But this option carries some advantages as well as disadvantages and American Greetings needs to be prepared for the full range of risks and benefits of outsourcing. In this case, although labor costs will be of much cheaper in China, some problems with transportation, lead times, and training might occur if production will be sent to this distant country. The logistical costs of outsourcing manufacturing in China will be significant. To ship the products halfway around the world will be more expensive than to truck it from the country directly to the company’s distribution center. With manufacturing located in the country, maximum flexibility could be given to the company’s planners and designers. It will be relatively easy to send last-minute changes to the plant or to add rush jobs for important customers. The increased transportation times that may come with outsourcing, the responsiveness to these last-minute changes might be degraded. It would be essential to do some short-term production close to home, otherwise if production is outsourced the company will pay high costs for airfreight for the inevitable rush jobs. Another challenge that has to be considered is the difficulty of training a foreign manufacturer. To potential vendors in China, mass production of greeting cards will be new. A parallel problem is that a foreign vendor who did not understand card production would also not know how to estimate costs, another things for consideration when outsourcing the production to China are the political climate in the country as well the stability of its currency. VI. Recommendations An integral part of Total Quality Management (TQM) is continuous improvement: the commitment to making constant improvements in the design, production, and delivery of goods and services. Improvements can almost always be made to increase efficiency, reduce costs, and improve customer service and satisfaction. Everyone in the organization is constantly on the lookout for ways to do things better (Skripak, 2018). In light of the formulated alternative courses of action and drawn conclusions above and in consideration of continuous improvement, the following recommendations for each problem put in lens in this case of greeting card company American Greetings are hereby made: For Problem 1 American Greetings should innovate its market strategy. For Problem 2 Adopting the first alternative course of action then learning from the lapse of not keeping or recording data, the management of the company should also take the second alternative course of action, that is, assign an able team for record keeping tasks. For Problem 3 The company should streamline and automate its domestic production. Outsourcing to China is not a viable option since the losses would outweigh the gains. References: Innovative Marketing – Strategies & Examples Retrieved from Retrieved from https://www.marketingtutor.net/innovative-marketing/ Investepodia. 2021. What is a Recession? https://www.investopedia.com/terms/r/recession.asp#:~:text=Recession%20is% 20a%20normal%2C%20albeit,in%20production%2C%20and%20elevated%20une mployment. Kastelle, Tim (2012). The Case for Evidence-Based Management retrieved from https://timkastelle.org/blog/2012/02/the-case-for-evidence-basedmanagement/ Kurowski, Lech & Sussman, David (2011). Investment Project Design: A Guide to Financial and Economic Analysis with Constraints Retrieved from https://onlinelibrary.wiley.com/doi/pdf/10.1002/9781118267103.oth5 Nagy, Andrea R., Lee Gene, and Swersey, Arthur. American Greetings. Yale SOM Case 08010, February 21, 2008. Skripak, Stephen J. (2018). Fundamentals of Business, 2nd Edition, Blacksburg, VA: VT Publishing. http://hdl.handle.net/10919/84848. Licensed with CC BY-NC-SA 4.0 https://creativecommons.org/licenses/by-nc-sa/4.0.
