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Operations Strategy Case Study
Transcript of Operations Strategy Case Study
Operations Strategy Case Study
Escalated Production Capabilities :
The largest microwave oven manufacturer in the world.
Competed based on lowest cost through efficient utilization of capacity and process improvement.
Combining OBM, OEM and ODM to achieve economy of scale.
60%-70% of the domestic in 2002 and 50% of the international market share in 2007.
Increased production lines through free production line transfer
Gained the right to use its excess capacity of production line for its own products
Component suppliers were encouraged to set up manufacturing facilities at Galanz
Adoption of penetration pricing leveraging economies of scale
Expansion of production capacity to exceed market demand
Aggressive pricing strategy lead many industry players like LG & Panasonic to withdraw from the market.
Transformation from OEM to ODM
Shortage of Magnetron because of retrenchment of its suppliers
Designed & developed its own magnetron
Galanz magnetron subsidiary started mass production
Enhanced R&D capability & production innovation:
Two R&D units were setup in 1995 & 1997
Investment in R&D was more than 3% of annual revenue
Redesigning products with focus on new features & technologies
Low Brand Awareness in Foreign market
Foreign market not familiar with the brand Galanz
Partnership with MNC’s like Wal-Mart & K-Mart were confined to OEM deals only
Globalization causing fierce competition of branded products
Conflict of interest of OBM & OEM business
Setup sales & service business either on its own or through its channel partner
This could lead to becoming competitor to its OEM customer
Antitrust (Anti monopoly) lawsuit
The company is accused of monopolizing the market by dumping its product
Inefficient Production Planning
Strived to producing more than demand
Sales forecasting & production planning capabilities were nil
Galanz most important objective was cost, it only had an abundant supply of labour and land.
Delivering quality product.
Became the leading company of the market.
The supplier refused to supply the most important component magnetron to it.
It develop its own design, innovation.
In 1997, the company initiated major invest in magnetron.
By 2000, the company was able to design and produce its own magnetron.
The company was able to produce only 16 million units where the demand was 25 million units in 2003.
Galanz found itself outsourcing part of the magnetron production to other companies.
The problem was solved by outsourcing with the Japanese company.
It produced oven for the domestic market with its own brand name, while production technology was produced from Japan.
It produced microwave ovens at low cost, combined with its enhanced R&D ability had allowed it to compete with major successful players like Panasonic, Toshiba and LG.
Galanz’s Operation’s Strategy
Identification of potential product.
Blueprint purchased from world leader (Toshiba) in microwave oven equipment and Technology producer in early 1990’s.
Factory set up with professional engineers with ample knowledge of this technology.
Advantage of abundant supply of cheap labours and land.
Cost leadership strategy to increase the market share.
Cost leadership strategy.
Strategic alliance with other big appliance companies and its suppliers.
Full utilization of resources.
Shift toward product oriented process.
Increase its production scale and reduce production cost.
Tactics of price war to dominate to competitors in domestic market.
Focus on enhancing the distribution of product.
Existing product’s improvement and design & development of new product.
Strategic partnerships with multinational companies.
OEM business in the international market
Employing OEM method was proven to be success factor of Galanz
Galanz went into global market using OEM business.
Enabled the company to use its own manufacturing equipments.
Galanz exceeded other chinese manufacturers.
OEM microwave ovens- the primary exports.
No brand recognition to the end users.
Investment in R&D and import of new technologies allowed to
cost reduction and differentiation.
Transfer from OEM to ODM after production of magnetrons in own company.
Increase demand for branded products because of competition in MNCs.
Galanz’s produced products at low cost with good quality.
Exported products without any idea about brand name to the end users.
Exploration of brand name to the users can be possible through OBM business.
The company doesn’t have to change its cost leadership because price reductions increased sales by about 100%.
The purposes of this price war were to consolidate the industry by marginalizing small, inefficient players before they had a chance to grow and discourage new entrants.
A high profit margin in the industry would encourage excessive entry
The first benefit is the Cost, second is the Low Risk and third could be merger and acquisition.
Priorities to achieve competitive advantage
Problems and Solutions
In order to lead the company to greater success
Execute a joint venture.
Venture into wholly-owned subsidiary types to international expansion.
Should try to setup a link Joint Venture with another house appliances manufacturer such as GE or its competitors like Sharp and/or Panasonic.
Forming a Joint Venture would present Galanz with various advantages.
They may also look for merger and acquisition.
Future competitive strategy for the combination of OEM, ODM and OBM businesses.
Effective sharing of value chain activities.
Effective resource allocation for competitive advantage.
Vertical relationship to adopt for magnetron production.
Sure Ravi Teja
T V Ashok Kumar
D Siva Krishna