Relocation of Bit Technology Inc. to a new headquarters in China is a cost cutting strategy for the high-tech manufacturing firm. The foregoing summarizes resource and operational factors considered in the decision. The competitive strategy that reflects Differentiation Strategy with a Product Lifecycle Focus, concentrating on the High End, Traditional, and Low End segments.
Threats to the transition of the global firm are analyzed in a Porter’s Competitive Analysis, defining six (6) barriers to emerging market entry of multinational enterprises (MNE) looking to expand their growth prospectus through offshore manufacturing of parts (Table 1).
- Economies of Scale - The high-tech sector is a global economy of scale, largely defined by Chinese manufacturing capabilities. China’s new regulatory environment, means more opportunities for trade in this sector;
- Product Differentiation - The Company faces a challenge in product differentiation in a market that is defined by high change. Onsite in China, the R&D will be informed of substitution, yet this also poses a new risk in intellectual property violation;
- Capital Requirements - Foreign direct investment in the China operation will require additional liquidity to ensure sustained growth in the first several years;
- Switching Costs - The rationale to the decision. Forecasted win-win advantage in cost savings offered by Chinese manufacturing facilities, employees and materials;
- Access to Distribution Channels - Control over distribution channels will be a major challenge in this scenario. The company must implement a viable scheme for logistics and transport to meet performance and cost efficiency goals. Some loss is predicted;
- Cost Disadvantages Independent of Scale - While there is much potential in the Chinese market for sale of the products, a strong case must be made to buyers. Marketing will incorporate customer ‘equity’ insights; and this may lead to additional expense (Porter, 1980).
The plan includes a strategy for creating continuity in brand identity during and after the structural transition. Bargaining power of buyers and suppliers is significant. Suppliers also exert bargaining power in regard to cost and service of transaction services contracts. Profit margin is expected to be far higher with reductions in operational costs, and access to China’s market. Regulatory rules related to financial controller activities (i.e. taxation/tariffs) may change as the government enacts new legislation guiding foreign operations within the country. This final factor will be monitored closely for competitive advantage into the future.
The Precision Parts’ 4-year strategic management plan is the result of much deliberation by the company’s stakeholders in the interest of meeting short-term objectives and long-term sustainability goals. The strategic management plan is vital as a Charter, serving as the framework for the company’s financial and operations activities. Review of the company’s situation in coordination of goals for growth was conducted in an environmental scan of current conditions; and analysis of capital structure of operations.
Quantifiable goals to the Precision Parts strategic prospectus are in line with financial reporting figures defining the company’s current position and forecasted profit:
- Profit margin 3-year average is 6%. Industry average during this time has also been 6%. The company goal is 13% in 4 years.
- PPQ Parts holds 5% of the world market share on small SUVs, but its goal is 9% in 4 years.
- Current stock price is $10 per share. The goal is $22 a share. Profit must support this goal.
- New facilities will be needed in international expansion, and PPQ Parts anticipates building most of those (80%) outside the United States.
- Planning of inventory levels to meet just-in-time (JIT) production in the new facility is a priority, cost control strategy.
- PPQ Parts employees now number 5,000, and all are currently employed in the United States. It plans to grow to 10,000 employees in 4 years.
- PPQ Parts has averaged 28% employee turnover during the last 3 years. This is compared to an industry average of 25%. The company’s goal is to increase employee retention by lowering annual turnover to 17%.
- PPQ Parts contributes to all the local communities in which it is doing business. This is one of its corporate values. Current charity is 0.5% of total profits, but the company would like to raise that to 5% in 4 years.
In the feasibility study of the company’s operational features situation analysis of short-term and long-term organizational benefits (OBES) corresponds to ranking of key variables (i.e. sales and order processing, transportation and distribution, operations, inventory and materials management, finance, and customer service). Environmental scanning was conducted to determine operational efficiency requirements in a Six Sigma SWOT (Strength, Weaknesses, Opportunities, Threats) assessment (Table 2).
The Precision Parts value chain of operations (VCO) consists of matrices of upstream suppliers and downstream buyers (Porter, 1980, 1998). Competitive advantage is dependent on firm-specific values, as well as the company value system itself. The installation of the new inventory software application as system (SaaS) will reinforce VCO capabilities in strategic business unit sharing across activities; application of analyses; product and market differentiation; and partner integration (Collier and Evans, 2013). This will be critical to foreign market operations integration of a new facility. The value chain of primary and support activities will be operationalized to optimize process flows, and maximize profit margin (Figure 2).
Figure 1. The Precision Parts value chain of operations.
Operationalized segmentation of Precision Parts production activities prepared for analysis of cost drivers and sources of differentiation that might be changed to meet the Company’s goals and objectives (Collier and Evans, 2013). Identification of sub-activities for all primary and support activities that are cross-functional in nature reveals value-added functions in connection with the organization’s operations activities.
Simulation of the Precision Parts current production line was tested according to the 80/20 rule. The results indicated that repetitions in error were not contributive to consistent delays in supply chain productivity. The 50 run sample test illustrated in linear and polynomial regression analyses of median aggregate error frequencies confirmed that the company is in a good position to deploy the systems updates; there were no special causes of defects or errors requiring a cause-and-effect analysis (Graph 1).
Graph 1. Linear and polynomial regression analysis of Precision Parts production errors.
The decision to add new information systems (IS) updates to the company’s enterprise operations involved eight (8) values: 1) Financial 2) Customer and Market; 3) Quality; 4) Time; 5) Flexibility; 6) Innovation and Learning; 7) Productivity and Operational Efficiency; and 8) Sustainability (Collier and Evans, 2013). Productivity and operational efficiency were the primary basis to the final decision to purchase and implement the new infrastructure.
The update is a lean and agile strategy will also control production materials waste at ‘zero’ inventory levels. Little’s Law or the relationship among flow time (T ), throughput (R), and work-in-process (WIP ) or mean average cycle time was used to calculate the eight (8) month cycle of the installation to training and completion of the inventory system update: WIP = R × T (Collier and Evans, 2013).
The GANTT job sequence chart illustrates workflow intervals to the project between 011/10/2013 to 07/01/2014, scheduled for finalization of training and updates by the end of 2014 (Chart 1).
Chart 1. GANTT job sequence chart, enterprise system update.
Enterprise systems enhancement will attribute more efficiency to the company’s overall productivity. A strategic measure to increase profitability in operations management, the implementation of the company’s data driven strategy of inventory and supply chain control is essential to realization of the Plan’s four year goals. Human resource management (HRM) also benefits from this strategy, advancing employee performance through application of IT assisted business processes across the company value chain of operations.
The Precision Parts strategic management plan covers the feasibility study of the company’s current situation, as well as the near future restructuring of operations. The company’s enterprise system provides the most vital source of change.
With optimization of the company’s system of operations, production process flows will be enhanced with SaaS; isolating risks and ensuring better control over value-creating functions in operations. Continuous reporting of productivity and performance will also contribute to other key operations such as financial control and HRM capacity. The strategic management plan also promises to create more sustainable competitive advantage through community investment, and employee and investor collaboration.
Collier, D. and Evans, J. (2013). OM4, 14th edition. Mason, OH: South-Western College, 369.
Porter, M.E. (1998). Competitive Advantage: Creating and Sustaining Superior Performance. New York, NY: Free Press.
Porter, M. (1980). Competitive Strategy. New York, NY: Free Press.