OPERATIONS MANAGEMENT - EMBA II

Operations Strategy at
Galanz
Case Analysis
Ashish Singh, Dawa Sherpa, Krishna Baral, Mohit Maheswari (Group One)
2/8/2017

Submitted to: Mr. Rabindra Silwal

Galanz was able to uplift itself into the high-end market and soon started providing ODM services to large OEM clients. Galanz was able to make its own magnetron along with 90 percent of the microwave oven parts with improved design and quality to match with its Japanese counterparts. In early 90s. Galanz was able to drive the demand up. Galanz’s strategy of increasing production and piling up inventory might not have been the best one as we know that inventory hides problem. Liang Senior set out to make domestically produced low cost microwave ovens and started the production in 1992. Galanz achieved economies of scale for low- cost production and pushed its sales team to market the additional inventory. Growth Stage Operational Strategy: Operational excellence and self sufficiency through adapting best practices and investment in R&D Along with the economies of scale came the problem of supply chain management crisis. Galanz strategy of low- price mass production might be the problem although it was what drove Galanz’s success in the early years. Early Years Operational Strategy: Low cost. but as we see later that future demand rides on low volume high variety model. in 1995. Microwave ovens. Liang Senior sensed the growing Chinese economy and increasing purchasing power of its people. Galanz started to face the shortage of magnetron due to exploding demand and cut backs by its suppliers. were all imported at relatively high prices and were unaffordable to most Chinese. low price through cheap labor. However. By aggressively expanding production capacity. at that time. Here. At that time. LG and Whirlpool were the major player in Chinese microwave oven market. With the help of research and development (R&D) investment. land and production capacity expansion With abundant supply of cheap labor and land. This transformation from Original Equipment Manufacturer (OEM) to Original Design Manufacturing (ODM) was a major milestone for Galanz. With the investment of 3 percent of its annual revenue in R&D. Soon. Galanz became the leading domestic manufacturer of microwave oven acquiring 25.1 percent of the market share. only few foreign companies like Toshiba. Galanz decided to acquire competitive advantage with low-price strategy. Liang Qingde (Liang Senior) made a strategic decision to start electrical appliances business with the introduction of microwave oven after eying the potential for growth.Introduction Galanz started out as a down feather products company in 1978. This strategy along with production capacity expansion helped Galanz with the success in the early years. Strong R&D enabled Galanz to localize design and target market through . Although. Galanz continuously engaged in price wars by cutting prices until it attained the leading position in both domestic and global market in 2003. they were not fully cognizant of the rapidly expanding Chinese market economy.

Making good product design meant Galanz had to be aware of factors such as socio-economic and political changes in its target markets. . with the effort of current CEO Liang Zhaoxian (Liang Junior). Galanz looked into creating global brand awareness by adopting Original Brand Manufacturing (OBM) strategy. Challenges Other major problem that Galanz started to face with adopting new models is with synchronizing production with the R&D department which was exacerbated with small-scale production of customized products. using Lean Principles and Just In Time (JIT) Inventory strategy would have been more appropriate given how dynamic the situation was. Galanz slowly started to alienate its’ OEM customers by becoming a competition to them. Most of these problems were attributed to inter-departmental conflicts. With OBM model. This however caused international accusations such as product dumping with very low prices. So the company needed to be able to predict the demand accurately and produce the right products in the right quantity at the right time to meet the needs of its customers. Galanz had primary relied on low-price strategy. Galanz needed to use good product design strategies by striking a balance between selling what the market needed and what they could make. repair and maintenance. Galanz achieved low-cost efficiency with low quality with less variety products. Later. being OBM meant they had to bear the risk of poor forecasting and sales which was totally avoidable in OEM business where the customer bore the risk. Galanz had to adapt to small and varied demand with high product variety. Future Success Operational Strategy: Strategic alliances with retail behemoths like Wal-Mart and K-mart in building brand awareness The shift from “World Factory” to “World Brand” brought plethora of challenges for Galanz. Probably. using quality management tools such as Pareto Principle or laying the problem out diagrammatically using tools such as Fishbone Diagram could have pinpointed the major problems early on significantly reducing the synchronization problems. work attitudes and efficiency was more important than low cost labor which it used as a competitive advantage to drive its success in the early days. Also. following such strategies would dramatically reduce the cost of quality. Sales supports like after-sales services. Providing competitive level of service to a large pool of end customers with diverse needs and expectations was yet another challenge faced by Galanz with its OBM positioning. Also. It always strived to produce more than the forecasted demand and push the extra inventory in the market. warranty claims became particularly cumbersome as Galanz had to train qualified staff and establish a communication platform to handle end-users’ requests. Also. continuously validating it’s competitive advantage and adapting technological changes. Previously.continuous innovations. Galanz soon realized that workers’ technical and management skills. As a part of manufacturing challenge. First of all.

3.As per Liang Senior “The main objective of the price war is to destroy our competitor’s confidence to compete with us when they realized that market bore little investment value. Galanz was offering microwave oven at a price less than 300 RMB where as other competitors were offering at 3000 RMB. In order words. 2. it would be safe to say that there is little or no threat of substitution for this commodity. As Galanz capitalized on this situation by building low-cost low-price strategy and later investing on R&D to design and build its own components. this particularly created a huge barrier to entry for new entrants. However. has little changed. as we saw. increase in OBM seemed to inadvertently affect its OEM business as its customers started to get offensive of the competition. Porter’s Five Forces Analysis 1. investing in more qualified and skillful human resource and much decentralized management with adequate room for employee empowerment would be absolutely necessary if Galanz is looking to thrive and be relevant in the future as well. One of the major challenges faced by Galanz is aligning its competitive strategy with current operations configurations characterized by the combination of OEM. LG and Whirlpool had to no intention to expand and dominate the Chinese microwave oven market as they had not yet sensed the market potential. In today’s fast paced world. people rely on equipments like microwave oven to quickly heat up and prepare their meal. Bargaining Power of Buyers . introduced in the 50s. And as they were focusing on low cost in OEM model of their business. The price war has been last line of defense”. the pervasive low-cost strategy might not be the best option as the global market was driven by variety of different product configurations and smaller quantities. Having a large number of suppliers reduces their bargaining power. they were offering at a very cheap price that there buyers cum competitors could not refuse. foreign companies like Toshiba. it was important for the company to invest in OBM in order to keep up with Liang Junior’s strategy of global brand awareness. Bargaining Power of Suppliers . this market has been more or less commoditized. . So. 4. Also. Finally. Threat of Substitute – Microwave oven technology.Galanz has more than 3000 suppliers all around the world to supply the company with necessary resources at the required time. Galanz increased its ratio of OBM to OEM in between 1997 and 2003 from 1:9 to 3:7. Using good product design strategies to effectively allocate its resources amongst different business strategies could be crucial for Galanz’s strategic positioning. As a result. Although OEM and ODM virtually kept Galanz immune to the risks of market forecasts and low inventory turnover rate. Threat of New Entrants – Prior to 1990s. OBM and ODM. this reduces the bargaining power of its buyers in OBM model in the domestic market of China.

and decentralize it’s management style in order to empower it’s employees with more decision making capacity. As Liang Junior is looking to transform Galanz from OEM/ODM to OBM. employee empowerment and using various TQM tools such as Pareto Principle. For this. This entails more investment in supply and distribution network and after sales infrastructures. This can be done with in-depth study and analysis of socio-economic and political conditions and changes. As Galanz is still new to OBM business. it needs to invest in process and capacity design in order to strike a right balance between the market demand and it’s supply capacity. IV. Fishbone Diagram and Statistical Process Control.Galanz was successful to destroy the confidence of its competitors by entering in the price war and focusing on mass production and following low cost strategy. III. Deciding the ratio of OBM to OEM should be based on the fact that risk factor with forecasting that is higher with OBM than OEM. Galanz should take in the factors such as core competencies it has developed through R&D investments and possibility of alienating its OEM customers by venturing into OBM model. Building brand awareness entails serious investment in Total Quality Management (TQM). Producing the right products in the right quantity at the right time to meet the needs of the customers is the ultimate mantra Galanz need to practice to be relevant and successful in the future. Recommendations I. technological breakthroughs and being aware of its own competitive advantage and life- cycle of products. And by the end of 2002 Galanz occupied 70% of market share which led to decrease in rivalry within the Industry. V. conducting a SWOT analysis(refer to annex A) might help Galanz to strike that balance. it should shift its strategy from Cost Leadership to Differentiation and Focus. II. Galanz can look into differentiation and customization through focusing into specific market segment in order to demand premium prices. This is only possible through TQM concepts such as continuous improvement. 5. In other words. Galanz should invest on quality of labor rather that its’ cost. Industry Rivalry . it is advisable that it execute a joint venture with more established brands like LG or Toshiba and share the resources and value chain activities for competitive advantage. Also. .

 Closely located suppliers. OPPORTUNITIES THREATS  Build brand and improve margins  Other low cost player can poach its domestic market. . as focus shift to international market. launches.Annexes A.  Sustain relationship with existing OEM/OBM customers.  Other international brands may poach market share. 4.  Demand forecasting & production planning almost non-existent.  Mass production capacity.75%.  Own R&D facility.  Poor brand awareness.  R&D issues causing delay in new  90% vertically integrated.  Working with large number of suppliers for very small share of outsourcing. SWOT Analysis STRENGTHS WEAKNESS  Large market shares both in domestic  Nascent marketing. sales & service and global market.  Developed own magnetron.  Narrow margins.  Inflexible production lines.  Other brand players may launch products with support from other  Move to international markets Chinese low cost players. infrastructure.