A Framework for Structuring Drivers - Essay Example

A Framework for Structuring Drivers (Power Integrations, Inc) Executive Summary In order to survive in modern commercial markets, firms need to develop a powerful supply chain that will effectively respond to the needs of the firm and its clients. Particularly with a reference to the business strategy, it has to be noticed that supply chain management is a fundamental part of the corporate activities having a significant influence on the design of the corporate plan. From the aspect of its position in the firm’s priorities, supply chain management is considered to follow the new product strategy and the marketing strategy. This ‘chain’ can be explained as follows: ‘Products reach customers through a chain of retailers, distributors, wholesalers, manufacturers, and component suppliers; supply chain management is intended to accelerate the flow of goods, information, and capital in both directions, along the chains entire length, and to help companies monitor that flow’ (Agrawal et al., 2001, 22). The role of supply chain management to the development of business performance should be therefore considered as significant. In current paper the above role of supply chain management will be examined with reference to a particular company, Power Integrations, Inc., a leading supplier of high-voltage analog integrated circuits used in power conversion. The specific issue under examination is whether the company would possibly need to improve its strategic drivers in order to develop its performance. Introduction The role of supply chain management in the business performance is crucial. For this reason, Krishnan et al. (2001, 259 supported that ‘supply chain management has become an important part of strategic planning in both large and small businesses since the 1990s as firms increasingly choose outsourcing as an externally-driven strategic growth path’. In order to identify and evaluate the role of supply chain management within a particular business environment it is necessary to examine primarily the whole firm’s operational activities trying to locate any possible barriers that can cause delay on the firm’s development. In this context, Baker et al. (2005, 43) found that ‘the term "operations" has evolved to denote all activities involved in bringing products and services to customers, and businesses have been applying the techniques of operations management to the entire spectrum of business operations; Enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM) all provide an opportunity to enhance existing processes and serve as a catalyst for operational innovation’. In other words, supply chain management is considered to be a tool of major importance for the enhancement of the firm’s processes in all its sectors. However, in order for supply chain management to develop the corporate activities, it has to be based on a detailed plan, which can be differentiated for each firm in accordance with the demands of the market involved and the firm’s strengths and weaknesses. Towards this direction, Ciscel et al. (2005, 429) claimed that ‘‘several variables play parts in the transition from a manufacturing-based production system to that of a flexible, logistics-based system while the changes in the system of production can be traced to globalism, outsourcing, and retailing power’. In this context, it is often necessary for a firm to apply ‘a new type of supply chain management, where the firm views the supply channel as a whole system instead of concentrating of each part of the process; the company focuses on all efforts, from the procurement of raw materials to the distribution of the finished product, and how each effort relates to the others; this allows more communication to exist within the pipe and problems to be more easily identified’ (Ciscel et al., 2005, 429). In accordance with the above views, the major tools of supply chain management are the following: making and keeping relationships, implementing new technology in the supply channel, the use of forecasting to increase supply chain effectiveness, outsourcing to increase efficiency, and cost management as a strategic weapon’ (Cook et al., 2001, 14). However, in order for the above tools to lead to the desired target, it is necessary that specific ‘sectors’ of the firm will be analyzed and evaluated as of their performance. These sectors are mainly the following ones: facilities, transportation, inventory and information. The performance of the above sectors will be examined in accordance with their role within the particular firm and mainly the support offered towards their development. Body of Report I. Power Integrations Inc. – Company overview Power Integration Inc. founded in 1988. The company is a leader in its sector. More specifically, the company is a supplier of ‘high – voltage analog integrated circuits (ICs) used in power conversion’ [1]. The particular firm is differentiated from the others operating in the same sector, in terms that it uses technology and methods of products which are unique comparing the other companies in this industry. Actually, in accordance with the corporate website the company is the only one in its market focusing “exclusively on monolithic high – voltage power conversions ICs” [1]. The company has been a unique innovator in its market, with more than 150 U.S. patents and 82 foreign patents. The markets ‘targeted’ by the company are in accordance with its latest annual report (latest published this of 2005) the following ones: a) the communications market, b) the consumer market, c) the computer market and d) the industrial electronics market. In order to satisfy the demands of the above markets, the company has created an extensive network of sales offices both in USA and internationally. Indicatively, the firm currently operates in USA (offices in California, Georgia and Illinois), in England, France, Germany, Italy, India, China, Japan, Korea, Singapore and Taiwan. Innovation is one of the leading business aims, and is achieved through the continuous production of unique electrical equipment of all types (from lightweight power supplies to cell phone chargers and home appliances) [1]. It has to be noticed that one of the most significant achievements of the company is the development of EcoSmart, “an energy-efficiency technology, which dramatically reduces energy waste, has saved consumers and businesses around the world more than an estimated $1.2 billion on their electricity bills since its introduction in 1998” [1]. The performance of the company in 2006 has been impressive. More specifically, in accordance with the results of the fourth quarter of 2006 ‘preliminary net revenue for the fourth quarter was, $41.3 million, an increase of 9 percent from the year-ago quarter and a decline of 7 percent from the third quarter of 2006; preliminary full-year net revenue for 2006 totalled $162.4 million, an increase of 13 percent compared to 2005; cash and investments totalled $132.7 million as of December 31, 2006, an increase of $4 million during the quarter [1]. In accordance with the above results, the company’s performance has been increased comparing to 2005. Moreover, it seems that the company has a stable and continuous growth (see Figure 2 in the Appendix section), which has been achieved through the introduction and application of an advanced corporate strategy that promotes innovation and appropriate evaluation of market’s opportunities. II. Strategic drivers of supply chain management ► Facilities As already stated above, the company operates in many markets developing its presence around the world. Moreover, in order for the time requested to reach the consumer to be reduced, the firm uses a global network of direct sales staff and independent sales representatives who – in their turn – have the responsibility for the delivery of the firm’s products to original equipment manufacturers and merchant power supply manufacturers. Through this network of sales offices around the world, the company can reduce the time needed for the delivery of the product to the customer. Consumers can be informed on the firm’s offices around the world through its website and they can choose their closest location. On the other hand, the placement of an order online is also offered to the consumer as an alternative choice. Apart from that, the company offers to the consumers (individuals or firms) an extended technical support and the chance to the have a direct contact with the firm’s technicians in case that a problem appears related with the use of the firm’s products. Moreover, the provision of automated design tools and reference designs helps to reduce [1] ‘the time to market and the product development risk’. ► Transportation The firm’s products have to be primarily distributed in its worldwide representatives and through them directly to the consumers or the firms interested in the company’s products. A major advantage of the technology used by the company is the fact that through this technology the company can provide products with up to 70% fewer components than the similar products in the market. This fact, can lead to the limitation of the cost related with transportation, the risk involved and the time required for the product to reach the consumer. The speed of transportation under these conditions should be regarded as quite satisfactory. Moreover, because the firm’s products are available through its sales representatives worldwide (there are local offices where the storage of products is feasible), the time needed for the delivery of the products to the consumer is minimized. ► Inventory The firm’s inventory management should be characterized as quite successful. More specifically, the company uses a series of Product Selector online Guides that inform the customers on the products of the firm at a primary level, while their availability can be checked through the Service named ‘Distributor Stock Check’ through which every customer can check the availability of each product in the nearest firm’s distributor. It should be noticed however that the order of the firm’s products is not feasible. Interested customers can just place an order for samples of the firm’s products in accordance with their needs (through the service Sample Express Service). ► Information The company provides to its customers all necessary information regarding the structure and the operation of its products through a series of lists available both online and locally (in its offices worldwide). All the firm’s products are presented in details primarily in the firm’s website where extensive details on operational advantages and potential risks are also given. Generally, it should be noticed that the provision of information from the company to its customers is made in accordance with specific ethical rules in order to avoid possible misleading of the consumers. For this reason, in a relevant statement of the firm it is highlighted that the company avoids to present to its shareholders forecasts related with its future performance mainly because to the ‘changes and shifts in customer demand away from products that utilize the companys integrated circuits to products that do not incorporate the companys products; the companys ability to maintain and establish strategic relationships; the effects of competition; the risks inherent in the development and delivery of complex technologies; the companys ability to attract, retain and motivate qualified personnel; cost and market demand; and the companys limited financial resources’ [1]. III. Proposals for development of current strategic drivers ► Facilities Actually, current structure of the firm’s facilities management can be considered as quite satisfactory. The company keeps on trying to develop its communication with the consumers improving the facilities available for the delivery of its products to the interested customers. In November of 2006 the company [1] ‘launched a new version of its popular PI Expert power supply design software - plus a new online Rapid Transformer Sample Service (RTSS) for transformer prototyping supporting the firm’s latest TinySwitch®-III, PeakSwitch™ and LinkSwitch®-LP products’. The above product can ‘eliminate one of the most error-prone and time-consuming tasks of power supply design and speed the customers time to market substantially’ On the other hand, the support offered by the firm’s engineers can be considered as valuable towards the resolution of any problem related with the operation and the performance of the firm’s products. ► Transportation As already mentioned above, the firm has created an extended net of offices around the world for the promotion of its products in the local markets. As for the transportation of its products to these offices, there are no specific descriptions available. Only the general scheme of transportation is provided (from the area of production to offices internationally). In this case, a more detailed description of the transportation of the firm’s products would be required particularly regarding the number of days required for the product to ‘reach’ the customer and the protection provided for the ‘transferred’ products (possible reference to insurance schemes or identification of the ‘holder’ of risk throughout the delivery process. Even if this transportation would occur from local offices to the customers directly, a reference to the procedure followed (placement of order, payment, delivery of product, days required, product’s quality/ standards applied, risk of damage and so on) would be valuable for the potential customers. ► Inventory The creation of an extended inventory could possibly hide certain risks for the specific company. More specifically, because technology is constantly changing and because the needs of the market are also differentiated, there is the risk for the company’s products to remain ‘unsold’ if not produced in accordance with the rates of sales and the preferences of the customers. As for the methods used for the promotion of the firm’s products to the customers, these can be characterized as satisfactory. The ‘Electronic Book’, the Product Selector Guide and the Data Sheets are just part of the firm’s ‘tools’ for the presentation of its products to potential customers. However, the credibility of stock availability should be examined again in terms of the effectiveness of the relevant ‘tool’ (stock availability online option). ► Information The provision of information on the firm’s products is made primarily through the Internet. In this context, it could be primarily assumed that because the particular sector involves on products of technology the potential customers would all use Internet as their main tool for market research on specific products. However, the creation of direct links with the firm’s distributors internationally could be more helpful for the customers need to be informed on the availability of specific products and the possible methods of shipping to the destination place. More specifically, although detailed information is provided on the products’ particular technical characteristics, there is no information provided on the methods of payment or transportation of the products. Perhaps because it is assumed that this is an issue that should be arranged with the firm’s local representatives. However, even a general aspect on the prices and the time of delivery required could be really valuable for potential customers. Conclusion and Recommendations The development of a firm’s structuring drivers can lead to the enhancement of its performance usually on a long-term basis. However, because of the complexity involved in the relevant procedure, the above task can be really challenging. More specifically, because the business policies related with the firm’s daily operational activities are set in the beginning of the corporate life, it is rather difficult to be replaced – at least this procedure should be consuming as time consuming. However, in most cases this effort is worth because it can lead to the development of the firm’s performance at a significant level. In order for this initiative to have more chances to success it is necessary that a specific procedure will be followed. In this context, it has been stated by Agrawal et al. (2001, 23) that ‘companies should decide which elements of the chain could produce the greatest efficiencies and then choose the exchange most likely to promote them. Identifying ways to capture true supply chain benefits from exchanges thus comes down to basic supply chain management; companies shouldnt let the hype and excitement of the exchange phenomenon make them neglect their off-line supply chain operations--from demand-planning algorithms to logistics management’. An indicative example of the above procedure is the case of GE Aircraft Engines. The above organization was focused on (Baker et al., 2005, 44) ‘the increase of throughput and productivity by decreasing inputs to the system’. In this case the target required has been achieved through the application of the following process: 1. Layout analysis; Routing analysis 2. Bottleneck identification 1. Bottleneck management and 2. Work-in-process (WIP) management’ (Baker et al., 2005, 44) In case under examination (Power Integrations Inc.), the development of the firm’s structuring drivers should also follow a specific route: 1. Identification of current status of firm’s structuring drivers – checking for possible barriers on the performance of the above drivers 2. Development of a feasible plan for the development of the above drivers 3. Application of the relevant plan using firm’s existing resources in order to reduce the relevant cost and 4. Close monitoring of the plan’s effectiveness – comparison between current and previous business performance The application of the above steps cannot guarantee the increase of the firm’s performance because there are many issues that can intervene in the relevant procedure for which there can be no specific provision (i.e. appropriateness of existing employees for the application and the development of the specific plan, unexpected expenses, turbulences of the market and so on). However, the existence and the application of a well designed plan (see Figure 2) can ensure the enhancement of the business ability to react appropriately in the challenges of the market and to identify the opportunities offered. In other words, even if the particular plan will not manage to improve the status of firm’s structuring drivers, at least it will help towards the improvement of the firm’s performance from a long-term perspective. Works Cited Agrawal, M., Pak, M., (2001). Getting Smart about Supply Chain Management. The McKinsey Quarterly, 22-24 Baker, G., Maddux, H. (2005). Enhancing Organizational Performance: Facilitating the Critical Transition to a Process View of Management. SAM Advanced Management Journal, 70(4): 43-47 Ciscel, D. H., Smith, B. E. (2005). The Impact of Supply Chain Management on Labour Standards: The Transition to Incessant Work. Journal of Economic Issues, 39(2): 429-437 Cook, J. S., Debree, K., Feroleto, A. (2001). From Raw Materials to Customers: Supply Chain Management in the Service Industry. SAM Advanced Management Journal, 66(4): 14-23 Krishnan, H., Park, D. (2001). Supplier Selection Practices among Small Firms in the United States: Testing Three Models. Journal of Small Business Management, 39(3): 259-269 www.powerint.com [1] Power Integrations Inc., Corporate brochure http://www.powerint.com/PDFFiles/CorporateBrochure.pdf [2] Appendix Figure 1 – Power Integrations Inc. – Annual Revenues (Source: firm’s website, http://powerint.investorpass.com/Profiles/Investor/Investor.asp?BzID=1306&from=du&ID=30541&myID=4141&L=I&Validate=3&I=) Figure 2 - Power Integrations Inc – Key Growth Drivers (Source: firm’s website, http://powerint.investorpass.com/Profiles/Investor/Investor.asp?BzID=1306&from=du&ID=30541&myID=4141&L=I&Validate=3&I=) Read More