LEARNING OUTCOMES

In this unit, you should be able to

1. Discuss the components of supply
chain management;
2. Define and explain the importance of
inventory management;
3. Examine the interrelationships of the
sequential processes of the logistics
circle;
4. Assess the different popular
competitive strategies;
5. Explain why companies opt to
implement stability or retrenchment
strategies.
6. Define and explain the significance of
integrative growth strategies;
7. Differentiate horizontal from vertical
integration;
8. Differentiate backward from forward
integration; and
9. Discuss the role of global strategies
in the conduct of today’s business.

INTRODUCTION
As business focus on developing their
Unit 3: degree of internal competitiveness,
companies adopt external growth
BUSINESS AND strategies. These are alternative modes
of addressing the challenges
CORPORATE confronting organizations and because
of the volatility of the environment,
STRATEGIES business survival become more
challenging than ever. There is a
greater demands for an honest review
of functional activities and

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 development of a proactive mindset
through various strategic
modes of growth and competitiveness.

What Is a Supply Chain?

A supply chain is a network between a company and its suppliers to produce
and distribute a specific product to the final buyer. This network includes
different activities, people, entities, information, and resources. The supply chain
also represents the steps it takes to get the product or service from its original
state to the customer.

Companies develop supply chains so they can reduce their costs and remain
competitive in the business landscape.

How Supply Chain Management Works

Typically, SCM attempts to centrally control or link the production, shipment,
and distribution of a product. By managing the supply chain, companies are able
to cut excess costs and deliver products to the consumer faster. This is done by
keeping tighter control of internal inventories, internal production, distribution,
sales, and the inventories of company vendors.

SCM is based on the idea that nearly every product that comes to market results
from the efforts of various organizations that make up a supply chain. Although
supply chains have existed for ages, most companies have only recently paid
attention to them as a value-add to their operations.

In SCM, the supply chain manager coordinates the logistics of all aspects of the
supply chain which consists of five parts:

• The plan or strategy

• The source (of raw materials or services)
• Manufacturing (focused on productivity and efficiency)
• Delivery and logistics
• The return system (for defective or unwanted products)

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The supply chain manager tries to minimize shortages and keep costs down. The
job is not only about logistics and purchasing inventory. According
to Salary.com, supply chain managers, “make recommendations to improve
productivity, quality, and efficiency of operations.”

Improvements in productivity and efficiency go straight to the bottom line of a

company and have a real and lasting impact. Good supply chain management
keeps companies out of the headlines and away from expensive recalls and
lawsuits.

Supply Chains
A supply chain is the connected network of individuals, organizations,
resources, activities, and technologies involved in the manufacture and sale of a
product or service. A supply chain starts with the delivery of raw materials from
a supplier to a manufacturer and ends with the delivery of the finished product
or service to the end consumer.

SCM oversees each touchpoint of a company's product or service, from initial

creation to the final sale. With so many places along the supply chain that can
add value through efficiencies or lose value through increased expenses, proper
SCM can increase revenues, decrease costs, and impact a company's bottom
line.

• Supply chain. management (SCM) is the centralized management of the

flow of goods and services and includes all processes that transform raw
materials into final products.
• By managing the supply chain, companies are able to cut excess costs and
deliver products to the consumer faster.
• Good supply chain management keeps companies out of the headlines and
away from expensive recalls and lawsuits.
Example of SCM
Understanding the importance of SCM to its business, Walgreens Boots Alliance
Inc. placed focused effort on transforming its supply chain in 2016. The company
operates one of the largest pharmacy chains in the United States and needs to
efficiently manage and revise its supply chain so it stays ahead of the changing
trends and continues to add value to its bottom line.

As of July 5, 2016, Walgreens has invested in the technology portion of its

supply chain. It implemented a forward-looking SCM that synthesizes relevant
data and uses analytics to forecast customer purchase behavior, and then it
works its way back up the supply chain to meet that expected demand.

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For example, the company can anticipate flu patterns, which allow it to
accurately forecast needed inventory for over-the-counter flu remedies, creating
an efficient supply chain with little waste. Using this SCM, the company can
reduce excess inventory and all of the inventories' associated costs, such as the
cost of warehousing and transportation.

Inventory management refers to the process of ordering, storing, and using a

company's inventory. These include the management of raw materials,
components, and finished products, as well as warehousing and processing
such items.

For companies with complex supply chains and manufacturing processes,

balancing the risks of inventory gluts and shortages is especially difficult. To
achieve these balances, firms have developed two major methods for inventory
management: just-in-time and materials requirement planning: just-in-time (JIT)
and materials requirement planning (MRP).

An inventory management system (or inventory system) is the process by which

you track your goods throughout your entire supply chain, from purchasing to
production to end sales. It governs how you approach inventory management for
your business.

Each company will manage stock in their own unique way, depending on the
nature and size of their business. Let’s take a look at a simple example.

Inventory management system example

Carlos starts a business selling food hampers. He has various suppliers who sell him
food in bulk, some of which must then be split up and repackaged.

Carlos creates an Excel spreadsheet, which he updates whenever he orders more

stock, assembles a hamper or completes a sale. This is his inventory management
system, and he’s entirely dependent on it to know how much stock he currently has,
when his food products might expire, how many hampers he can sell and more.

Why you need an inventory management

Any venture that handles stock will need a system to accurately track and
control it. Without one, you’ll be working on an entirely ad-hoc basis — and

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 you’ll quickly run into situations where your business is overstocked or
understocked.

Inventory systems tell you the number of components or ingredients you need to
create or assemble your final product. Without this information you may end up
with excess stock, eroding your bottom line, or with insufficient stock to meet
customer demand.

But while you will need an inventory management system, which one you
choose is entirely up to you. There are countless different systems you can
adopt, ranging from simple approaches to comprehensive solutions.

What is Data Warehousing?

A Data Warehousing (DW) is process for collecting and managing data from
varied sources to provide meaningful business insights. A Data warehouse is
typically used to connect and analyze business data from heterogeneous
sources. The data warehouse is the core of the BI system which is built for data
analysis and reporting.

It is a blend of technologies and components which aids the strategic use of

data. It is electronic storage of a large amount of information by a business
which is designed for query and analysis instead of transaction processing. It is
a process of transforming data into information and making it available to users
in a timely manner to make a difference.

What is Scheduling in Strategic Management?

Learn Scheduling definition in strategic management with explanation to study

“What is Scheduling” for online schools for business management.
Browse scheduling explanation with strategic management terms to study for
accredited online business administration degree.

Scheduling

• Detailing what activities have to be done, the order in which they are to be
completed, who is to do each, and when they are to be complete.
Management by Stephen P. Robbins, Mary A. Coulter

Meaning of Dispatching:
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Dispatching is the routine of setting productive activities in motion
through the release of orders and necessary instructions according to pre-
planned times and sequence of operations embodied in route sheets and
loading schedules.
In other words, once a job is in an area where an operation is to be
performed, it has to be determined when and by whom the job will be
processed and also the sequence of waiting orders to be processed. The
decision of assigning the various jobs to different machines and equipment
is called Dispatching.

What is Competitive Strategy

What is a Competitive Strategy?
Competitive strategy is a long-term action plan of a company which is directed to gain
competitive advantage over its rivals after evaluating their strengths, weaknesses,
opportunities and threats in the industry and compare it with your own. Michael Porter, a
professor at Harvard presented competitive strategy concept. According to him there are
four types of competitive strategies that are implemented by businesses globally. It is
necessary for businesses to understand the core principles of this concept that will help
them to make a well-informed business decisions in the course of action.

Definition of Competitive Strategy

As mentioned above, competitive strategy is a long-term action plan of firms so as to gain
a competitive advantage over its rivals in the industry. This strategy is focused to achieve
above average position and generate a superior Return on Investment (ROI). This
strategy is very important when firms having a competitive marketplace and several
similar products available for consumers.

Four Types of Competitive Strategy

Michael Porter divided competitive strategy in four different types of strategies.
Cost Leadership Strategy
Cost leadership strategy is difficult to implement for small scale businesses as it involves
making long term commitment for offering products and services at lower prices in the
market. For this purpose firms need to produce products at low cost otherwise it will not
make profit.

Since the cost leadership means to become low cost producer or provider in the industry,
Any large-scale business which can provide and manufacture products at low cost by
attaining economies of scale. There are many cost leadership factors such efficient
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operation, large distribution channels, technological advancement and bargaining power.
Here Walmart is a good example.

Differentiation Leadership Strategy

Identifying attribute of a product which are unique from competitors in the industry is the
driving factor in the differentiation leadership strategy. When a product is able to
differentiate itself from other similar products or services in the market through superior
brand quality and value added features it will be able to charge premium prices to cover
the high cost.

There are few business examples who successfully differentiated their brands e.g. Apple,
Clif Bar and Company, Ben & Jerry’s and T Mobiles.

Cost Focus Strategy

This strategy is quite a resemblance to the cost leadership strategy; however, a major
difference is that the cost focus strategy businesses target a particular segment within the
market and that segment is offered the lowest price of the product or service. This type of
strategy is very useful to satisfy your consumer and increase brand awareness.

For example, beverage companies manufacturing mineral water can target

market segment like Dubai, where people need and use only mineral water for drinking,
can be sold at a lower than competitors.
Differentiation Focus Strategy
Similar to the cost focus strategy, differentiation focus strategy targets a particular
segment within the market; however, instead of offering lower prices to consumer; firms
differentiate itself from its competitors. Differentiation strategy offers unique features and
attributes to appeal its target segment. For example, Breezes Resorts, is a company having
several resorts and caters only couple having no children and offer peaceful environment
without any children disruption.
Examples of competitive Strategies
Case Study of Aldi
The rise of Aldi in the food retail industry is very impressive and this position is mainly
associated with its competitive strategy which is its use of ‘Lean Production’ which makes
the organization more efficient. Through lean production, Aldi aims to reduce the number
of resources that are used in the provision of goods and services to consumers.
Additionally, the concept also involves eliminating waste and utilizing lesser material,
space, labour and time. The overall result is a reduced cost of production.
Another competitive strategy which stands for Aldi and against its competitors is that its
investment in staff members. Every member undergoes a comprehensive training
program which makes them multi-skilled and they are able to undertake different roles in
the workplace. In this way, Aldi has to hire lesser staff to run its stores.

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 Stability Strategy
Definition: The Stability Strategy is adopted when the organization attempts to maintain
its current position and focuses only on the incremental improvement by merely changing
one or more of its business operations in the perspective of customer groups, customer
functions and technology alternatives, either individually or collectively.

Definition: The Retrenchment Strategy is adopted when an organization aims at reducing

its one or more business operations with the view to cut expenses and reach to a more
stable financial position.

In other words, the strategy followed, when a firm decides to eliminate its activities
through a considerable reduction in its business operations, in the perspective of customer
groups, customer functions and technology alternatives, either individually or collectively
is called as Retrenchment Strategy.

The firm can either restructure its business operations or discontinue it, so as to revitalize
its financial position. There are three types of Retrenchment Strategies:

1. Turnaround
2. Divestment
3. Liquidation
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 To further comprehend the meaning of Retrenchment Strategy, go through the following
examples in terms of customer groups, customer functions and technology alternatives.

1. The book publication house may pull out of the customer sales through market
intermediaries and may focus on the direct institutional sales. This may be done to slash
the sales force and increase the marketing efficiency.
2. The hotel may focus on the room facilities which is more profitable and may shut down
the less profitable services given in the banquet halls during occasions.
3. The institute may offer a distance learning programme for a particular subject, despite
teaching the students in the classrooms. This may be done to cut the expenses or to use the
facility more efficiently, for some other purpose.

In all the above examples, the firms have made the significant changes either in their
customer groups, functions and technology/process, with the intention to cut the expenses
and maintain their financial stability.

CORPORATE STRATEGIES

Integrative growth:
A growth strategy in which a company increases its sales and profits through backward,
forward, or horizontal integration within its industry. A company may acquire one or more
of its suppliers to gain more control or generate more profits (backward integration). It
might acquire some wholesalers or retailers, especially if they are highly profitable
(forward ration). Or finally, it might acquire one or more competitors through acquisition
(horizontal integration).

What is vertical integration?

Vertical integration is a competitive strategy by which a company takes
complete control over one or more stages in the production or distribution
of a product. It is covered in business courses such as the MBA and MiM
degrees.
A company opts for vertical integration to ensure full control over the
supply of the raw materials to manufacture its products. It may also
employ vertical integration to take over the reins of distribution of its
products.
A classic example is that of the Carnegie Steel Company, which not only
bought iron mines to ensure the supply of the raw material but also took
over railroads to strengthen the distribution of the final product. The
strategy helped Carnegie produce cheaper steel, and empowered it in the

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marketplace.

What is horizontal integration?

Horizontal integration is another competitive strategy that companies use.
An academic definition is that horizontal integration is the acquisition of
business activities that are at the same level of the value chain in similar or
different industries.
In simpler terms, horizontal integration is the acquisition of a related
business: a fast-food restaurant chain merging with a similar business in
another country to gain a foothold in foreign markets.

Vertical Integration in Strategic Management

Types of vertical integration strategies

As we have seen, vertical integration integrates a company with the units
supplying raw materials to it (backward integration), or with the
distribution channels that carry its products to the end-consumers
(forward integration).
For example, a supermarket may acquire control of farms to ensure supply
of fresh vegetables (backward integration) or may buy vehicles to
smoothen the distribution of its products (forward integration).
A car manufacturer may acquire tyre and electrical-component factories
(backward integration) or open its own showrooms to sell its vehicle
models or provide after-sales service (forward integration).
There is a third type of vertical integration, called balanced integration,
which is a judicious mix of backward and forward integration strategies.

BACKWARD AND FORWARD INTEGRATION: BENEFITS FOR BUSINESSES

Forward and backward integration

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Both forward and backward integration are vertical integration strategies to gain better
control of the value chain, reduce dependence on the suppliers and increase business
competitiveness. The two strategies can help companies gain higher control of their
business and reduce the bargaining power of suppliers. There are some major benefits to
be obtained from these strategies. Both can have an impact on the bottom line directly.
Integration happens if a company moves upward or downward in its supply chain.

Starting from the suppliers from whom the company obtains raw materials, the chain
moves downstream towards the distributors and the retailers. If the suppliers’ power is very
high, it can be financially burdensome for the company. Suppose the number of suppliers
of a company is low and the company does not have many sources to obtain raw material
from. The burden in that case will be upon the company’s shoulders giving rise to higher
bargaining power for the suppliers. Its expenditure on raw materials will also be high.

Backward Integration:
The pressure can be lower if the company has a higher number of options. However, this is
not always possible. So, the companies with limited number of suppliers or those which want
to improve their control of the supply chain and cut down the manufacturing costs would
try to obtain the raw materials directly rather than through suppliers.

Global strategy as defined in business terms is an organization's strategic guide

to globalization. Such a connected world, allows a business's revenue to not be
to be confined by borders. A business can employ a global business
strategy[1] to reap the rewards of trading in a worldwide market.

Global Business Strategies

A major concern for managers deciding on a global business strategy is the

tradeoff between global integration and local responsiveness. Global
integration is the degree to which the company is able to use the same products
and methods in other countries. Local responsiveness is the degree to which the
company must customize their products and methods to meet conditions in
other countries. The two dimensions result in four basic global business
strategies: export, standardization, multidomestic, and transnational.

ROLE OF GLOBAL STRATEGIES

In today’s economy almost all companies must consider the opportunities

presented by globalization, but global operations also present significant risks.
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Companies must research and plan thoroughly before engaging in international
operations. And they must choose a strategy that matches their capabilities and
objectives. The economies of standardization and the responsiveness of
customization are competing pressures companies must resolve. The
appropriate strategic choice is essential for a company to make the right
choices.

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