Disclaimer: This blog post is from my assignment in the Supply Chain Management course. It is copied from here
The long-term strategy of a company will reflect on how product of that company is designed, how people in the company work together to achieve the same goal. This long-term strategy brings the company ahead of other ones, creates innovation inside the company, and makes a huge profit for the company while others still suffer the economic recession.
Cost Cutting Innovation
The last year was an economic recession year with unemployment above 9 percent and housing is 73 percent below the 2006 peak. Given the furniture is one of the worst categories of retail sectors, the support from government and Barack Obama in jobs help did not push this furniture sector much. In this difficult time, IKEA finds it easy to cut down the price of its products. In contrast to this move of IKEA, almost all other commodity prices increase.
Based on interviews with IKEA CEO Mikael Ohlsson, the whole company culture focuses to produce cheaper products. They set the target price for the product first, and then, by any means, to achieve that price. By improving the efficiency in product design, factory manufacturing and then distribution and delivery, it can cut a significant amount of cost.
However, one of the key factors is via its supply network, when it can try to use the least sustainable materials in this world. This may mean some long-term impact but that is acceptable for IKEA to reach their long-term goal: cut the price.
Tata Nano has innovated a new “Open Distribution” system. This system operates by a modular design approach. Every product is designed in terms of modules, or components, which can be built and shipped separately to different assemblies around the world. This helps Tata Nano to achieve its goal.
By using this Open Distribution approach, it allows suppliers to compete for better qualities and lower price to bid for supplying. To push this even more, Tata Nano has its own internal suppliers. These suppliers need to compete fairly with the outside suppliers, so the general competition level is increased.
These innovations help these companies to move forward faster, affect all of their product designs as well as the process to manufacture the products and ship them to assemblies.
Environment Safety First
In contrast with the approach to cut the cost by all means, there are companies that focus on making value and meaningful social responsibilities. These companies also gain high returns through social values, which would enable them to follow these values in the long term.
There is a trend in designing, manufacturing and distributing new products with the most sustainable materials. These materials help companies to achieve its environmental goals.
The goal of Herman Miller is explicitly stated in its website:
We put Herman Miller’s corporate environmental goal quite simply: to become a sustainable business – manufacturing products without reducting the capacity of environment to provide for future generations
That’s clear. It is the goal of all employees and all products of Herman Miller, to create a sustainable business. That is a meaningful value for everybody, so all employees are proud and happy to work at Herman Miller, to create a social value.
An example of this strategy is when they make a decision about choosing between PVP and TUP. PVP is cheaper, easier for suppliers to work on and there are multiple existing suppliers. TUP, though, is more sustainable for environment but is a new thing and few suppliers are able to provide to Herman Miller with low price. They finally choose to implement TUP since the new product, so they do not have to redesign the existing product and they can be proud about this new product.
This environmental safety first also puts them ahead of other competitors. Due to the strict environmental regulation rules of the governments in product manufacturing, their competitors find a hard time to follow what Herman Miller does.
It also helps Herman Miller to get the best employees for their business, which put them in a competitive advantage position comparing to other companies. The Youtube video clearly demonstrates how Herman Miller could make their employees proud of what they are doing.
These examples give us a broad view of how the company’s long-term strategy and objective affects all their business: from product design to decision-making process to the culture of the company. IKEA has chosen the price to be their competitive difference, and then ignore the environmental side of their works. However, Herman Miller focuses on building sustainable products and business. Both long-term strategies put the ahead of their competitors and make a difference in their business.
1. Tutle, B.2011, Everything at IKEA is getting cheaper, MoneyLand, viewed on 06/02/2012
2. Hamilton, S.2011, IKEA cuts price of US shelves as outlook dismiss, Bloomberg, viewed on 07/02/2012
3. King, B.2011, IKEA cut shipping costs with switch paper pallets, Sustainable Brands, viewed on 06/02/2012
4. What matter to us, Herman Miller, viewed on 06/02/2012