March 30, 2016

Ch.1. Defining Marketing for the New Realities - Kotler - Keller 15 Edition - Summary



Chapter 1 Defining Marketing for the New Realities

Formally or informally, people and organizations engage in a vast number of activities, and the function for those is called marketing.

The Value of Marketing




Marketing’s broader importance extends to society as a whole. Marketing has helped in introduction appropriate new products that gained acceptance as they have eased or enriched people’s lives. Marketing was able to interact with people and find out their unmet needs and convey that information to new product developers and designers. In a similar manner, it facilitates enhancements
in existing products as firms (marketers) innovate to improve their position in the marketplace.
Successful marketing builds demand for products and services by helping to build products for which people are waiting after they come to know of the needs and the demand for products in turn, creates jobs. By contributing to the bottom line, by finding out the price at which a specific quantity of demand is available and then participating successfully in the exchange process, successful marketing also allows firms to more fully engage in socially responsible activities.

Marketing Decision Making
Winning Marketing

The Scope of Marketing


What marketing is, how it works, who does it, and what is marketed.

What Is Marketing?


Marketing is about identifying and meeting human and social needs. One of the shortest good
definitions of marketing is “meeting needs profitably.”

The American Marketing Association offers the following formal definition: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.

Marketing management as the art and science of choosing target markets and getting, keeping,
and growing customers through creating, delivering, and communicating superior customer value. (managerial definition of marketing)

Social definition of marketing: Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.

Selling is part of marketing. But selling is only the tip of the marketing iceberg.

Peter Drucker, a leading management theorist, puts it this way: There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available.

What Is Marketed?


Marketers market 10 main types of entities: goods, services, events, experiences, persons, places,
properties, organizations, information, and ideas.


Who Markets?


 A marketer is someone who seeks a response—attention, a purchase, a vote, a donation—from another party, called the prospect.

Core Marketing Concepts


Needs, Wants, and Demands


Needs are the basic human requirements such as for air, food, water, clothing, and shelter. Humans
also have strong needs for recreation, education, and entertainment. These needs become wants when they are directed to specific objects that might satisfy the need.

Demands are wants for specific products backed by an ability to pay. The potential person is willing to specify a price at which he is going to buy and able to show money resources to do the transaction (generally it means he has an income).

Target Markets, Positioning, and Segmentation


Marketers start by dividing the market into segments. They identify and categorise  distinct groups of buyers who might prefer or require varying product or service benefits and features  by examining demographic, psychographic, and behavioral differences among buyers.

After creating market segments for a product or service, the marketer decides which present the greatest opportunities and select some of them as its target markets. For each, the firm develops a benefit statement to position in the minds of the target buyers a central benefit or two as the specialty of the offering by the particular company.


Offerings and Brands


Companies address customer needs by putting forth a value proposition, a set of benefits that satisfy
those needs. The intangible value proposition is made physical by an offering with features, which can be a combination of products, services, information, and experiences.

A brand is an offering from a known source. A brand name identifies the source and carries many
associations in people’s minds that make up its image.

Marketing Channels


Marketers use three kinds of marketing channels. Communication,  Distribution and Service.

Communication channels help in communicating with target buyers. They include newspapers, magazines, radio, television, mail, telephone, billboards, posters, fliers, CDs, audiotapes, and the Internet. The firms also communicate through the look of their retail stores and Web sites and other media. Marketers are increasingly adding interactive channels such as e-mail, blogs, and toll-free numbers to engage in conversation with potential buyers.


Distribution channels display, sell, and deliver the physical product or service(s) to the buyer or user. Thes distribution may be direct via  owned retail outlet, salesmen, the Internet, mail, or mobile phone
or telephone, or indirect with distributors, wholesalers, retailers, and agents as intermediaries.


Services used marketers  include warehouses, transportation companies, banks, and insurance companies.

Paid, Owned, and Earned Media
Impressions and Engagement

Value and Satisfaction


The buyer chooses from  the competing offerings the one he or she perceives to deliver the most value.Value is primarily a combination of product quality (specification and actual product), service, and price (qsp or QSP) and it is called the customer value triad. Value perceptions increase with quality and service but decrease with price.

Marketing can be thought of as an activitity that does identification, creation, communication, delivery, and monitoring of customer value.

Satisfaction reflects a person’s judgment of a product’s perceived performance in relationship to expectations. If the performance falls short of expectations, the customer is dissatisfied.  If it matches expectations, the customer is satisfied. If it exceeds them, the customer is delighted.


Supply Chain


Each company has a value chain and  captures only a certain percentage of the total value generated by the supply chain’s value delivery system. When a company acquires or enters upstream or downstream activities, it will capture a higher percentage of supply chain value.



Competition


Competition includes all the actual and potential rival offerings and substitutes a buyer might consider.

Marketing Environment

Marketing Environment
The marketing environment has task environment and broad environment. The task environment includes the economic entities  engaged in producing, distributing, and promoting the offering.
These are the company, suppliers, distributors, dealers, and target customers. Suppliers include marketing services companies also.


The broad has six components: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political-legal environment.

The New Marketing Realities

Major Societal Forces: Network information technology, Globalization, Deregulation, Privatization, Heigtened competition, Industry convergence, Retail transformation,  Disintermediation, Consumer buying power, Consumer information, Consumer participation, Consumer resistance.


To be written further

Technology
Globalization
Social Responsibility

Marketing 3.0
A Dramatically Changed Marketplace

New Consumer Capabilities

New Company Capabilities

Changing Channels

Heightened Competition


Marketing in Practice


Marketing Balance
Reinventing Marketing at Coca-Cola

Marketing Accountability

Marketing in the Organization


Every employee has an impact on the customer and must see the customer as the source of the company’s prosperity. Then only every customer encounter with the company anywhere will be a pleasant experience.


Company Orientation toward the Marketplace


The Production Concept


It holds that consumers prefer products that are widely available and inexpensive.

The Product Concept

The product concept proposes that consumers favor products offering the most quality,
performance, or innovative features.  What is missing is customer needs.


The Selling Concept

The selling concept holds that consumers and businesses, if left alone, won’t buy enough of
the organization’s products. So you have to put in selling effort and make them buy.

The Marketing Concept


The marketing concept holds that to succeed, a firm has to be more effective
than competitors in creating, delivering, and communicating superior customer value to your
target markets.

Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is
preoccupied with the seller’s need to convert his product into cash; marketing with the
idea of satisfying the needs of the customer by means of the product by creating and delivering it to the customer.

The Holistic Marketing Concept


Four broad components characterize holistic marketing: relationship marketing, integrated marketing, internal marketing, and performance marketing.

Updating the Four Ps
Understanding the 4 As of Marketing
Marketing Management Tasks
Developing Marketing Strategies and Plans
Capturing Marketing Insights
Connecting with Customers
Building Strong Brands
Marketers' Frequently Asked Questions
Creating Value
Delivering Value
Communicating Value
Conducting Marketing Responsibly for Long-Term Success


MARKETING EXCELLENCE Nike
MARKETING EXCELLENCE Google 

March 28, 2016

Marketing Management - Kotler and Keller 15th Edition - Book Information - Chapter Summaries







Table of Contents
Part 1. Understanding Marketing Management
1. Defining Marketing for the New Realities
    Summary of chapter 1. http://nraomtr.blogspot.com/2016/03/ch1-defining-marketing-for-new.html
2. Developing Marketing Strategies and Plans

Part 2. Capturing Marketing Insights
3. Collecting Information and Forecasting Demand
4. Conducting Marketing Research

Part 3. Connecting with Customers
5. Creating Long-term Loyalty Relationships
6. Analyzing Consumer Markets
7. Analyzing Business Markets
8. Tapping into Global Markets

Part 4. Building Strong Brands
9. Identifying Market Segments and Targets
10. Crafting the Brand Positioning
11. Creating Brand Equity
12. Meeting Competition and Driving Growth

Part 5. Shaping the Market Offerings
13. Setting Product Strategy
14. Designing and Managing Services
15. Introducing New Market Offerings
16. Developing Pricing Strategies and Programs

Part 6. Delivering Value
17. Designing and Managing Integrated Marketing Channels
18. Managing Retailing, Wholesaling, and Logistics

Part 7. Communicating Value
19. Designing and Managing Integrated Marketing Communications
20. Managing Digital Communications: Online, Social Media and Mobile Marketing
21. Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations
22. Managing Personal Communications: Direct Marketing, Word of Mouth, and Personal Selling

Part 8. Managing the Marketing Organization
23. Conducting Marketing Responsibly for Long-Term Success


New and Special Features


Four key dimensions of holistic marketing are described  throughout the text:

Internal marketing—ensuring everyone in the organization embraces appropriate marketing principles, especially senior management.
Integrated marketing—ensuring that multiple means of creating, delivering, and communicating value are employed and combined in the best way.
Relationship marketing—having rich, multifaceted relationships with customers, channel members, and other marketing partners.
Performance marketing—understanding returns to the business from marketing activities and programs, as well as addressing broader concerns and their legal, ethical, social, and environmental effects.


CASES:  Each chapter  now includes two expanded Marketing Excellence mini-cases highlighting innovative, insightful marketing accomplishments by leading organizations. Each case includes questions.

Address today’s economic, environmental, and technological changes in marketing: Throughout the new edition, these three areas are addressed with emphasis on marketing during economic downturns and recessions, the rise of sustainability and green marketing, and the increased development of computing power, the Internet, and mobile phones.


Marketing in Action Mini-cases:  The end-of-chapter sections now include two Marketing in Action mini-cases that highlight innovative, insightful marketing accomplishments from leading organizations.

Chapter Changes


NEW! A new chapter 21 Managing Digital Communications: Online, Social Media and Mobile has been added to better highlight that important topic. Significant attention is paid throughout  the text to  “the digital revolution” occurring in Marketing.

NEW! The global marketing chapter is now made chapeter .8  The new products marketing chapter  is now made chapter 15.
UPDATED! The last chapter has been retitled “Managing a Holistic Marketing Organization for the Long Run” and addresses corporate social responsibility, business ethics, and sustainability, among other topics.
UPDATED! Chapter 12 has been retitled “Addressing Competition and Driving Growth” to acknowledge the importance of growth to an organization.


https://www.pearsonhighered.com/product/Kotler-Marketing-Management-15th-Edition/9780133856460.html


Authors

Philip Kotler - Biography


Philip Kotler is one of the world’s leading authorities on marketing. He is the S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. He received his master’s degree at the University of Chicago and his Ph.D. at MIT, both in economics. He did postdoctoral work in mathematics at Harvard University and in behavioral science at the University of Chicago.

Dr. Kotler is the coauthor of Principles of Marketing and Marketing: An Introduction. His Strategic Marketing for Nonprofit Organizations, now in its seventh edition, is the best seller in that specialized area. Dr. Kotler’s other books include Marketing Models; The New Competition; Marketing Professional Services; Strategic Marketing for Educational Institutions; Marketing for Health Care Organizations; Marketing Congregations; High Visibility; Social Marketing; Marketing Places; The Marketing of Nations; Marketing for Hospitality and Tourism; Standing Room Only—Strategies for Marketing the Performing Arts; Museum Strategy and Marketing; Marketing Moves; Kotler on Marketing; Lateral Marketing; Winning at Innovation; Ten Deadly Marketing Sins; Chaotics; Marketing Your Way to Growth; Winning Global Markets; and Corporate Social Responsibility.

In addition, he has published more than 150 articles in leading journals, including the Harvard Business Review, Sloan Management Review, Business Horizons, California Management Review, the Journal of Marketing, the Journal of Marketing Research, Management Science, the Journal of Business Strategy, and Futurist. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article published in the Journal of Marketing.

Professor Kotler was the first recipient of the American Marketing Association’s (AMA) Distinguished Marketing Educator Award (1985). The European Association of Marketing Consultants and Sales Trainers awarded him their Prize for Marketing Excellence. He was chosen as the Leader in Marketing Thought by the Academic Members of the AMA in a 1975 survey. He also received the 1978 Paul Converse Award of the AMA, honoring his original contribution to marketing. In 1995, the Sales and Marketing Executives International (SMEI) named him Marketer of the Year. In 2002, Professor Kotler received the Distinguished Educator Award from the Academy of Marketing Science. In 2013, he received the William L. Wilkie “Marketing for a Better World” Award and subsequently received the Sheth Foundation Medal for Exceptional Contribution to Marketing Scholarship and Practice.In 2014, he was inducted in the Marketing Hall of Fame.

He has received honorary doctoral degrees from Stockholm University, the University of Zurich, Athens University of Economics and Business, DePaul University, the Cracow School of Business and Economics, Groupe H.E.C. in Paris, the Budapest School of Economic Science and Public Administration, the University of Economics and Business Administration in Vienna, and Plekhanov Russian Academy of Economics.

Professor Kotler has been a consultant to many major U.S. and foreign companies, including IBM, General Electric, AT&T, Honeywell, Bank of America, Merck, SAS Airlines, Michelin, and others in the areas of marketing strategy and planning, marketing organization, and international marketing.
He has been Chairman of the College of Marketing of the Institute of Management Sciences, a Director of the American Marketing Association, a Trustee of the Marketing Science Institute, a Director of the MAC Group, a member of the Yankelovich Advisory Board, and a member of the Copernicus Advisory Board. He was a member of the Board of Governors of the School of the Art Institute of Chicago and a member of the Advisory Board of the Drucker Foundation. He has traveled extensively throughout Europe, Asia, and South America, advising and lecturing to many companies about global marketing opportunities.

Kevin Lane Keller - Biography


Kevin Lane Keller is the E. B. Osborn Professor of Marketing at the Tuck School of Business at Dartmouth College. Professor Keller has degrees from Cornell, Carnegie-Mellon, and Duke universities. At Dartmouth, he teaches MBA courses on marketing management and strategic brand management and lectures in executive programs on those topics.

Previously, Professor Keller was on the faculty at Stanford University, where he also served as the head of the marketing group. Additionally, he has been on the faculty at the University of California at Berkeley and the University of North Carolina at Chapel Hill, has been a visiting professor at Duke University and the Australian Graduate School of Management, and has two years of industry experience as Marketing Consultant for Bank of America.

Professor Keller's general area of expertise lies in marketing strategy and planning and branding. His specific research interest is in how understanding theories and concepts related to consumer behavior can improve marketing strategies. His research has been published in three of the major marketing journals: the Journal of Marketing, the Journal of Marketing Research, and the Journal of Consumer Research. He also has served on the Editorial Review Boards of those journals. With more than 90 published papers, his research has been widely cited and has received numerous awards.

Actively involved with industry, he has worked on a host of different types of marketing projects. He has served as a consultant and advisor to marketers for some of the world’s most successful brands, including Accenture, American Express, Disney, Ford, Intel, Levi Strauss, Procter & Gamble, and Samsung. Additional brand consulting activities have been with other top companies such as Allstate, Beiersdorf (Nivea), BlueCross BlueShield, Campbell, Colgate, Eli Lilly, ExxonMobil, General Mills, GfK, Goodyear, Hasbro, Intuit, Johnson & Johnson, Kodak, L.L.Bean, Mayo Clinic, MTV, Nordstrom, Ocean Spray, Red Hat, SAB Miller, Shell Oil, Starbucks, Unilever, and Young & Rubicam. He has also served as an academic trustee for the Marketing Science Institute and is serving as their Executive Director from July 1, 2013, to July 1, 2015.

A popular and highly sought-after speaker, he has made speeches and conducted marketing seminars to top executives in a variety of forums. Some of his senior management and marketing training clients have included include such diverse business organizations as Cisco, Coca-Cola, Deutsche Telekom, ExxonMobil, GE, Google, IBM, Macy’s, Microsoft, Nestle, Novartis, Pepsico, SC Johnson and Wyeth. He has lectured all over the world, from Seoul to Johannesburg, from Sydney to Stockholm, and from Sao Paulo to Mumbai. He has served as keynote speaker at conferences with hundreds to thousands of participants.

Professor Keller is currently conducting a variety of studies that address strategies to build, measure, and manage brand equity. His textbook on those subjects, Strategic Brand Management, in its fourth edition, has been adopted at top business schools and leading firms around the world and has been heralded as the “bible of branding.”

An avid sports, music, and film enthusiast, in his so-called spare time, he has helped to manage and market, as well as serve as executive producer for, one of Australia’s great rock-and-roll treasures, The Church, as well as American power-pop legends Tommy Keene and Dwight Twilley. He also serves on the Board of Directors for The Doug Flutie, Jr. Foundation for Autism, the Lebanon Opera House, and the Montshire Museum of Science. Professor Keller lives in Etna, NH, with his wife, Punam (also a Tuck marketing professor), and his two daughters, Carolyn and Allison.

March 25, 2016

April 1st Week - MBA Management Knowledge Revision

March 4th Week - MBA Management Knowledge Revision

March 24, 2016

Key Skill Requirements/Competencies for IoT Projects



Key Success Factors for IoT Initiatives
The department or function responsible is also indicated.

1 Identifying and pursuing new business and revenue opportunities -  Strategic

2 Getting managers and staff to change the way they think about customers, products, and processes based on new insights about how they’re are using company products - Company, Culture

3 Determining what data to capture from the IoT Strategic

4 Having top management that believes the IoT could have a major impact on business and is willing to invest today in it - Company, Culture

5 Skilled business analysts who know how to understand what IoT data is is revealing
about company products in the field, the factory, the supply chain, and so on - Skills
6 Being able to gather, process, and analyze huge amounts of digital data and/or Big Data - Technology
7 Accelerating key decisions on the company's products, customers, and how to serve them - Company, Culture

8 Skilled technologists who can develop and integrate IoT technologies into company products and processes

9 Making rapid adjustments to products and processes based on what IoT data indicates - Business,
Process

10 Determining what technologies to develop internally or externally  - Technology

11 Determining what types of IoT data will have the greatest impact on business -  Strategic

12 Integrating IoT data into enterprise systems  - Technology

13 Getting IoT technologies to operate reliably in the field - Technology

14 Making large changes in the marketing, sales, and service processes  - Business, Process

15 Getting product and functional managers to act on customer usage trend data Organizational

16 Having a group analyze IoT data to understand how customers are using company products -
Organizational


TCS Report
http://www.tcs.com/SiteCollectionDocuments/White%20Papers/Internet-of-Things-The-Complete-Reimaginative-Force.pdf

Managing Internal Organization and Operations for Better Strategy Execution - Review Notes

Based on Chapter of Thompson and Strickland



Chapter  Learning  Objectives



  • Learn why resource allocation should always be based on strategic priorities.
  • Understand why policies and procedures should be designed to facilitate good strategy execution.
  • Understand why and how benchmarking, best-practices adoption, and tools for continuously improving the performance of value chain activities help an organization achieve operating excellence and superior strategy execution.
  • Understand the role of information and operating systems in enabling company personnel to carry out their strategic roles proficiently.
  • Learn how and why the use of well-designed incentives and rewards can be management’s single most powerful tool for promoting proficient strategy execution and operating excellence

Five Managerial Actions that facilitate the success of a company's strategy execution efforts.

1. Marshalling ample resources behind the drive for good strategy execution and operating excellence.
2. Instituting policies and procedures that facilitate strategy execution.
3. Adopting best practices and striving for continuous improvement in how value chain activities are performed.
4. Installing information and operating systems that enable company personnel to carry out their  strategic roles proficiently.
5. Tying rewards and incentives directly to the achievement of strategic and financial targets and to good strategy execution.


Marshalling ample resources behind the drive for good strategy execution and operating excellence

Resourcing is an important function of management. I brought out the idea very strongly and telling it to my students.

The authors of this book write that managers implementing and executing a new or different strategy must identify the resource requirements of each new strategic initiative and provide these resources to various subunits that are involved in implementing strategic initiatives. This calls for strategy driven budgeting. A change in strategy always calls for budget reallocations and the operating units have to be specifically told not to extrapolate past budget figure but rework out budget figures in line with the new strategy. People and equipment may have to be reallocated.

Developing and Instituting Policies and Procedures to Facilitates Good Strategy Execution


Anytime a company alters its strategy, managers should review existing policies and operating procedures, proactively revise or discard those that are out of sync, and formulate new ones to facilitate execution of new strategic initiatives. Prescribing new or freshly revised policies and operating procedures aids the task of strategy execution (1) by providing top-down guidance to operating managers, supervisory personnel, and employees regarding how certain things need to be done and what the boundaries are on independent actions and decisions; (2) by enforcing consistency in how particular strategy-critical activities are performed in geographically scattered operating units; and (3) by promoting the creation of a work climate and corporate culture (Behavior, procedures, and values) that promotes good strategy execution.

Adopting Best Practices and Continuous Improvement


Competent strategy execution entails visible, unyielding managerial commitment to best practices and continuous improvement. Benchmarking has to be done to discover and adopt best practices. The interest to do benchmarking has to be developed at the lowest levels.

Industrial engineering is the oldest discipline that has focus on improving technical and managerial processes. Business process reengineering, total quality management (TQM) and  Six Sigma programs are relatively new method with aim at improved efficiency, lower costs, better product quality, and greater customer satisfaction. These initiatives have to be promoted as part of strategy to develop, identify and adopt best practices.

Instituting Information and Operating Systems


Company strategies can't be implemented or executed well without a number of support systems to carry on business operations. Well-conceived state-of-the-art support systems not only facilitate better strategy execution but also strengthen organizational capabilities enough to provide a competitive edge over rivals. Real-time information and control systems further aid the cause of good strategy execution. In the current days information system field is coming out with new avenues to improve performance of organizations. Big data analytics and Internet of Things are the two recent initiatives from information systems field. Companies have to start using these new methods in pilot projects so that they understand the business potential of them and scale their application in a rapid manner to maintain the competitive advantage and increase it.


Tying Rewards and Incentives to Strategy Execution


Motivation


Strategy-supportive motivational practices and reward systems are powerful management tools for gaining employee commitment. The key to creating a reward system that promotes good strategy execution is to make strategically relevant measures of performance the dominating basis for designing incentives, evaluating individual and group efforts, and handing out rewards. Positive motivational practices generally work better than negative ones, but there is a place for both. There's also a place for both monetary and nonmonetary incentives.

Incentives and Rewards


For an incentive compensation system to work well
(1) the monetary payoff should be a major percentage of the compensation package,
(2) the use of incentives should extend to all managers and workers,
(3) the system should be administered with care and fairness,
(4) the incentives should be linked to performance targets spelled out in the strategic plan,
(5) each individual's performance targets should involve outcomes the person can personally affect, (6) rewards should promptly follow the determination of good performance,
(7) monetary rewards should be supplemented with liberal use of nonmonetary rewards, and
(8) skirting the system to reward non-performers or subpar results should be scrupulously avoided.

Companies with operations in multiple countries often have to build some degree of flexibility into the design of incentives and rewards in order to accommodate cross-cultural traditions and preferences.




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Updated 24 Mar 2016, 7 June 2014

Ethics,Corporate Social Responsibility, Stakeholder Responsibility and Strategic Management



Milton Friedman on Ethics


"There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within rules of the game, which is to say engages in free and open competition, without deception or fraud."

Was Friedman against Ethics?

No. Friedman recommends ethical behavior from businessmen. They have to allow free and open competition. They should not do fraud. They should not deceive customer, competitors or social organizations.  He clearly say businessmen have to be within rules of the games. Ethics are part of the rules of the game.



Strategy and Ethics


Ethics involves concepts of right and wrong, fair and unfair, moral and immoral. Beliefs about what is ethical serve as a moral compass in guiding the actions and behaviors of individuals and organizations. Ethical principles in business are not materially different from ethical principles in general. In this chapter, we study how notions of moral and immoral translate into judging management decisions regarding the strategies and actions of companies in business.

The authors talked of three types persons in managerial jobs:  The moral managers - follows ethical or moral guidelines, The immoral managers - he is against the moral and ethical ideas, The amoral managers - They ignore either by thinking business is equal to war and they have to survive somehow and ethics are only handicaps or by not even bother to know ideas of morals and ethics.

Business Ethics in the Global Business

There are three schools of thought about ensuring a commitment to ethical standards for companies with international operations:

According to the school of ethical universalism, the same standards of what's ethical and what's unethical resonate with peoples of most societies regardless of local traditions and cultural norms; hence, common ethical standards can be used to judge the conduct of personnel at companies operating in a variety of country markets and cultural circumstances.


According to the school of ethical relativism different societal cultures and customs have divergent values and standards of right and wrong—thus, what is ethical or unethical must be judged in the light of local customs and social mores and can vary from culture or nation to another.


According to integrated social contracts theory, universal ethical principles or norms based on the collective views of multiple cultures and societies combine to form a "social contract" that all individuals in all situations have a duty to observe. Within the boundaries of this social contract, local cultures can specify other impermissible actions; however, universal ethical norms always take precedence over local ethical norms.


Three categories of managers stand out with regard to their prevailing beliefs in and commitments to ethical and moral principles in business affairs: the moral manager; the immoral manager, and the amoral manager. By some accounts, the population of managers is said to be distributed among all three types in a bell-shaped curve, with immoral managers and moral managers occupying the two tails of the curve, and the amoral managers, especially the intentionally amoral managers, occupying the broad middle ground.

The moral case for social responsibility boils down to a simple concept: It's the right thing to do. The business case for social responsibility holds that it is in the enlightened self-interest of companies to be good citizens and devote some of their energies and resources to the betterment of such stakeholders as employees, the communities in which it operates, and society in general.

The apparently large numbers of immoral and amoral businesspeople are one obvious reason why some companies resort to unethical strategic behavior. Three other main drivers of unethical business behavior also stand out:

Overzealous or obsessive pursuit of personal gain, wealth, and other selfish interests.
Heavy pressures on company managers to meet or beat earnings targets.
A company culture that puts the profitability and good business performance ahead of ethical behavior.


The stance a company takes in dealing with or managing ethical conduct at any given time can take any of four basic forms:

The unconcerned or nonissue approach.

For these companies ethics is a nonissue. Companies adopting this approach are usually out to make the greatest possible profit at  most any cost and the strategies they employ, while legal, amy well embrace elements that are ethically shady.

The damage control approach.

The companies following this approach may adopt a code of ethics even though in practice they do not use it.

The compliance approach.

Companies following this approach take actions to implement ethics codes.

The ethical culture approach.

In the companies following this approach, the top executive act as role models for ethical behavior. High ethical principles are deeply ingrained in corporate culture.

The term corporate social responsibility calls for companies to find balance between (1) their economic responsibilities to reward shareholders with profits, (2) legal responsibilities to comply with the laws of countries where they operate, (3) ethical responsibilities to abide by society's norms of what is moral and just, and (4) philanthropic responsibilities to contribute to the noneconomic needs of society. The menu of actions and behavior for demonstrating social responsibility includes:

Employing an ethical strategy and observing ethical principles in operating the business.

Why Should Company Strategies be Ethical?
(1) A strategy that is unethical in whole or in part reflects badly on the character of the company personnel involved. and
(2) An ethical strategy is good business and in the self-interest of shareholders.


Strategy and Social Responsibility


Making charitable contributions, donating money and the time of company personnel to community service endeavors, supporting various worthy organizational causes, and making a difference in the lives of the disadvantaged. Corporate commitments are further reinforced by encouraging employees to support charitable and community activities.


Protecting or enhancing the environment and, in particular, striving to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities.


Creating a work environment that makes the company a great place to work.


Employing a workforce that is diverse with respect to gender, race, national origin, and perhaps other aspects that different people bring to the workplace.

There's ample room for every company to tailor its social responsibility strategy to fit its core values and business mission, thereby making its own statement about "how we do business and how we intend to fulfill our duties to all stakeholders and society at large."

Some companies use the terms corporate social responsibility and corporate citizenship interchangeably, but typically, corporate citizenship places expectations on companies to go beyond consistently demonstrating ethical strategies and business behavior by addressing unmet noneconomic needs of society. Corporate sustainability involves strategic efforts to meet the needs of current customers, suppliers, shareholders, employees, and other stakeholders, while protecting, and perhaps enhancing, the resources needed by future generations.

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Updated 24 Mar 2016, 25 May 2013



Competitive Advantage and Competitive Strategy

The Five Generic Competitive Strategies - Which One To Employ?



Business organizations need to have customer satisfaction strategy and also competition withstanding strategy to carve out a space for themselves in customer - competition space.

                                         Differentiated Products
Customer Dimension
                                          Low Cost Products
                                                                                  Broad Market                    Narrow Market

                                                                                                 Competitor Dimension

Only when the product of an organization has customer acceptance, the competitor dimension comes into picture. Customer says your product is acceptable on an absolute basis but not the preferred one on a relative basis. Whenever, the company's market researchers tell that statement, the company has to turn its attention to competitive strategy.  The company's product strategy and competitive strategy are based on its assessment of its resources and that of competition.

A competitive strategy concerns the specifics of management's game plan for competing successfully and achieving a competitive edge over rivals. Porter defined competitive advantage in terms of profit margin. A firm that has competitive advantage will have higher profit margin compared to its rivals.

Early in the process of crafting a strategy, company managers have to decide which of the five basic competitive strategies to employ—overall low-cost, broad differentiation, best-cost, focused low-cost, or focused differentiation. The five categories come out of a two by two matrix on the dimensions of target market, focus of product development and design.
                                                                            Product and Process
                                                                  Low Cost         -          Differentiation
                                Broad                        Low Cost                     Broad Dfferentiation
Target   Market                                                           Best cost
                                 Niche                        Focused Low Cost      Focused Differentiation



Low Cost Provider


A low-cost provider's strategic target is meaningfully lower cost products than rivals in strategic group that offers a big market share. It is not necessarily the lowest cost and price product. The lowest cost and price product may be acceptable only to a very small percentage of the market.

In employing a low-cost provider strategy, a company must do a better job than rivals of cost-effectively managing value chain activities and/or it must find innovative ways to eliminate or bypass cost-producing activities. Low-cost provider strategies work particularly well when the products of rival sellers are virtually identical or very weakly differentiated and supplies are readily available from eager sellers, when there are not many ways to differentiate product and related services that have value to buyers, when many buyers are price sensitive and shop the market for the lowest price, and when buyer switching costs are low.

The low cost advantage can be used either to reduce prices and have greater revenue and more profits or maintain prices and make more profit. The choice depends upon the time available for building market share. If competitors are very active, then gaining immediate market is the appropriate objective and prices are reduced immediately.

Two ways of developing cost advantage:

1. Increase the efficiency of current value chain activities and decrease cost (incremental improvement) by understanding cost drivers.
2. Reengineer the value chain activities. to gain cost reduction (New design).

Cost Drivers of Value Chain Activities

1. Economies or diseconomies of scale.
2. Learning curve effect
3. Cost of inputs (bought out materials, components, and services)
4. Linkages between activities in the value chain
5. Shared facilities
6. Level of vertical integration - Its increase or decrease based on current opportunities
7. First mover advantage
8. Percentage of capacity utilization
9. Other policy choices made by the company: features of the product, product variety,  delivery times offered, number of distributors/channels used etc.

Reengineering Oppotunities

They generally appear whenever a new technology is developed inhouse or outside. The current examples are

Internet of Things (IoT)
Direct to end user sales (ECommerce)
3D Printing (Computer Aided Design and Computer Integrated Manufacturing)
Frugal Innovation or Engineering





Broad Differentiation


Broad differentiation strategies seek to produce a competitive edge by incorporating attributes and features that set a company's product/service offering apart from rivals in ways that buyers consider valuable and worth paying for. Successful differentiation allows a firm to (1) command a premium price for its product, (2) increase unit sales (because additional buyers are won over by the differentiating features), and/or (3) gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products). Differentiation strategies work best in markets with diverse buyer preferences where there are big windows of opportunity to strongly differentiate a company's product offering from those of rival brands, in situations where few other rivals are pursuing a similar differentiation approach, and in circumstances where companies are racing to bring out the most appealing next-generation product. A differentiation strategy is doomed when competitors are able to quickly copy most or all of the appealing product attributes a company comes up with, when a company's differentiation efforts meet with a ho-hum or so what market reception, or when a company erodes profitability by overspending on efforts to differentiate its product offering.

Best Cost Provider


Best-cost provider strategies combine a strategic emphasis on low cost with a strategic emphasis on more than minimal quality, service, features, or performance. The aim is to create competitive advantage by giving buyers more value for the money—an approach that entails matching close rivals on key quality/service/features/performance attributes and beating them on the costs of incorporating such attributes into the product or service. A best-cost provider strategy works best in markets where buyer diversity makes product differentiation the norm and where many buyers are also sensitive to price and value.

Focused Low-Cost Strategy


A focus strategy delivers competitive advantage either by achieving lower costs than rivals in serving buyers comprising the target market niche or by developing specialized ability to offer niche buyers an appealingly differentiated offering than meets their needs better than rival brands. A focused strategy based on either low cost or differentiation becomes increasingly attractive when the target market niche is big enough to be profitable and offers good growth potential, when it is costly or difficult for multisegment competitors to put capabilities in place to meet the specialized needs of the target market niche and at the same time satisfy the expectations of their mainstream customers, when there are one or more niches that present a good match with a focuser's resource strengths and capabilities, and when few other rivals are attempting to specialize in the same target segment.

Focused Differentiation


Deciding which generic strategy to employ is perhaps the most important strategic commitment a company makes—it tends to drive the rest of the strategic actions a company decides to undertake and it sets the whole tone for the pursuit of a competitive advantage over rivals.

http://highered.mcgraw-hill.com/sites/0073530425/student_view0/chapter5/
Powerpoint Presentation
http://highered.mcgraw-hill.com/sites/0073530425/student_view0/chapter5/powerpoint_presentations.html


Updated 24 March 2016,  25 May 2013

March 22, 2016

Project Management Articles with Links





Project Management - Introduction - Revision Article
http://nraomtr.blogspot.com/2011/11/project-management-introduction.html

Introduction to Project Management
http://nraomtr.blogspot.com/2016/03/introduction-to-project-management.html

Project Management Processes for a Project
http://nraomtr.blogspot.com/2016/03/project-management-processes-for-project.html

Project Integration Management
http://nraomtr.blogspot.com/2016/03/project-integration-management.html

Project Scope Management
http://nraomtr.blogspot.com/2016/03/project-scope-management.html

Project Time Management
http://nraomtr.blogspot.com/2016/03/project-time-management.html

Project Cost Management
http://nraomtr.blogspot.com/2016/03/project-cost-management.html


Project Quality Management
http://nraomtr.blogspot.com/2016/03/project-quality-management.html

Project Human Resource Management
http://nraomtr.blogspot.com/2016/03/project-human-resource-management.html

Project Communications Management
http://nraomtr.blogspot.com/2016/03/project-communications-management.html

Project Risk Management
http://nraomtr.blogspot.com/2016/03/project-risk-management.html

Project Procurement Management
http://nraomtr.blogspot.com/2016/03/project-procurement-management.html

Project Stakeholder Management
http://nraomtr.blogspot.com/2016/03/project-stakeholder-management.html

Strategic Management Articles with Links




PART ONE Concepts and Techniques for Crafting and Executing Strategy

Section A: Introduction and Overview


Chapter 1: What Is Strategy and Why Is It Important?  -   http://nraomtr.blogspot.com/2011/12/strategic-management-process-review.html
             
           

Chapter 2: Charting a Company’s Direction: Vision and Mission, Objectives, and Strategy - Key Points of the Chapter
             

Section B: Core Concepts and Analytical Tools


Chapter 3: Evaluating a Company’s External Environment - http://nraomtr.blogspot.com/2011/12/analysis-of-firms-external-environment.html
             

Chapter 4: Evaluating a Company’s Resources, Capabilities, and Competitiveness - http://nraomtr.blogspot.com/2013/05/analysis-of-firms-internal-capabilities.html

Section C: Crafting a Strategy


Chapter 5: The Five Generic Competitive Strategies: Which One to Employ? - http://nraomtr.blogspot.in/2013/05/competitive-advantage-and-competitive.html
             

Chapter 6: Strengthening a Company’s Competitive Position: Strategic Moves, Timing, and Scope of Operations -
             

Chapter 7: Strategies for Competing in International Markets - http://nraomtr.blogspot.com/2013/05/globallization-strategy-review-notes.html
             
Chapter 8: Corporate Strategy: Diversification and the Multibusiness Company - http://nraomtr.blogspot.com/2013/05/corporate-diversification-strategy.html
             

Chapter 9: Ethics, Corporate Social Responsibility, Environmental Sustainability, and Strategy - http://nraomtr.blogspot.in/2013/05/ethicscorporate-social-responsibility.html

Section D: Executing the Strategy


Chapter 10: Building an Organization Capable of Good Strategy Execution: People, Capabilities, and Structure - http://nraomtr.blogspot.in/2011/12/building-resource-strengths-and.html
             

Chapter 11: Managing Internal Operations: Actions That Promote Good Strategy Execution - http://nraomtr.blogspot.in/2013/05/internal-organization-and-operations.html
               

Chapter 12: Corporate Culture and Leadership: Keys to Good Strategy Execution - http://nraomtr.blogspot.in/2011/12/corporate-culture-and-leadershp-keys-to.html

Human Resource Management Articles with Links



Human Resource Management Revision Articles for Chapters



PART I - Human Resource Management and the Environment

Strategic Human Resource Management in a Changing Environment  http://nraomtr.blogspot.com/2011/12/human-resource-management-introduction.html
The Role of Globalization in HR Policy and Practice - Review notes   http://nraomtr.blogspot.com/2011/12/role-of-globalization-in-hr-policy-and.html
The Legal Environment of HRM: Equal Employment Opportunity - Review Notes  http://nraomtr.blogspot.com/2011/12/legal-environment-of-hrm-review-notes.html

PART II - Acquiring Human Resource Capability

Work Analysis and Design - Review Notes  http://nraomtr.blogspot.com/2011/12/work-analysis-and-design-bernardin-hrm.html
Human Resource Planning and Recruitment - Review Notes  http://nraomtr.blogspot.com/2011/12/human-resource-planning-and-recruitment.html
Personnel Selection - Review Notes  http://nraomtr.blogspot.com/2011/12/personnel-selection-bernardins-chapter.html

PART III - Developing Human Resource Capability

Performance Management and Appraisal - Review Notes http://nraomtr.blogspot.com/2011/12/performance-management-and-appraisal.html
Training and Development - Review Notes  http://nraomtr.blogspot.com/2011/12/training-and-development-bernardin.html
Career Development - Review Notes  http://nraomtr.blogspot.com/2011/12/career-development-review-notes.html

PART IV - Compensating and Managing Human Resources

Compensation: Base Pay and Fringe Benefits - Review Notes http://nraomtr.blogspot.com/2011/12/direct-and-indirect-compensation-review.html
Pay for Performance - Review Notes  http://nraomtr.blogspot.com/2011/12/pay-for-performance.html
Managing the Employment Relationship - Review Notes  http://nraomtr.blogspot.com/2011/12/managing-employee-relationship-review.html
Labor Relations and Collective Bargaining - Review Notes  http://nraomtr.blogspot.com/2011/12/labor-relations-and-collective.html
Employee Health and Safety - Review Notes  http://nraomtr.blogspot.com/2011/12/employee-health-and-safety-review-notes.html

March 21, 2016

A to Z: 2015 Blogging Challenge - Index of Blog Posts by Professor Narayana Rao


I am once again participating in the challenge

A to Z 2016 Challenge Posts - in April 2016






A to Z: 2015 Challenge -  Blog Posts by Narayana Rao


Week One:

April 01, Wednesday - Letter "A"

1. Adoption of New Products and Processes
2. April - Management Knowledge Revision

April 02, Thursday - Letter "B"

Brand Building Update 2015

Business Firm and Society - The External Environment, Social Responsibility and Ethics - Review Notes
Business Conceptualization - Management Insights from Economics, Engineering Economics, Managerial Economics, Industrial Economics

April 03, Friday - Letter "C"  -

Culture Change Management Process


April 04, Saturday - Letter "D" -

Distribution Warehouse


Week Two:

April 05, Sunday – BREAK

April 06, Monday - Letter "E"-

Efficiency Improvement - Need and Role of Industrial Engineering


April 07, Tuesday - Letter "F" -

Finance for Non-Finance Managers


April 08, Wednesday - Letter "G" -

Goal Setting for MBO


April 09, Thursday - Letter "H" -

Human Resource Training - Role of Indicated Reading Lists


April 10, Friday - Letter "I" -

Innovation Marketing


April 11, Saturday - Letter "J" -

Job Design


Week Three:

April 12, Sunday - BREAK

April 13, Monday - Letter "K" -

Knowledge Management Software Packages


April 14, Tuesday - Letter "L" -

Location of Production Facilities


April 15, Wednesday - Letter "M" -

Market Orientation

Make in India Campaign - Industry Sectors Information


April 16, Thursday - Letter "N" -

Needs and Wants - Marketing Concepts


April 17, Friday - Letter "O"

Organizational Sociology


April 18, Saturday - Letter "P"

Product Development


Week Four:

April 19, Sunday – BREAK

April 20, Monday - Letter "Q"

Quantitative Thinking for Management


April 21, Tuesday - Letter "R"  -

Relaxation During Work Day - Recovering from Fatigue


April 22, Wednesday - Letter "S" -

Six Sigma - Zero Defect Movement Systematized


April 23, Thursday - Letter "T"  -

The Role of Theory in Practice of Engineering and Management


April 24, Friday - Letter "U"  -

Understanding Marketing Productivity


April 25, Saturday - Letter "V" -

Value Engineering - Recent Developments


Week Five:

April 26, Sunday - BREAK

April 27, Monday - Letter "W" -

Work-Methods Science


April 28, Tuesday - Letter "X"  -

X Reminds me of Theory X


April 29, Wednesday - Letter "Y" -

Y Reminds me of Theory Y


April 30, Thursday - Letter "Z"  -

Z Reminds me of Theory Z



Blogs I Read and Recommend in the A to Z Challenge



http://paper.li/tag/atozchallenge

Lifestyle of a Professional
http://lifestyleproblog.me/

Power Blogging Ingredients
http://www.sunitabiddu.com/action-plan-power-blogging-series-atozchallenge

Writing Productivity Tips
http://www.corinneoflynn.com/26-productivity-tips-a-atozchallenge-iwsg/

Personal Finance Article - Saving and Managing Money
http://linkis.com/com/uEB2e

Writing Tips and Quotes
http://storydam.com/2015/04/02/writing-tips-and-quotes-b-is-for-biography/

Animals
http://www.melanierobertson-king.com/wp02/?p=9061

Teachers Media Canada
http://teachersmediacanada.blogspot.ca/2015/04/a-to-z-blogging-challenge-b-is-for-byod.html

http://digitalmarketinggloucester.com/

http://prasannaprao.blogspot.in/

http://www.thechinesequest.com/

http://samanthadunawaybryant.blogspot.com/

http://www.albomadventures.com/  Auckland A to Z

http://pvariel.com/


Twitter Search A to Z Challenge Hashtag
https://twitter.com/search?src=typd&q=%23AtoZChallenge

March 18, 2016

What is Strategy? Review Notes

A company's strategy consists of business approaches and competitive moves that top managers employ to attract and please customers, compete successfully, and achieve organizational objectives.

In crafting a strategy, the management declares, among all the paths and actions available to us, we have decided to focus on these customer needs and markets, compete in this fashion, allocate our resources and energies in these ways, and rely on these particular approaches to doing business. A strategy is managerial choice among alternatives adn signals organizational commitment to specific products and services, markets, competitive approaches, and ways of operating.

Business model is the term now widely applied to the revenue - cost detail of a firm. This provides the actual revenue streams through various products and services and the associated cost stream, profit margins and return on Investment. This model is provided for future estimates also. Every strategic alternative is to be converted into business model and checked for its profitability.

Five Tasks of Strategic Management

1. Forming the vision for the future. Where we want to be in the next 10 years in line with our objectives and mission.

2. Setting Goals for the near planning period - Converting the 10 years vision into current year goals.

3. Crafting a strategy to achieve the goals in the current that support the 10-year vision.

4. Organizing the resources in line with the strategy (Implementing the resource acquisition and allocation strategy).
5. Execution: Evaluating the daily performance and assessing its impact on annual plan and initiating adjustments in department levels plans as well as company level plans.

Introduction to Strategy
_________________

_________________
David Kryscynski  popular 11,000+ subscribers
_________________
Reference
Crafting Executing Strategy: Text and Readings
Thomspon and Strickland, 12th Edition, 2001
McGraw-Hill

Prof Rumelt on Strategy - Video Interview
_____________

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Updated 18 Mar 2016, 20 Dec 2011

Introduction to Supply Chain Management - 1995 Article Summary


An Introduction to Supply Chain Management


Ram Ganeshan
Terry P. Harrison

Department of Management Science and Information Systems
303 Beam Business Building
Penn State University
University Park, PA 16802 U.S.A.

Email: Ganeshan (rxg112@silmaril.smeal.psu.edu), Harrison (hbx@psu.edu)

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.


Realistic supply chains have multiple end products with shared components, facilities and capacities.



Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. . Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such an integration can be achieved.

coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.



Supply Chain Decisions

We classify the decisions for supply chain management into two broad categories -- strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they sometimes {\it are} the corporate strategy), and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these type of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain.


There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas.



Location Decisions

The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough discussion of these aspects.) Although location decisions are primarily strategic, they also have implications on an operational level.


Production Decisions

The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely depends the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.


Inventory Decisions

These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw materials, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.


Transportation Decisions

The mode choice aspect of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels, and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm's transport strategy.


Supply Chain Modeling Approaches

Clearly, each of the above two levels of decisions require a different perspective. The strategic decisions are, for the most part, global or "all encompassing" in that they try to integrate various aspects of the supply chain. Consequently, the models that describe these decisions are huge, and require a considerable amount of data. Often due to the enormity of data requirements, and the broad scope of decisions, these models provide approximate solutions to the decisions they describe. The operational decisions, meanwhile, address the day to day operation of the supply chain. Therefore the models that describe them are often very specific in nature. Due to their narrow perspective, these models often consider great detail and provide very good, if not optimal, solutions to the operational decisions.


To facilitate a concise review of the literature, and at the same time attempting to accommodate the above polarity in modeling, we divide the modeling approaches into three areas --- Network Design, ``Rough Cut" methods, and simulation based methods. The network design methods, for the most part, provide normative models for the more strategic decisions. These models typically cover the four major decision areas described earlier, and focus more on the design aspect of the supply chain; the establishment of the network and the associated flows on them. "Rough cut" methods, on the other hand, give guiding policies for the operational decisions. These models typically assume a "single site" (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly considering the site's relation to the others in the network. Simulation methods is a method by which a comprehensive supply chain model can be analyzed, considering both strategic and operational elements. However, as with all simulation models, one can only evaluate the effectiveness of a pre-specified policy rather than develop new ones. It is the traditional question of "What If?" versus "What's Best?".



Network Design Methods

As the very name suggests, these methods determine the location of production, stocking, and sourcing facilities, and paths the product(s) take through them. Such methods tend to be large scale, and used generally at the inception of the supply chain. The earliest work in this area, although the term "supply chain" was not in vogue, was by Geoffrion and Graves [1974]. They introduce a multicommodity logistics network design model for optimizing annualized finished product flows from plants to the DC's to the final customers. Geoffrion and Powers [1993] later give a review of the evolution of distribution strategies over the past twenty years, describing how the descendants of the above model can accommodate more echelons and cross commodity detail.
Breitman and Lucas [1987] attempt to provide a framework for a comprehensive model of a production-distribution system, "PLANETS", that is used to decide what products to produce, where and how to produce it, which markets to pursue and what resources to use. Parts of this ambitious project were successfully implemented at General Motors.

Cohen and Lee [1985] develop a conceptual framework for manufacturing strategy analysis, where they describe a series of stochastic sub- models, that considers annualized product flows from raw material vendors via intermediate plants and distribution echelons to the final customers. They use heuristic methods to link and optimize these sub- models. They later give an integrated and readable exposition of their models and methods in Cohen and Lee [1988].

Cohen and Lee [1989] present a normative model for resource deployment in a global manufacturing and distribution network. Global after-tax profit (profit-local taxes) is maximized through the design of facility network and control of material flows within the network. The cost structure consists of variable and fixed costs for material procurement, production, distribution and transportation. They validate the model by applying it to analyze the global manufacturing strategies of a personal computer manufacturer.

Finally, Arntzen, Brown, Harrison, and Trafton [1995] provide the most comprehensive deterministic model for supply chain management. The objective function minimizes a combination of cost and time elements. Examples of cost elements include purchasing, manufacturing, pipeline inventory, transportation costs between various sites, duties, and taxes. Time elements include manufacturing lead times and transit times. Unique to this model was the explicit consideration of duty and their recovery as the product flowed through different countries. Implementation of this model at the Digital Equipment Corporation has produced spectacular results --- savings in the order of $100 million dollars.

Clearly, these network-design based methods add value to the firm in that they lay down the manufacturing and distribution strategies far into the future. It is imperative that firms at one time or another make such integrated decisions, encompassing production, location, inventory, and transportation, and such models are therefore indispensable. Although the above review shows considerable potential for these models as strategic determinants in the future, they are not without their shortcomings. Their very nature forces these problems to be of a very large scale. They are often difficult to solve to optimality. Furthermore, most of the models in this category are largely deterministic and static in nature. Additionally, those that consider stochastic elements are very restrictive in nature. In sum, there does not seem to yet be a comprehensive model that is representative of the true nature of material flows in the supply chain.



Rough Cut Methods

These models form the bulk of the supply chain literature, and typically deal with the more operational or tactical decisions. Most of the integrative research (from a supply chain context) in the literature seem to take on an inventory management perspective. In fact, the term "Supply Chain" first appears in the literature as an inventory management approach. The thrust of the rough cut models is the development of inventory control policies, considering several levels or echelons together. These models have come to be known as "multi-level" or "multi-echelon" inventory control models. For a review the reader is directed to Vollman et al. [1992].
Multi-echelon inventory theory has been very successfully used in industry. Cohen et al. [1990] describe "OPTIMIZER", one of the most complex models to date --- to manage IBM's spare parts inventory. They develop efficient algorithms and sophisticated data structures to achieve large scale systems integration.

Although current research in multi-echelon based supply chain inventory problems shows considerable promise in reducing inventories with increased customer service, the studies have several notable limitations. First, these studies largely ignore the production side of the supply chain. Their starting point in most cases is a finished goods stockpile, and policies are given to manage these effectively. Since production is a natural part of the supply chain, there seems to be a need with models that include the production component in them. Second, even on the distribution side, almost all published research assumes an arborescence structure, i. e. each site receives re-supply from only one higher level site but can distribute to several lower levels. Third, researchers have largely focused on the inventory system only. In logistics-system theory, transportation and inventory are primary components of the order fulfillment process in terms of cost and service levels. Therefore, companies must consider important interrelationships among transportation, inventory and customer service in determining their policies. Fourth, most of the models under the "inventory theoretic" paradigm are very restrictive in nature, i.e., mostly they restrict themselves to certain well known forms of demand or lead time or both, often quite contrary to what is observed.

The preceding sections are a selective overview of the key concepts in the supply chain literature. Following is a list of recommended reading for a quick introduction to the area.

Bibliography

Arntzen, B. C., G. G. Brown, T. P. Harrison, and L. Trafton. Global Supply Chain Management at Digital Equipment Corporation. Interfaces, Jan.-Feb., 1995.
Ballou, R. H. 1992. Business Logistics Management, Prentice Hall, Englewood Cliffs, NJ, Third Edition.
Breitman, R. L., and J. M. Lucas. 1987. PLANETS: A Modeling System for Business Planning. Interfaces, 17, Jan.-Feb., 94-106.
Cohen, M. A. and H. L. Lee. 1985. Manufacturing Strategy Concepts and Methods, in Kleindorfer, P. R. Ed., The Management of Productivity and Technology in Manufacturing, 153- 188.
Cohen, M. A. and H. L. Lee. 1988. Strategic Analysis of Integrated Production-Distribution Systems: Models and Methods. Operations Research, 36, 2, 216-228.
Cohen, M. A. and H. L. Lee. 1989. Resource Deployment Analysis of Global Manufacturing and Distribution Networks. Journal of Manufacturing and Operations Management, 81-104.
Cooper, M. C., and L. M. Ellram. 1993. Characteristics of Supply Chain Management and the Implications for Purchasing and Logistics Strategy. The International Journal of Logistics Management, 4, 2, 13-24.
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Referenced by:
Contributors: Ram Ganeshan (rxg112@silmaril.smeal.psu.edu), Terry Harrison (hbx@psu.edu)



Version  Updated on  22 May 1995