The Vertical Boundaries of the Firm - Essay Example

The Vertical Boundaries of the Firm A company can be said to enjoy a competitive advantage if it has market dominance over its competitors. It is normally achieved by setting-up business strategies such as offering customers goods of desirable value and reduced cost. “Success in an organization depends on good management and the ability to develop uniquely hard to imitate commodities” (Badescu, 2009). Michael Porter developed the following generic strategies. Cost leadership A company aims at producing and selling commodities at a lower cost than its competitors. In this strategy, the target would be to lower prices of commodities to match or outdo those of their competitors. This is normally done by reducing cost of production for example labour cost. The company’s target is to expand the market share to compensate for the compromised costs while maximising profits. Easy jet airline of the United Kingdom and Ryan air of Ireland utilize this strategy. Differentiation strategy In differentiation, companies aim at producing items or services of superior quality compared to what the competitors offer with an aim of charging more for the added value. Brompton Bicycle Limited’s fold feature gives bikes a compact design hence a differentiating value. Market niche “A business organisation may develop a unique capability in offering satisfactory service to a group of customers” (London, 2007). Roll Royce Company which specialises in production of motor cars is a good example of a company which utilizes the market niche strategy. Question 2 Rough plan Approaches Just in Time Lean Total Quality Management “Total Quality Management is a wide management perspective that deals with processes and attitudes” (Delfmann & Thorsten, 2008). It emphasizes quality as a major objective in a manufacturing environment as opposed to traditional mode of maximizing production. It is worth noting that quality in production not only applies to manufacturing environment but also in knowledge service industries for instance universities. “Total quality management operates under the principles of continuous improvement of quality as opposed to maintenance of a static level” (Gattorna, 1998). It aims at approaching quality at an increasing scale. This is possible through training and motivation of employees so as to better quality. It is therefore paramount for the top management to state their commitment open to all employees. The advantage of the mode is that it has the ability to immediately detect and correct quality problems. It doesn’t rectify problems after occurrence. “Just in Time” is a philosophy in management that seeks to eliminate manufacturing wastes by producing right quantity at the right time and at the right place. Its main goal is to do away with non-value adding operations during production. Lean production or stockless production is a philosophy that aims at reducing inventory levels to an absolute minimum. Looking closely at the three aspects, Just in Time increases production, performance and quality in manufacturing industry. Lean, controls stock levels to avoid unnecessary production while Total Quality Management works towards good quality of products. The three aspects support each other in a manufacturing environment. “Toyota manufacturing industry adopted this principle which saw a reduction in manufacturing defects and parts storage problem” (ElMaraghy, 2012). Question 3 Rough plan Effectiveness of logistics performance index to transnational organisations in decision making Relationship between logistics index and supply chain location selection Management in transnational organisations is a challenging task especially in decisions making pertaining to supply chain. The use of logistics plays a crucial role in the success of supply chain. “Order execution is an imperative element of the supply chain and therefore the company’s administration is required to make tactical decisions on the logistics system” (Frazelle, 2003). This is because supply chain is significantly influenced by design and operation of a logistics network. These decisions need to be made in a manner that it will match with the company objectives but not in a way that is biased to a certain product or location. “However, top managerial strategic decisions require refinement to match the specific needs of an organization” (Skjott-Larsen, 2007). This should be done at lower levels of management to allow for tactical and operational supply chain decisions. Every transnational organisation aims at maximizing financial returns and as asserted by Delfmann and Thorsten (2008) “since we are concerned with the financial activities within a supply chain, we should take a closer look at financial performance measures…return on investment and return on equity”. To ensure success of an organisation, the management needs to carefully decide on matters dealing with supply chain. It is a function that controls production. Therefore, the acquired logistics performance index needs to be applied to make the required decisions. Question 4 Rough plan Role of strategic procurement on strategic sourcing in a transnational organisation Importance of strategic procurement on strategic sourcing Over years, strategic procurement has been playing the role of order replacement and transactional sourcing. In the modern transnational organizations, strategic procurement plays enormous responsibility of value added activities such as strategic sourcing. “Strategic sourcing aims at gaining maximum advantage on costs, expertise, procedure and value by leveraging the company’s buying power” (Sollish, 2011). Its success and implementation depends on three pillars/models namely: Sourcing Organizational Governance Strategic procurement is created with a view of managing the organisational needs, issues and risks. Strategic sourcing is a process that thoroughly analyses material inputs. “It entails the adoption of a long-standing perspective as well as analytical capabilities and skilled negotiators in the procurement department” (Sople, 2012). It is however uncertain on what correct sourcing strategy entails and its contribution to efficiency improvement. It’s worthwhile to note that no correct formula can be applied to a sourcing strategy because what is successfully applied in one market may not apply in another. “Procurement determines pricing in that the responsibility of evaluating, comparing, negotiating and renegotiating with suppliers along business lines is entirely its function” (Scott, Lundgren & Thompson, 2011). In addition to price control function, procurement concentrates on requests and negotiating power with a view of increasing sales volumes. Since modern Procurement strategies utilises the use of information technology to pass information, it therefore cuts on cycle time as clients and sellers interact on an online procurement panel. This is mostly used by transnational organisations to advertise and sell their products and services. References: Badescu, C. (2009). The Vertical Boundaries of the Firm, București, Editura Mica Valahie Publishers, 9(8), 76-80. Delfmann, W. & Thorsten, K. (2008), Strategic Supply Chain Design: Theory, Concepts and Applications, Broadway, Kolner Wissenschaftsverlag, 2(7), 192-93. ElMaraghy, H. (2012). Enabling Manufacturing Competitiveness and Economic Sustainability: Proceedings of the 4th International Conference on Changeable, Agile, Reconfigurable and Virtual Production (Carv2011), Montreal, Canada, 2-5 October 2011, London, Springer, 4(2), 4-8. Frazelle, E. (2003). Supply Chain Strategy: The Logistics of Supply Chain Management. New Delhi, McGraw-Hill Education (India) Pvt Ltd, 3(9), 12-14. Gattorna, J. (1998). Strategic Supply Chain Alignment: Best Practice in Supply Chain Management, London, Gower Publishing, 54(2), 180-84. London, K. (2007). Construction Supply Chain Economics: Spoon Research, New York, NY: Routledge, 3(2), 110-111. Scott, C. Lundgren, H. & Thompson, P. (2011). Guide to Supply Chain Management. New York, NY: Springer, 11(8), 45-50. Skjott-Larsen, T. (2007). Managing the Global Supply Chain, 3rd Ed. Copenhagen, Copenhagen Business School Press DK, 98(5), 237-239. Sollish, F. (2011).An Overview of Global Strategic Sourcing: Volume 205 of Wiley Global Finance Executive, Hoboken, NJ: John Wiley & Sons, 34(1), 4-5. Sople, V. (2012). Supply Chain Management: Text and Cases, New Delhi, Pearson Education India, 56(4), 520-542. Read More