BUSINESS STRATEGIES

Because of the volatility of the environment, business survival has become more challenging than ever.
There is a greater demand for an honest review of functional activities and development of a proactive
mindset through various strategic modes of growth and competitiveness. Realignment, enhancement,
reinventing, strategizing, and refocusing have become more imperative to any organization. In this chapter,
we will discuss value chain analysis and the different types of business strategies. These include growth
strategies, competitive strategies, life cycle strategies, stability strategies, and turnaround strategies.
Value Chain Analysis
As global markets widen, businesses have to pay closer attention to where their raw materials come
from, how they are produced, how finished products are stored and transported, and what their end products
users are really asking for. The main business definition of any organization is to produce goods or render
services, and to achieve these set goals and objectives, it engages in a series of activities. If an organization
wants to be profitable, it has to sell value to its buyers-value that is worth paying for. Thus, the whole
concept of value chain analysis comes to the picture. Value chain is a general term that refers to a sequence
of interlinked undertakings that an organization operating in a specific industry engages in. It looks at every
phase of the business from the time of procurement of raw materials to the time its products reaches its
eventual end users or consumers. The value chain concept is concretized in supply chain management.
Here, value creation is greatly emphasized.

Supply Chain Management

Supply chain management is a broad continuum of specific activities employed by a company. It
consists of the following:

• purchasing or supply management which includes the sourcing, ordering, and inventory
storing of raw materials, parts, and services;
• production and operations, also known as manufacturing and assembly;
• logistics which is the efficient warehousing, Inventory tracking, order entry, management,
distribution and delivery to customers; and
• marketing and sales which includes promoting and selling to customers.
Supply Management
Supply management is now a popular term used for purchasing which was formerly termed as
procurement. It is a key business function that is responsible for: (1) identifying material and service needs;
(2) locating and selecting suppliers; negotiating and closing contracts; (3) acquiring the needed materials,
services, and equipment; (4) monitoring inventory stock keeping units; and (5) tracking supplier
performance.
In this stage, it is important to create "value" by establishing and managing supplier relationships,
identifying strategic sources, accurately forecasting demand requirements, and understanding inventory
management. Thus, the goal of supply management is to obtain the right materials by meeting quality
requirements in the right quantity, for delivery at the right time and the right place, from the right source,
with the right service, and at the right price. In addition, supply management objectives include improving
the organization's competitive position, providing uninterrupted flow of materials, supplies, and services,
keeping inventory and loss at a minimum, maintaining and improving quality, finding best-in-class
suppliers, purchasing at lowest total costs, and achieving harmonious relations with suppliers.

Sourcing and Ordering

Following are the steps to take when an organization needs to source out raw materials or parts:
1. Specify the need clearly by writing down the details. Normally, the stock keeping unit (SKU) is
coded with brief but complete details like date, identification number, the originating department,
the account to be charged, complete description of the raw material/service, date needed, any
special instruction, and signature of authorized person making the request.
2. Identify and analyze possible sources of supply. Generally, more than one supplier should be
considered. The criteria for choosing suppliers are sound business sense and attitude, good record
of accomplishment, sound financial base, suitable technical capability, quality orientation,
customer service mentality, and effective logistical arrangements.
a. Use a Request for Quotation when the need is clear, the commodities are in constant use, and
quotations are easily obtainable.
 b. Use a Request for Proposal when the buyer has complex requirements and plans to use
negotiation to determine price and terms.
c. Lastly, use a Request for Bid when the desire is a competitive bid process.
3. Ask potential suppliers for their respective quotations, proposals, and bids.
4. Compare and evaluate submitted documents, then select the suppliers. Both buyers and suppliers
agree and determine the terms of the contract. Correspondingly, the negotiated order placements
follow.
5. Prepare, place, follow up, and expedite the purchase order (PO). The purchase order is a written
requisition placement to purchase supplies.
6. Confirm that the order placed has actually arrived in good condition and at the quantity. Forward
the shipment to its destination, properly document and register the receipt, and forward it to the
accepting party/parties.
7. Lastly, Invoice clearing and payment follows.
In sourcing and ordering, value is generated when supplier relationships are created and managed
in delivering quality products, delivering on time, delivering at competitive prices providing good service
back-up when needed, and keeping promises.
Inventory Management
Another facet of supply management is inventory management. The role of inventory is to buffer
uncertainty. It includes all purchased materials and goods, partially completed materials and component
parts, and finished goods. There are four broad categories of inventories.
1. All unprocessed purchased input or raw materials for manufacturing. Companies purchase
supplies for any of the following reasons: to avail of quantity discounts, to anticipate future
price increases, to safeguard against supplier problems, to minimize transportation costs,
and to avoid supply shortage.
2. Work-in-process (WIP)
3. Finished goods include all completed products for shipment.
4. Maintenance, repair, and operating supplies (MRO) include the materials and supplies used
when producing the products but are not parts of the products.
Inventory Models
Inventory management is ordering the right quantity of SKUs at minimum inventory costs.
Inventory cost is the sum total of ordering costs and carrying costs. Ordering costs (set-up costs) are variable
costs associated with placing an order with the supplier like managerial and clerical costs in preparing the
purchase, while carrying costs (holding costs) are costs incurred for holding inventory in storage like
handling charges, warehousing expenses, insurance, pilferage, shrinkage, taxes, and costs of capital.
The inventory model answers two questions: "how much to order?" and "when to order?" The
question, how much to order, is answered by determining the economic order quantity (EOQ). EOQ seeks
to determine an optimal order quantity where the sum of the annual order costs and annual carrying costs
is minimized. On the other hand, the question, when to order, is answered by computing for the reorder
point (RP).
The application of the EOQ Model presupposes that the following are known and constant: demand,
order lead time, price, carrying cost, and ordering cost. Likewise, this model assumes that replenishment is
instantaneous and stockouts are not allowed. Lead time refers to the span of time (in days) it takes for a
stock to be delivered from the time it was ordered, while instantaneous replenishment is delivery of stocks
all at the same time.
The value of inventory management is evidently reflected in the minimization of costs. This is
achieved when organizations develop efficient ways of procuring their raw materials like accurately
forecasting demand and ordering in bulk to avail of quantity discounts. Reduction in carrying costs lower
handling costs, storage expenses, and costs of capital. Optimum ordering of stocks increases efficiency
while scheduled purchases contribute to a decrease in inventory costs.
Toyota, for example, espouses the concept of just-in-time. Just-in-time (JIT) is an operational
strategy whereby the company estimates its demand for raw materials and makes sure that they are delivered
on time. To effectively implement JIT, Toyota found it necessary to establish good supplier relationships.
As a result, Toyota's operational costs largely decreased. It sold its cars in the United States at prices lower
than Ford, General Motors, and Chrysler. Thus, it can be inferred that minimization in costs by an
organization in its supply management activities like sourcing, ordering, and inventory management is a
form of value creation where savings made by the organization can translate into lower prices for the
consumers.
Production and Operations
Production and operations are processes that transform operational input into output to satisfy
consumer needs and requirements. This transformational process consists of manufacturing and assembly.
Manufacturing is the process of producing goods using people or machine resources. It commonly

refers to industrial production where raw materials are converted into finished goods. Assembly is the
process of putting together raw materials into a desired output. Quality raw materials and parts, efficient
production layouts and processes, and employees with skills and motivation are essential to effective
transformational processes. Once achieved, value can be generated through appealing product designs,
quality and reliability, efficient service performance, accessible location site, attractive store displays,
affordable prices, and good customer service.

The Logistics Circle

Now a popular term in supply chain management, logistics management includes the supervision of
certain sequential processes. These include warehousing, scheduling, dispatching. transportation, and
delivery.
 1. Warehousing is the function of physically packing finished goods or merchandises in a building,
room, or any space for temporary storage. While these items are stocked in storerooms, they are
timetabled for release to customers or buyers.

2. Scheduling is the act of organizing these inventory units and booking them for delivery.
3. Dispatching products are for transfer; this may include posting, mailing, shipping out, transmitting,
forwarding, or releasing commodities.
4. Transportation scheduling and other logistics are necessary to make dispatching cost efficient.
The goal is to minimize transportation costs. Therefore, considerations have to be prioritized in
terms of location site, ease, or gravity of traffic, safety, and labor requirements.
5. Delivery to the specified site is undertaken. It closes the entire logistics circle.

Marketing and Sales

Products are produced and services are rendered for ultimate release to customers. Therefore, there
is a need to market these merchandise to interested buyers. Companies can adopt different modes of
marketing to attract and sell to customers. They can study the unique purchasing patterns of buyers and
determine what will translate their desire for the products into actual purchase. Aside from coming up with
good and distinct products, businesses can offer competitive pricing like special offers, quantity discounts,
and volume sales, among others. They can aggressively promote the products through advertisements in
newspapers, magazines, radio, television, and other forms of promotional mediums. In all instances, while
marketing their products and services, companies will need to complement their efforts with developing
salespeople through result-oriented sales trainings, giving competitive salaries that will motivate them to
contract sales, providing good working conditions for better productivity coupled with inspirational
leadership.
In summary, supply chain management is a complete sequence of processes that includes
purchasing, production and operations, delivery, and marketing and sales. It is actually a complete
management cycle where efficiency between and among the procedures essentially brings about optimum
output.