Operations Management Lecturer: Dr.

Noel Jones

Name: Nguyen Trong Dat Class: E-BBA

PERSONAL LEARNING PAPER I. Cost Leadership & Differentiation strategies

A/ My perspective on the issue As far as Im concerned, cost leadership and differentiation are the most popular strategies applied in business battlefield. Each has its own pros & cons, aims and sticks firmly to companies different long-term goals. And here are my brief comparison tables between them : Cost leadership Staples Provide customers with standardized products at the lowest prices Differentiation Provide customers with products having unique features, characteristics Charge customers higher prices owing to products unequalled features to compensate for the cost of product innovation

Reduce the cost of production (substitute materials, efficient-scale facilities, new production Implementation technology...) to make up for the competitive price they charge customers Customers aimed at _Have no need for uniqueness or have weak purchasing power _Seek for standardized products with a low price. _ Competitors imitation of low pricing _Technological innovations of competitors (the same product lower price or vice versa) _Challenge of adding more value for products due to exponentially increasing demands of customers

_Have aspiration for uniqueness _Willing to pay for their desire

Risks and challenges

_ Imitators providing the same product with lower price _ Counterfeiting _Negative changes in customer's perception of the value of the company's differentiation (challenge of building prestige) _ Challenge of adding more value for products due to exponentially increasing demands of customers

Figure 1. Brief comparison between cost leadership and differentiation strategies

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Posters five forces of competition model Rivalry against existing competitors

Cost leadership Once a company holds the lowest cost position in the market, its competitors will hesitate to compete in terms of price Lowest cost position can help a company eliminate the bargaining power of customers customers stop bargaining if theres no elsewhere to find a lower price A low-cost leader dominating market share can compel powerful suppliers to reduce price or, at least, curb the level of price increases set by suppliers. To compete and break the cost barrier which is set by low-cost leader, new entrants must enter the industry at a large scale and accept low profits in the long term until balance and move on efficiently A company following cost leadership strategy provides customers price value and retains its customers by keep providing good prices to deal with substitute products issue

Differentiation Once a products meaningful uniqueness makes purchasers highly satisfied, it may build up loyalty in them Loyalty also means customers keep sticking to a product without caring too much about its price On grounds of products uniqueness, differentiation strategy followers can increase their prices to make up for the costs charged by suppliers To enter the market, new entrants must be able to provide a product whose features are more attractive or better than existing products' or a better product with a lower price. Without loyalty , customers may change to other products or substitutes which are satisfying to them (better features , better price)

Bargaining power of buyers

Bargaining power of suppliers

Threats of new entrants

Threats of substitute products (*)

Figure 2. Cost Leadership and Differentiation in relationship to Posters five forces

(*) I still remember when you, Dr. Jones, mentioned substitute products, you gave us an example of different types of cell phone. Your point was that a substitute product of a cell phone is another one with different, better features or a better price (like a Nokia cell phone and an Iphone4). From my point of view, a substitute product is a product which is not the same type as the substituted product. I mean, an Iphone4 a cell phone is not the substitute product of a Nokia cell phone. The substitute product of a Nokia cell phone should be an Ipad which is merely not a cell phone (a tablet computer) but it can be brought along and can be used to make a phone call like a cell phone. The substitute product of a motorbike is an e-bike, not another motorbike of a different brand, having different features. I am wondering whether my perspective on this is accurate or not. I hope you can help me to have precise understanding.

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B/ Some examples related to the issue Examples of organizations / companies using Cost Leadership strategy Type of business How they carry out the strategy _ Divide labor force efficiently for its production processes _ Apply tight management control and product development strategy effectively _ Have a strong top-down style of management _ Use fewer in-store managers allows the company to hire lowerwage workers _ Purchase the land and building for its restaurants chain with a good price Enable McDonalds to offer customers the most reasonable prices everyday _ Obtain merchandise in bulk for cheaper prices _ Develop close relationships with suppliers and vendors to secure goods with the cheapest possible price Discount department _Develop its own distribution network to cut out the cost of stores and traditional shipping methods or external supply chains warehouse Enable Wal-Mart to implement the every day low prices stores (EDLP) strategy offer customers products with the lowest prices day in , day out

Name of the company / organization

McDonalds Fast food

Wal-Mart

Examples of organizations / companies using Differentiation strategy Type of business How they carry out the strategy _ Create its own hardware (Macintosh) and software whose features are nowhere to be found and bring customers new experience of using PC. _ Have a very strong public association with high quality and unique product design, even its showrooms. _ Apple's cheapest computers and electronics are consistently in the midrange, so its computers can satisfy customers status need. _Innovate new products year in, year out , which makes the companys customers never feel enough Enable Apple to charge higher while nurturing customers loyalty so well

Name of the company / organization

Apple Inc.

Consumer electronics, computer software, and personal computers

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II.

Just-in-Time (JIT)

A/ My perspective on the issue Just-in-Time (JIT) is a Japanese management philosophy which concentrates on low-cost high quality product, on-time production and waste elimination (including time and resources) in production process by producing the right product to meet the right demand + In the correct quantity Demand pulls production (1) Minimize inventory and save costs (*) + At the correct time Workers and managers must work where required at any given time and try to diminish any holds-up (Lateness of suppliers, product errors) (2) All processes should be kept running continuously to avoid idle time (3) (1) + (2) + (3) Save time (**) (*) + (**) A drive for continuous improvement B/ Relationship to Total Quality Management (TQM) _ According to the overarching principles of JIT, when inventory is kept to a minimum degree, a company can save costs (*), therein lies lower cost of TQM . In other words, JIT cuts the cost of quality. _ Not only does JIT save cost (*), but it also saves time (**) and to do so, (1) , (2) and (3) must be implemented meticulously, especially (2). Therefore, it is possible to deduce that JIT improves quality. _Better quality means less inventory and a better, easier-to-employ JIT system

Ford once applied JIT successfully for Ford KA production

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