Business Solution for Nokia PLC - Case Study Example

NOKIA PLC Name: Institution affiliated: Date of submission: Tutor: Executive summary The business World has always been the most dynamic in terms of the events and activities that take place each day. It is such changes that some investors take advantage while some others are taken advantage by the changes. The study will be carried out on Nokia PLC as it tries to identify the shortcomings that were experienced in organization in the supply chain that have over the years undermined their activities. For the better part of the last thirty years, the Nokia PLC had been the global giant in the phone manufacturing business, staying ahead of its competitors by employing cutting edge technology and development of products and services that satisfied the customer’s needs. The report will be done to provide Nokia PLC with the best model and solution for the management of the supply chain. It will also provide the organization with the best ratios and options available to the organization to allow them maximise their profits. Information gathered for research in the report was highly gathered from the secondary sources such as annual reports and disclosures made by the organization to all its stakeholders. Problems identified in the supply chain and solved using the linear programming quantitative techniques. Finally, conclusive analysis, discussions and recommendations are provided for the organization. Table of contents Executive summary.................................................................................................................2 List of figures/ tables..............................................................................................................4 Introduction............................................................................................................................5 Identifying the problem and choosing the topic.....................................................................7 Data collection........................................................................................................................8 Problem formulation...............................................................................................................11 Customer satisfaction................................................................................................11 Information and material flow integration.................................................................12 Supplier performance................................................................................................12 Effective risk management........................................................................................12 Problem solving.....................................................................................................................14 Analysis and discussion.........................................................................................................16 Recommendations.................................................................................................................20 References.............................................................................................................................21 Appendices............................................................................................................................22 List of figures/ tables Table 1: Consolidated Annual income statement for Nokia PLC............................................8 Table 2: Customer satisfaction.................................................................................................11 Table 3: options available in different stages of the supply chain...........................................17 Introduction Nokia is a public multinational company that deals with communication and information technology. Nokia PLC was registered as a public limited liability company which is incorporated under the republic of Finland laws. Nokia was founded in 1865 by Eduard Polón. Having been founded at this time, it was not until 1871 that Nokia was incorporated as Nokia. The headquarters of the organization are in Espoo, Finland. It however has its operation being undertaken worldwide. As per the report provided in the fourth quarter, the organization currently employs 61,656 employees around the world. This is however a drop from the 90,981 employees in the year ended 2013. In terms of its revenues, the company ranks 274th largest companies in the World with highest revenues. Reports, however, indicate that the company has been underperforming, judging by its previous revenues and in comparison to its competitors in the mobile telephony market. Such performances are triggered by weaknesses in the company, threats and opportunities that the company fails to deliver. The company deals in service delivery for internet services and the production and sale of telecommunication gadgets such as the mobile phones and smart phones. Taking for example, the net sales for the years between 2010 and 2014, the minimum returns were 12,709,000 and the maximum figure was 15,968,000 (all figures in Euros). The difference in net sales is around 3,000,000. Having such figures for the company makes it pleasant for the shareholders making it possible for them to allow the directors to expand the business given that is an increase in demand for the growing market. However, the company underperformed in almost all sectors in the year 2013. Revenues collection from sales and other activities increased to €12.73 billion, net income also increased to € 1.17 billion. A revaluation of the company’s total assets also showed a drop from €25.19 to € 21.06 billion. The total shareholders’ equity amounted to €8.67 billion, a drop from the previous financial period. The previous years prior to 2014 however showed a continuous drop in the in almost all the sectors in the operations of the business. A few changes in the analysis of the supply chain through the interventions made by Microsoft may have helped in the improved performance of the company. This study aims to identify the challenges that Nokia PLC has endured in the past while tracing its problems that led to its fall from the global giant it was to what it is today. The conclusion of what may have happened to the company could be the fact that they only provided a proper flow of materials from the suppliers to the customers but did not offer a platform for the flow of information from the customers to the suppliers to help understand the changing demands of the consumers. Identifying the problem and choosing the topic The emergence of new companies in the communication and information technology sector has increased the competition that Nokia has. Such companies include Motorola, Apple Inc., Techno, Samsung, BlackBerry Ltd and HTC Corporation. The products of some companies such as Apple Inc. and Samsung are considered by many to be of a higher quality and far more reaching the demands and requirements of the market (Dr. Tú, 2010). Their products are more appealing to the consumers since they develop products that go beyond customer satisfaction by enhancing value creation for the customer. The customers of these companies have thus developed confidence in the products, the brand names and the companies that develop these products. It has enhanced customer loyalty by locking in these customers to the products that become difficult to convince them that any other brand can satisfy their needs. Competition, therefore, becomes among the biggest problems that Nokia faces. The issue of cost with relation to the production and vending of the Smartphone’s and internet services should be minimised to ensure that the organization maximizes its profits. Cost minimization is a major focus that Nokia faces. The issue of cost minimization is a major concern as it determines the profits that are recorded by the different organizations. The cost minimization will focus on the purchase cost of raw materials, production and distribution costs for the smart phones and internet services. With the mathematical models available, it is possible to provide the business with possible calculations that can be used to ensure that costs are reduced fully while at the same time maximizing profits. Data collection Data collection methods are determined by the type of data that needs to be collected [Mic08]. The study adopts both primary data collection methods as well as secondary collection methods. The main primary data collection method that will be used entail semi structured interviews. On the same, observation method will serve as another method to collect information from the companies. This will entail observing the key behaviours adopted by both managers and employees. The information will be effective as will be first hand information from the population under investigation. Secondary data collection method will be done through analysis of past records that are available from the magazines, reports, published journals of the company and the companies’ websites. The sources will be crucial as they will help in collection published information in relation to the companies. They will serve as backup information for data collected using primary sources. Table 1: Consolidated Annual income statement for Nokia PLC Annual income statement for Nokia PLC ( values in 000,000’s) Period ending 2014 2013 2012 2011 Total revenue 15,406 17,513 20,303 20,793 Cost of revenue 8,584 10,147 12,974 13,511 Gross profit 6,822 7,365 7,329 7,218 Operating expenses Research and development 3,017 3,609 4,062 4,328 Sales, general and Admin 2,136 3,041 4,350 3,277 Non-recurring items 1,463 0 0 1,415 Other operating items 0 0 0 0 Operating income 206 715 (1,082) (1,802) Add’l income/ expense items 0 0 0 0 Earnings before interest and tax (287) 335 (1,554) (2,002) Interest expense 0 0 0 0 Earnings before tax (287) 335 (1,554) (2,002) Income tax (1,704) 278 401 95 Minority interest 0 0 0 0 Equity earnings/ Loss (15) 6 (1) (30) Unconsolidated subsidiary - - - - Net income-Cont. operations 1,417 56 (1,955) (2,097) Net income 4,206 (1,018) (4,991) (1,930) Net income applicable to common shareholders 4,206 (1,018) (4,991) (1,930) Current situation Problem formulation Performance is a great determinant of the effectiveness of the supply chain that has been adopted by an organization. The measure of performance will be used to determine the effectiveness of the systems that have been adopted to ensure smooth flow of information and products in the supply chain. Nokia PLC has over the years been underperforming and as a result, it is important to identify the problems that the organization has been facing. Qualitative performance measures based on the data collection options available could provide insights on issues such as customer satisfaction, information and material flow integration, supplier performance and effective risk management. Customer satisfaction Table 2: Customer satisfaction Devices and services 2012 2011 % rise and fall Smart device net sale 1704 3528 -52 Mobile phone net sale 2311 3407 -32 Smart devices’ volume 11.9 24.2 -51 Mobile phones volume 70.8 84.3 -16 Smart devices ASP( Average selling price) 143 146 -2 Mobile phone ASP 33 40 -18 The volume of mobile phones depreciated by 16% as Nokia was trying to switch from Symbian-based phones to Microsoft phones. This was their new strategy for combating the competition posed by companies with Smartphone technology. As a result of failure of windows phone from Microsoft, Nokia Company fluctuated with 51% in their smart devices volume thus creating more problems for the future of the company. The whole trend summarized by the table demonstrates the effects Nokia faced in the fight for market share with the competitors[Rat13]. Information and material flow integration Material control entails a number of activities among them being the establishment of material order quantities, lead time for making orders, fill rates, bills that exist for the different materials and production requirements. The production requirements are usually provided by how the supply chain works to enhance control of production within the organization. Production control determines the lot size that Nokia has and the lead time for each of the products that are ordered by the organization. Information control entails an understanding of how information is passed on to the different players in the supply chain. It also entails the important disclosures that are necessary for production and distribution in the facility to be made effective. Supplier performance Supplier performance refers to the consistency within with the suppliers deliver goods and raw materials to the different departments of the organization on time and in what condition that they are delivered. When the goods are consistently delivered in time, efficiencies and effectiveness in the supply chain is enhanced. Effective risk management Organization risk is one of the aspects that affect the determination of cost in a firm. This is because it is associated with promises of the firm to pay dividends and interest to other investors in the financial market. Additionally, the risk is also associated with the firm’s response to its earnings before taxes and interest rate. Every player in the supply chain has to decide to undertake a great effect related to business risk in a firm. This is because demand may be high in the short run and later falling in the long run. Instead, organization should hire temporary workers who can easily be laid off when demand fluctuates in the future [Mic131]. Max= 30Sp+ 28In When Sp is the Smartphone In is the internet Constraints Problem solving Problem solving refers to evaluating and analyzing a potential problem or an opportunity for a given proposed project which is done through extensive research and investigation for the purposes of decision making on the supply chain (Martin, 2007). The solving of the problems usually entails the evaluates the potential of success for the project; therefore, making it a credible factor to consider since it affects the decisions of the supply chain and offers a solution to problems facing the company. A thorough analysis provides information that is necessary to provide the business with a strong platform for planning and enhancing growth and development. Finding a solution for the supply chain issue facing the organization would focus on the flow of information and the flow of products within the supply chain [Siu03]. The mathematical model that is developed for the problem is; Max = 30Sp+ 28In s.t. 8Sp + 9In ≤ 2400 4Sp + 6In ≤ 2400 5Sp + 2In ≤ 2400 7Sp + 5In ≤ 2400 Swapping Sp with A Max = 30A+ 28In s.t. 8A + 9In ≤ 2400 4A + 6In ≤ 2400 5A + 2In ≤ 2400 7A + 5In ≤ 2400 Swapping In to W Max = 30A+ 28W s.t. 8A + 9W ≤ 2400 4A + 6W ≤ 2400 5A + 2W ≤ 2400 7A + 5W ≤ 2400 Analysis and discussion The supply chain identifies the specific problem affecting Nokia’s competitiveness. It provides a number of solutions to the problem among them being improved on the skill of the employees through continuous and regular support, training, promoting and funding research and development activities and customer support through an online platform to encourage one on one interaction with the customers and allow free flow of information in the supply chain. The supply chain, however does not provide a solution for instances when the competitors would also improve on the products to try and stay ahead of Nokia. When Nokia introduced the windows phone in partnership with the Microsoft Company, Samsung moved in to counter the move by Nokia by creating a new series of Galaxy smartphones with the Symbian software. The products by Samsung had better features than those of the Nokia Lumia series. A typical supply chain usually encompasses a number of activities namely purchasing, assemblies, shipping and finally the sale of the products by the retailers. For Nokia, it is important for them to determine the options that are available to the organization for each of the stages in the supply chain. The table provides an example of a simplified supply chain analysis that could be used to manage the activities of Nokia in the supply chain. They can use such charts to determine the most cost effective option that can be undertaken at each level of the organization. A comparison of the costs incurred for every unit of product produces between Nokia and other companies would also help shed light on where it is possible to reduce their costs while at the same time maintaining the quality of production. Table 3: options available in different stages of the supply chain Stage Options available Description Direct cost ($) per unit Lead time(days) 1 1 Local supplier 8 30 1 2 Multinational supplier 6 50 2 1 Manual assembly 4 8 2 2 Automated assembly 4 4 2 3 Hybrid assembly line 4 6 3 2 Company owned tracks 7 4 3 5 Third party carrier 7 2 4 1 Ground transportation 8 1 4 2 Air freight 5 5 4 3 Premium air freight 5 1 With the current production and vending of the Smartphones and internet, the maximized profits would be $ 28800 weekly. By swapping out the different options available in the supply chain in each stage of the supply chain, it is possible to provide a variation of the profits recognized by the organization. Depending on the choice of suppliers, whether local or international suppliers, the cost incurred in the purchases for the different raw materials could be reduced if they chose to use the international suppliers. The maximised profits when the choice of suppliers is the international suppliers, then the profits would increase to $ 38,400 per week. Changes in the marketing and distribution channels would also create a variation in the profits recognized by the organization. The choice of flights may increase the costs incurred by the organization and thus reduce the profits that are recognized by the organization. The lowest profits that could be recognized by the organization could be $ 26,400. Recommendations Based on the findings from the reports found from the linear programming the best combination for the maximization of profits is for the organization to continue with the normal production systems . However, there is need to adopt the multinational suppliers as they are cheaper although their lead time is usually more than that of the local suppliers. similarly, the organization should encourage the use of their own company tracks for the distribution of their products as the organization will equally incur less costs during distribution thus increasing the profits recorded. Furthermore, the organization needs to carry out more research and development in the supply chain. Although the research and development consumes many resources, the fruits of its research program were worth the salt. It enabled the company to introduce a new product that helped it to make huge strides in increasing its market share. Nokia needs to do better than its competitors. The company has for a long time enjoyed the services of qualified staff, but it needs to bring a new team on board, one that has fresh ideas, one that is rich in talent and is willing to develop these ideas into something that the World can see and touch and use. It needs to develop products that will marvel their users. It needs to build customer loyalty. It needs to create value in its products by going beyond the adage of customer satisfaction. The World population is slowly shifting in terms of tastes and preferences and enhancing customer satisfaction is no longer enough for a company to keep at the helm of the competition. REFERENCES Mic08: , (Micheal and R), Rat13: , (Ratner), Mic131: , (Crumpton 23), Siu03: , (Siu-lam 100), Appendices Appendix 1: cost per unit volume in supply chain analysis over time Appendix 2: Table 3: supplier performance in the supply chain Actual performance Shipment Arrival Number of units % usable Price unit 1 On time 500 100 5 2 On time 500 100 5 3 On time 500 100 5 4 On time 500 100 5 5 On time 500 100 5 6 Unscheduled 400 100 8 7 Unscheduled 400 100 8 8 Unscheduled 400 100 8 9 Unscheduled 400 100 8 10 Unscheduled 400 100 8 Appendix 3:summary of supplier performance A 50% 50% 75% B 4500 4500 2500 C 100% 100% 95% D $20 $17.50 $15 E 4,500 4,500 2,375 Appendix 4: total system variance for the suppliers in the supply chain Total variance ($2,275) Supplier performance variance Buyer planning variance ($15,400) + $13,125 Supplier performance variance Buyer planning variance Product variance Time variance Time variance Product variance ($1,000) + ($14,400) + $12, 500 + $625 Supplier performance variance Buyer planning variance Product variance Time variance Time variance Product variance Quantity variance Price variance Price variance Quantity variance ($1,000) + $0 + ($14,400) + $12, 500 + $0 + $625 Supplier performance variance Buyer planning variance Product variance Time variance Time variance Product variance Quantity variance Price variance Price variance Quantity variance Condition variance Amount Variance Amount Variance Condition Variance ($1,600) + $600 + $0 + ($14,400) + $12, 500 + $0 + $0 + $625 Read More