Getting Hands-On With a Manufacturing Company

My team and I were working on a business simulation over this semester. The situation required us to turn a manufacturing company around. They were in the dinnerware industry. It was pretty interesting since it will be a while before I ever get a chance to run a real company. With this said, I would like to show you guys how my team and I approached this.

Our beginning mission was to have the company turn around as soon possible. Our long term goal was to make the company as profitable as possible, while expanding in capacity and selling a high end version of our product.

During this simulation, the stakeholders were basically my team and I, since we were graded on our performance and how we ran the company. This was determined by factors such as our stock price, return on investment, sales growth, retained earnings, credit rating, earnings per share, current ratios, and debt to equity. They impact our strategy in terms of how we would prepare the company a certain way whenever we were evaluated I feel. The earnings would look a lot better whenever we were graded upon.

Looking at the Porter’s Five Forces, the dinnerware industry has its ups and downs. As we competed amongst 6 other groups, the rivalry seemed average. This was because there was a feeling that this industry is up for grabs and as long as you make the right moves, it can easily be yours. However, at some point of the simulation, earlier decisions you’ve made can come back to haunt you. Looking at the threat of suppliers, I would say that it is from medium to high. This is because one really doesn’t have a choice between several buyers, but as long as you planned for the future and buy at the future price, you are getting a better deal than paying the spot price. Next, the threat of buyers seems to be low to medium because there were firms that sold their products for a higher price than the rest and was still able to sustain high earnings. Offering your product for a low price also seemed to work and this worked out for my firm several times. The threat of substitutes seems to be medium since the customers always have a choice and our sales ranges different according to the market conditions. The threat of new entrance was not a factor in our simulation, but if we disregard that, the industry depends on capacity and capital is something the new entrant must have coming into this industry. They would be competing against firms that already have the capacity to breakeven much quicker than the newbie. With that said, the industry is somewhat attractive, because as long as you have the capital and the right mind set for running your firm, you have a chance to be at the top. There was however some discrepancies with the economic index for the next quarter and one’s pricing. The forecast might be wonderful, but making the price of your product higher may not result in better payback from your sales.

During the beginning of our simulation, we were really focused on our product and selling it, more than expanding our capacity. We spent a lot of our resources on advertising and paying our employees. What puzzled us was that our sales weren’t as high as the first time we raised their commission and salary. Our products did not pick up even when we spent so much on advertising, quality control, R&D, and engineering. We thought that by marketing and selling high, we would develop a competitive advantage. We even lost a sales person as our sales began to plummet, which was quite puzzling since we didn’t know what went wrong. We gave them a pretty high salary, along with a good commission. At the time, we were so caught up with our situation that we fell behind with adding new capacity.

We had lagged behind on adding capacity, but eventually we caught up, and were able to take advantage of the new capacity and implement our pricing plan. Some of the ways we tried to attract the market to our firm was by lowering our prices while trying to provide a quality product. We had a more balanced attack this time focusing on avoiding overtime and subcontracting while advertising aggressively. There was definitely a jump in our sales and it worked out pretty well for parts of our second year.

To evaluate our firm, I felt that we could’ve done better. There was a lot of trial and error that we went through that could’ve been avoided had we been more careful. Our ignorance for going overtime and subcontracting really killed us at the expense end. I was glad that we followed through with what we wanted to do and was able to pick up on our mistakes and quickly turn things around. There were a lot of ups and downs for us in terms of earnings and how we viewed the markets. If we were given a chance to continue the simulation or a chance to start over again, my focus would be on capacity and a better control on our expenses. There were a lot of things we over spent on, in the beginning which decreased our earnings. Some other things that I would’ve done different is our forecast for the next quarter and also get a better understanding of the economic index.

With all that said, this was a great experience. Being able to put together all the things that we learned over these several years, and trying to implement them in a business of our own without losing any money was pretty cool. It is a chance to look at the bigger picture that we will not get at the start of our careers, but hopefully something we will come upon later on.

Why so many failures?

Businesses come and go, but that’s not a surprise. Especially when a majority of the businesses that entered at the start of the year, leaves at the end of the year. But there are stores and companies out there that we never expected to pack their bags and leave, yet they do. Does anyone remember “The Wiz?” “Nobody can beat the Wiz,” or so it might have been. That store has been around since I was a kid and I was surprised it failed. The same goes for Sharper Image, whom recently filed for Chapter 11 bankruptcy. The business has been around since 1977 and they have stores in many of the malls in the US. If you search the web, there are probably many different opinions of why they failed. It would range from the decline of sales, competition, economy, anything goes. However, these things could’ve been predicted by how Sharper Image has been functioning even if you didn’t look at their financial statements.

Here are some of the so call “symptoms” of Sharper Image’s failure:

Too much diversification: Products sold to several unrelated customers/markets – When a company’s product targets the wrong type of customers or market, they usually don’t last long. Why? They won’t get enough sales. This is a simple implication of a failing business, but who would’ve thought this would happen to Sharper Image? As you walk by the store, or even go into the store, there are usually many customers, well, potential customers anyway. Sharper Image’s products can be pretty cool I admit, but people go in there usually to play with the products more than purchasing them. The price range is another factor that pushes their unique products away from consumers. Some people even claim that the only people lining up to the register most of the time are tourists, more than local customers. If your store is targeting the wrong customers, no matter how cool your products are, they will not help your business succeed.

The company does not have much product variety compared to competition – When companies are too focused on one or two of the products that they are selling more than everything else; they are bound to hit obstacles sooner or later. Sharper Image has been known for their Ionic Breeze Air Purifier, which has been turned against them by lawsuits. It is one thing if your product is out of style or the trend is heading another way, but when it is being sued and you have to recall your product, that’s suicide. How many other things can one recognize from Sharper Image besides their purifiers? Their massage chairs? Trump’s Steak? Their other electronics aren’t much of a sale since customers can buy them else where with a better selection and probably at a cheaper price. That was what hurt Sharper Image the most; counting on their purifiers, massage chairs, and Trump’s Steak. Going back to targeting the market, their products are sometimes just targeting a risky portion of the market.

Shaper Image is a wonderful store. They have great ideas and innovative products. But when you start counting on things that aren’t a necessity in a consumer’s life and aren’t backed up by anything else, it can be a hard business to sustain. The lawsuit was another factor toward their road to bankruptcy, but this was also because Sharper Image did not have another product to pick them up or be their cushion. I’m not saying that selling innovative products or high end electronics will set a business toward failure, but when there is no backup plan, it is hard to pick up the business if they hit obstacles such as the purifier situation. For Sharper Image to recover, they would need a new and amazing invention or a better way to attract customers. Since the economy plays a great factor, if Sharper Image keeps pushing the same strategy, their products will only be going against the current.

What is your strategy?

In a world where businesses are always trying to outdo one another, everyone is trying to find that “Holy Grail” (Business Strategy) that can lift their business into greatness. What can this strategy be? And, what do they really mean by it? A business strategy can be defined as the process that enables a firm to rise above their competition and become the dominant player. To be more specific, it is a competitive advantage in the way they run their business.

Here are two ways a firm can attempt to establish a competitive advantage in their industry:

Product/Service Differentiation - Creating a unique product that allows a firm to be the leader of that market. The uniqueness of that firm’s product allows them to be the only player in that market. Since no one can compete with them, the business has a good hold on the price and can be quite profitable.

Niche dominance – A firm with this approach will want to have a secure position in a certain market. This position allows the firm to basically control the market. What is great about this position is that it gives the company a lot of room to work and try new things without affecting their business.

Let’s take a look at Several Companies that seems to be nailing the business strategy right:

Product Differentiation

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In the comic industry, there is no one else that can dominate the market like these two companies can. How can anyone create a superhero that can compare to the list of characters they both have. The characters are not only well known, but they are unique and have been through quite a history. Can anyone really imitate Superman? Characters such as Batman, Spider-Man and many more, gives Marvel and DC that competitive advantage they need to control the market. This is something that isn’t only quite noticeable, but you can see that they acknowledge this type of strategy too. These characters were developed a long time ago, but their story and character are recycled for every generation to enjoy. This allows them to survive and thrive in this industry over so many years. A great example of this was when I was young they aired the Batman cartoon and as I grew up, they moved onto the Superman cartoon. Afterward, they went into Teen Titans and the Justice League. Now that I’m about to graduate college, they are showing a new version of the Batman cartoon. Remaking the cartoon isn’t the only thing they have going for them. A brand new cartoon basically means brand new comics and merchandise. These two companies have created characters of uniqueness that can’t be copied nor compete against, and by all means, they sure know how to use them.

Niche dominance

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When talking about dominance, I’m pretty sure these two companies will be somewhere floating around in your mind. A commercial area isn’t complete without the appearance of these two stores. Every other block can’t be complete without a Starbucks. I can’t even recall the last time I went into a mall without a McDonald’s. As a matter of fact, this isn’t just dominance, it is total domination! These two companies not only made their way into the market, but also the hearts of Americans. What they’ve done to dominate this market was redefine fast food and the way one enjoys a cup of coffee. In some aspects, they are pretty much a part of the culture of this society. Having such a nice position in their respective markets is not without its perks. With this dominance, these two companies can experiment and introduce new products without worrying about many negative side effects as other companies do. Their new products also have the advantage of a large market paying attention to them. In many ways, it helps solidify their new products much quicker. I remember when the “McGriddles” were first introduced. The promotion for it was everywhere and eventually, you just had to go try the thing. I had to admit it tasted pretty good and that’s probably the reason why it is still on their breakfast menu. Even further back in time, I recalled McDonald’s Ice Cream float on their soda. This was something that gained some traction but eventually I saw that it was pulled off their menu. A company such as McDonald’s goes to show that dominance means everything because a small mishap for their company would barely be a flinch, while smaller companies might not be able to afford product failures such as these.

As a result, developing a business strategy can result in many great things. To recognize the advantage you have over your competition and using it dominate the market is even better. That was something I saw in these several companies. They developed themselves into their market and exploited the advantage that was created by their strategy.

Studying an Industry

Porter’s 5 Forces

For a lot of people, their dream is to open up their own shop or business. Wanting that chance to be your own boss, to call all the shots and keeping all the profits for yourself. However, if you check the statistics on how many businesses survive after a year since they’ve opened; there are more failures than successes. One of the many reasons why this happens is the lack of study or knowledge one has for that industry. Because they are so overexcited about starting their own business, they forget all about understanding the industry and knowing the shortcomings of that industry.

This is where Porter’s 5 Forces Model comes in. One can think of it as a road map to studying an industry. It contains five factors that one should analyze to determine their chances of success in that industry. These five factors are:

1. Entry Barriers – This takes into consideration of the difficulty of entering into an industry, for you and for potential competitors. For this factor, one would have to analyze capital requirements, brand loyalty, government regulations affecting the industry, customer switching cost and access to key suppliers.

2. Rivalry – This is a measure of the competition within the industry. Are the competitors in this industry aggressive or passive? Do they react to price change immediately? Is it easy to leave this market?

3. Supplier Power – A measure of how much dependence does an industry have on their suppliers. Do suppliers have control of the industry through price and quantity of supplies? Can one easily switch between suppliers to take advantage of them?

4. Buyer Power – How much do buyers depend on your product? Can they easily switch to your competitor? How price sensitive are the buyers?

5. Substitutes – Can consumers easily switch to a product that is outside of your industry if your price or supply does not fit their demand?

After attaining enough research on these five factors of an industry. One will then have to evaluate the factors by determining if they are strong or weak. The weaker each factor is, the more attractive the industry becomes since there is a better chance to raise profit and succeed in the industry. While the stronger each factor is, the less attractive the industry becomes due to the small chances of success in it. Now that we have a gist of Porter’s 5 Forces Model, let’s try it out on an example.

Restaurant Industry

1. Entry Barrier
- Capital Requirements – Start up cost for a restaurant depends on what type of restaurant one is going for, but on the average the cost is around $ 250,000 to start. This is taking into consideration of leasing, fixtures, equipment and employment.
- Brand Loyalty – Consumers’ loyalty to a restaurant depends on the good food they produce, the service they provide and the memories they create there.

- Government Regulations – There are several licenses and permits one has to acquire. This goes from food handling license, heath department permit, fire department permit, liquor license. These things can be pros and cons to a restaurant. To attain these licenses and permits, one must play by the government’s rules in running a restaurant. As long as they accommodate to that, the licenses and permits are pretty easy to attain.

- Switching Cost – The thing about restaurants is there isn’t any security, since there isn’t much of a cost for consumers to go to this restaurant instead of another. This opens up a risk of not getting enough customers going to your restaurant if you fail to provide good food, service or environment.

- Access to Key Suppliers – There are plenty of suppliers in the food industry making access to suppliers to be quite easy.

Evaluation: Medium to High

2. Rivalry – With the restaurant industry, competition may not only be the price one charges for their food. Competition can be measured in different ways pending on if one wants to compete with local restaurants or just with their type of restaurant only. But most importantly restaurants compete through what they offer. Do they provide the better food, service and environment? Rivalry usually isn’t as intense because sometimes the restaurants may be catering to different groups and can even coexist in the same area.

Evaluation: Low to Medium

3. Supplier Power – Suppliers have a relatively weak control over the restaurant industry because of the vast amount of suppliers offering their products to restaurants. The industry in restaurant suppliers might even be more competitive themselves, because they want to offer the lowest price and quantity for the many restaurants out there.

Evaluation: Low

4. Buyer Power – Restaurants are customer sensitive because their success or failure relies on customers coming in to eat. Thus, in many ways, buyers have a strong influence in what a restaurant must offer. Buyers can easily decide to eat in the restaurant across the street from yours. Take hamburgers for example, if you make the best tasting hamburger in town but you charge too hefty of a price for it. Customers may either go somewhere else for it, leaving you without any sales, unless you decide to lower the price. This also goes for the service and environment you provide.

Evaluation: Medium to High

5. Substitutes – There are quite a lot of substitutes for eating out at a restaurants. Some include cooking at home, buying from a stand outside or buying from a deli. However, if there are so many substitutes, why are there still so many restaurants? Because going out to a restaurant is a culture, a convenience and maybe even entertainment. Thus making restaurants irreplaceable.

Evaluation: Medium

Personally, I always thought about opening a restaurant sometime in the future because I love food. Being able to analyze the industry for a bit was actually quite interesting. Let’s look at our results. From the evaluation of the five factors, it seems to be somewhat attractive to get into the restaurant industry. Breaking into the industry doesn’t seem to be hard, but seems to be more about sustaining it over the years. There seem to be relatively average competition in this industry because restaurants can appeal to different types of people at the same time. Suppliers don’t really have that strong of an influence in this industry because restaurants have so many suppliers to choose from. A key factor of this industry is the buyers and is the factor that many should look at when opening a restaurant, while substitutes may also be another factor to keep restaurant owners in line with their prices. All in all, the reason why we always see new restaurants opening up all the time is because it is a pretty attractive industry. One must keep in mind though, whichever business one goes into, there will always be risks, success and failure.

Mission Statements

During the past fall, I was on a major internship search. I was looking for a good internship that would give me the experience that I needed to jumpstart my career. To get into a company, it is all about nailing the interview. And to do that, you would like to know as much as you can about the company and their environment. One easy way of getting to know a company before you actually meet them is by reading their mission statements. A mission statement tells a lot about one’s company. It expresses to everyone their goals, their approach to their environment, what they can offer to their customer and most importantly their purpose. These mission statements aren’t just first impressions, but also some of the company’s true intentions and guidelines in running their organization. Let’s take a look at one of the most well known brand in the world and see if we can defer much from their mission statement:

“When Nike co-founder Bill Bowerman made this observation many years ago, he was defining how he viewed the endless possibilities for human potential in sports. He set the tone and direction for a young company called Nike, and today those same words inspire a new generation of Nike employees.

Our goal is to carry on his legacy of innovative thinking, whether to develop products that help athletes of every level of ability reach their potential, or to create business opportunities that set Nike apart from the competition and provide value for our shareholders.

It started with a handshake between two visionary Oregonians - Bowerman and his University of Oregon runner Phil Knight. They and the people they hired evolved and grew the company that became Nike from a US-based footwear distributor to a global marketer of athletic footwear, apparel and equipment that is unrivaled in the world.

Along the way, Nike’s established a strong Brand Portfolio with several wholly owned subsidiaries including Converse Inc., NIKE Golf, Cole Haan Holdings, Inc., and Hurley International LLC.

Our world headquarters is located near Beaverton, Oregon, a suburb of Portland. So while the Pacific Northwest is the birthplace to Nike, today we operate in more than 160 countries around the globe. Through our suppliers, shippers, retailers and other service providers, we directly or indirectly employ nearly one million people.

That includes more than 30,000 Nike employees across six continents, each of whom make their own contribution to fulfill our mission statement: to bring inspiration and innovation to every athlete* in the world.”

The reason why I decided to choose Nike is that their mission statement weren’t so clear cut, unlike some of the more corporate ones where everything is given to you structurally. As you see, under their corporate overview there are six paragraphs, but to pick out the importance of their statement, it will take some perceptions. From my observation, I got the most out of paragraph two, three, and six. (This is pertaining to the characteristics I was looking for in their statement.) I could see their goals are to continue their pursuit for innovation in their products and focusing on how their product can better serve athletes. In addition they also talked about attaining opportunities and creating value for their owners. They then established their purpose in their environment by informing us about how they are providing their product from a US market to the global market. Toward the end, they included their employees and restate their goal which I think seems to be their “thesis” of the six paragraphs.

In a board view, we can see what Nike’s goal, purpose and plans for the future. However, as an interviewee, one will not know how Nike run things besides the fact they want to bring innovation and inspiration to their customers. One can get a sense of where Nike stands and their history, which can be helpful. However, this can only be the start of their research in learning more about Nike. What do you guys think?

Hi everyone! Welcome to my blog!

Hi everyone, my name is Hin Wah (Leon) Lam. I am an accountant major that is attending Baruch College. Hopefully, I'm graduating in May and will be heading out to the business world real soon. This leads to some of the objectives of my blog. In the near future, I am planning to put up posts about some issues regarding the business world and also some philosophy on how I approach my profession. Since I am a newbie in the business world, I have many hopes and motivation whenever I am at the office. Maybe I can bring back some inspiration to anyone that is finding their job to be a drag at the moment. Besides that, let me tell you guys more about myself. As you can see, I am a very optimistic person. I am also pretty hard working with whatever I am doing whether it is work, school or sports. Last but not least, I like to look at the lighter side of things and find my way around this crazy maze called life.