Category: Product Management

Introduction

Every company must have a mission statement. A mission statement shows direction of the company. Moreover, it ensures that objectives of the company align with its mission. This paper will explore Toyota’s mission statement. It will also investigate if its strategies are aligned with the mission statement.

Mission statement

A Mission statement provides direction for a company. This is essential in defining its objectives as well as strategies. Toyota is an automobile manufacturing company. Its mission statement is to move people in a better way. Precisely, it has a global mission. Its mission states “Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people.”

Current strategies

The company has established numerous strategies to pursue its Global mission, these include:

• Commitment to quality
• Respect for planet
• Constant innovation

The company has utilized these strategies with a view to reaching its mission statement.

Discussion

Toyota has presence all over the world. In fact, the company has continued to provide affordable quality automobiles to its range of customers. Moreover, it has implemented flexible structures that enable it to reach out to different groups of customers. For instance, the company has introduced Toyota certified used automobiles for its low-income customers.

The first strategy employed by Toyota is to commit to quality. Toyota has an operation segment that designs and supplies quality automobile to its customers. Toyota conducts quality assessment on its products to ensure compliance with the latest regulation on safety and quality.

Moreover, the company has employed mechanisms to communicate with their customers and dealers with a view to ensuring quality of automobiles. Recent recall of specific brands of Toyota automobiles is an evidence of commitment to quality, even after sales.

This strategy has ensured that Toyota command the world’s market in volume of sales. This strategy therefore goes a long way in strengthening its mission statement of moving people in a better way. The second strategy is to commit to constant innovation. The world is ever changing with various technological advances aimed at making life easy, being explored.

Toyota has committed its finances in research and development to improving and innovating new technologies for better automobiles. In essence, the company spends on research and development for innovation with a view to improving ways of moving people. This strategy aligns with the company’s mission since it aims to give people better technology that moves them in a better way.

The third strategy is to commit to respect for planet. The planet is faced with increasing challenges with regard to its conservation. Issues such as global warming, among others, have put pressure in companies to reduce greenhouse gas emissions. Toyota is committed to this initiative.

In fact, the company has proved this by manufacturing environment friendly automobiles. Moreover, it has made steps to contribute to environmental conservation efforts through participation and contribution. This shows that the company values its community and aims to move them in a better way as confirmed in the mission statement.

Conclusion

Toyota has a mission aimed at bettering the movement of its customers. This has enabled them to establish mission friendly strategies namely, commitment to innovation, quality and the planet. Toyota is therefore committed to its mission statement through the strategies employed above.

Summary

In the article, Martin Cagan discusses the mistakes managers make in their work and offers the ideas of how to avoid these mistakes. Products may be bad due to their usefulness or too complicated instruction (Cagan 1). Product management is a serious issue that can never be neglected (Stark 2), and the identification of mistakes seems to be a necessary task.

People make many decisions on how to achieve success with their products and face considerable pitfalls on their way to recognition every day. The importance of this article lies in the fact that each product has to be studied before it is presented on the market. A number of techniques and processes have to be done beforehand as well as all possible mistakes have to be determined, and each member of the team that works on product development has to perform his/her own functions completely.

Important Ideas

• Product strategy and innovation: engineers should not consider the idea of innovation only but takes care of a product’s true value and its functions.
• Customer and product requirements: engineers have to identify the quality of products considering the needs of customers (Blazey 148), not their own ideas.
• Customers vs. users: people, who buy products, are always the users of the products, and the developers should consider this little still significant detail.
• Features vs. benefits: communication with customers will help to realize that product benefits should never be replaced with its specific features (Varley 254).
• Right product vs. product right (Charvet, Sandlin, Collier, and Wilson 310): the product is created and demonstrates the successful performance of its functions.
• A good product requires good business: it is necessary to introduce a product and think about the supportive means to prove the worth of the chosen product (Ali 249).
• Emotional element: a boring product, even it is characterized by a number of functions, maybe failing; therefore, a portion of the excitement is necessary.
• “To add” vs. “to improve”: when a team thinks about additional features of a product, its members should not admit that they add something to the already existing thing but information about its possible improvement on the basis of the current achievements.
• “Complete” vs. “sellable” products: a product may undergo changes and improvements all the time to be sold.
• A true success of a product: when a product is launched in time, gets positive reviews, or takes a leading market position, it is not successful; customers should be happy and satisfied with the product and stay loyal to it (Herr, Page, Pfeiffer, and Davis 833).

Relevance

The chosen reading related to the course due to its intention to provide people with information about the enhancement of problem-solving activities and the techniques crucial for successful innovations and work in a team. In my daily life, the mistake because of confusing innovation with value takes place. I like buying things without paying attention to their functions and values.

I am obsessed with the products’ general views and prices. If I like a thing, I do not analyze it but buy it. A not long time ago, I bought a fancy box to gather my small staff. Still, the instructions on how to use it are too complicated and require much time to study all of them. The results are annoying – the box stands as a beautiful, not useful object in my room.

Works Cited

Ali, Hassan. “The Process in Developing a New Successful Product.” STEdex 6 (2014): 249-253. Print.

Cagan, Martin 2005, The Top 12 Product Management Mistakes – and How to Avoid Them. PDF file. Web.

Charvet, Francois, Sandlin, Doral, Collier, David, and Wilson, Darryl. “CRM, SRM, and Integrated NPD: Having the Right Product versus Having the Product Right.” Proceedings of the 2008 Academy of Marketing Science (AMS) Annual Conference. Ed. Leroy Robinson. New York: Springer, 2015.310. Print.

Herr, Paul, Page, Christine, Pfeiffer, Bruce, and Davis, Derick. “Affective Influences on Evaluative Processing.” Journal of Consumer Research 38.5. (2012): 833-845.

Stark, John. Product Lifecycle Management: 21^st Century Paradigm for Product Realization, New York: Springer, 2015. Print.

Varley, Rosemary. Retail Product Management: Buying and Merchandising, New York: Routledge, 2014. Print.

As a hired specialist responsible for the improvement of the company’s functioning, several recommendations should be given regarding the inventory reduction. There are multiple ways in which this task can be accomplished. Their choice depends on the peculiarities of the company’s functioning, its supply chain, and the way it works (Bragg, 2018). If to speak about Johnson Company, the elimination of obsolete inventory, along with improved forecast accuracy, can be considered a reasonable approach (Bragg, 2018).

At the moment, the organization’s warehouse is full of outdated DVD players. They tie up working capital and decrease development speed (Bragg, 2018). In such a way, Johnson Company should sell these devices at a reduced price. It may have a negative impact on short-term profits; however, in a long-term perspective, it will help to overcome the crisis and align the efficient functioning of the company by providing sources for the development of a new line.

Another factor under discussion is the adherence to a JIT system. It can be described as a just-in-time inventory system in a management strategy that presupposes the enhanced alignment of all raw-materials orders from suppliers in accordance with the current production schedules (Silver, Pyke, & Thomas, 2016). The given method as opposed to the just-in-case strategy in which producers prefer to hold large inventories to cover the marketing demand.

Johnson Company previously utilized this very strategy; however, now it is an appropriate time to switch to a new model. Several reasons support this decision. First of all, the warehouse is full as there are obsolete DVD players and no place for new products. Second, the time and costs of delivery of new devices will be reduced. For this reason, the company can be recommended to switch to the JIT model.

However, the choice of the method to work with the inventory demands reconsideration of relations with suppliers. Previously, the company ordered many devices to fill the warehouse and ensure that customers’ demand will be satisfied. The given approach will not work in the new environment. The firm should engage in continuous cooperation with its suppliers to inform them about the need for a particular product and ensure its on-time delivery (Silver et al., 2016). In such a way, these sorts of relations should be improved to guarantee that the efficient scheme will be created and all actors will benefit from their close cooperation.

One more problem arising because of the reconsideration of the company’s functioning is the risks associated with the elimination of safety stock. Thus, if there is no buffer to protect the company against shortages arising because of uncertainties in demand, Johnson Company can lose clients dissatisfied with the lack of needed products or delays in their delivery. To minimize these risks, the company should devote much attention to the continuous increase in the quality of forecasting to avoid shortage and, at the same time, enhanced cooperation with suppliers that provide needed products to the organization (Bragg, 2018). Better collaboration means reduced response and delivery time. For this reason, it can be considered an effective solution to the problem.

Finally, there is the problem of choice between recycling, remanufacturing, and refurbishing. The first one is the process of converting waste materials into new objects that can be used (Silver et al., 2016). Refurbishing is the renovation of obsolete things to make them work or look better (Silver et al., 2016). Finally, remanufacturing is the rebuilding of a certain product to the specification of the initial product with the help of reused, repaired, or completely new parts (Silver et al., 2016). Regarding the current focus of the company, recycling can be used as there is no need to repair DVDs or make them look better. The company should eliminate old products by using effective recycling techniques to create a background for its further evolution.

References

Bragg, S. (2018). Inventory management (3rd ed.). Centennial, CO: AccountingTools, Inc.

Silver, E., Pyke, D., & Thomas, D. (2016). Inventory and production management in supply chains (4th ed.). Boca Raton, FL: CRC Press.

Agricultural institutions contribute toward supporting the legislature in accomplishing food security in many countries. The Food and Agriculture Organization (FAO) of the United Nation is a non-profit organization with the goal to eradicate famine, malnutrition, and food shortages. As a result, the organization provides operational management to surmount the challenges of food production. Thus, an effective management system will reduce rural hunger and malnutrition. The non-profit organization is an appendage of the United Nations with the vision of accomplishing nourishment adequacy and diminishing the neediness levels. Considering that 75% of the Algerian population rely on agriculture for sustenance and wages, this study examines the operational management practices of the FAO in tomato, potato, and onion production. The objective of the operation management is to sustain agriculture, maximize profit, and eradicate hunger.

In Algeria, farming is a vital part of the national economy. The agriculture landmass of the nation covers 91 percent of the 1,541 districts. By implication, the Algerian agriculture sector gives immediate jobs to14 million Algerians who live in provincial zones, enhancing the living status of numerous families. Further, it is perceived that horticultural livelihoods produce three different sorts of occupation, which includes transport, exchange, and value. Considering horticulture and rustic improvement arrangements system, food production is described by an extraordinary connection that interfaces monetary action, family structure, and the domain. This study reviewed the operations supervision techniques enforced by FAO for tomatoes, potatoes, and onion production in Algeria. To fulfill this objective, the study was guided by the accompanying exploration goals, which include operational management techniques utilized by the organization, the challenges of profit maximization, and the correlation between operational management and crop performance.

The operations department within the FAO manages the operations and conversion of farm seeds, inputs to crop yields. Operational administration practices include item and process outline, supply arrange outline, stock arrangement, and control, scope, organization, store network, venture operations, quality management, design, change, and hazard evaluation (Slack, Chambers and Johnston 110). Operational management is the company’s accomplishment measured against a standard or endorsed pointer of adequacy, productivity, process duration, profitability, waste degeneration, and administrative consistency (Stevenson 78). Operations change, profitability, and performance are indicators of effective management. Operational administration is the arrangement of all units inside an organization to guarantee compliance to accomplish specific business objectives. At a key level, execution goals identify with the interests of the operation’s partners. In this analysis, the operation partner is Algeria. Thus, operation management performance mitigates the constraints facing crop production in Algeria. The constraints faced by a famer in Algeria include education status, legal status of arable land (Land Use Act), and age of participants and inadequate social and credit facilities.

The dynamic nature of farmers’ production conditions in Algeria prompts a multifaceted decision-making process. Operational managers must choose an effective production plan to accomplish better results or monetary proficient generation. Both horticultural ventures and individual homestead family units make synchronous choices concerning resource allocation, advertisement marketing, and funds. Applying the right innovation is insufficient, thus agriculturists require certain learning in agricultural business management (Barnes 34). Food production and planning is an overwhelming process, wherein the yield relations, yield cost value proportions, access to common assets, and the rancher’s inclinations must be considered (Chenhall 50). Consequently, the challenge of tomato, potato, and onion production planning can be associated with linear programing. By implication, the operational management wing of the organization must categorize the production plan of these vegetable crops as challenges of resource allocation and profit maximization.

The FAO developed a linear programming method to accommodate different vegetable production plan in Algeria. The approach empowers investigations of changing farm practices for vegetable production structures at different levels and farming conditions. Thus, the linear programing model is associated with the estimated gross margin, and constraints within the farm environment. Please note that different variables are analyzed based on the farming conditions. Consequently, the production plan of the sampled farms must be harmonized using the linear programing (LP) model. The LP model can be tested in MS Excel. The approach of this model is to characterize the mechanical coefficients for innovations connected to specific crop production. Please note that the production plan and operations for each crop must have a harmonized budget. Thus, the farm’s wage and expense figures must be analyzed using the linear programing model. By implication, the farm expenditures are mapped with hectare measurements.

The operations department within the FAO manages the operations and conversion of farm seeds, inputs to crop yields. Operational administration practices include item and process outline, supply arrange outline, stock arrangement and control, scope, organization, store network, venture operations, quality management, design, change, and hazard evaluation (Slack, Chambers, Johnston 101). Operational management is the company’s accomplishment measured against a standard or endorsed pointer of adequacy, productivity, process duration, profitability, waste degeneration, and administrative consistency (Stevenson 40).

The LP model incorporates 162 choice factors categorized into four clusters. The main cluster describes the most illustrative vegetable yields in Algerian horticulture. At this stage, three vegetable yields are incorporated into the model. The crops include tomatoes, potatoes, and onions. The second group displays the farming resources and inputs. Farm inputs include herbicides, pesticides, fertilizers, seedlings, arable land, and labor. The third gathering of exercises catches the framework limit of the ranch. The fourth group describes the balance production plan of the farm. However, the LP model offers extra plausibility to pick activities that enhance profit maximization and operational performance. The choice of a farmer depends on the farming constraints and available resources. By implication, the education status of famers, legal status of arable land, farmer’s age, labor, and seeds are categorized based on the model framework (Dilworth 46). Limitation for accessible land must be categorized as a constraint in the LP model. The accessibility limitation is considered as a seasonal variable in the LP model, thus family association can replace labor constraints.

The labor variable for this model must be divided on a monthly basis to accommodate the workload for different planting seasons. This principle is particular to vegetable generation, because of the uneven appropriation of labor activities. For example, labor activities are intensive during the seedling and harvest phase. Further, as an imperative endogenous requirement, the operating capital for this variable is categorized as an independent constraint in the model. Consequently, constraints that affect the supply chain are considered in the model. The constraints, which include market and approach requirements, can be external or internal factors of production.

The market confinements are seen through attractive amount limits, while the approach imperatives consider the country’s horticultural criteria. Finally, the balance constraints, which include land availability, number of farm locations, and resource cost supplement the linear programming model. The LP model supports the evaluation of shadow cost, which include social opportunity expenses of the assets utilized and resource cost analysis (Dreze and Stern 1994). In a LP model, the shadow costs, which are viewed as double factors, demonstrate the minor estimations of the marginal coefficients of assets utilized. Thus, the model ascertains the shadow costs by which the aggregate marginal value would be expanded additional unit of arable land utilized during the cropping season.

Speculative Data Analysis of the Linear Programing Model

Diverse sources of data must be utilized for supporting the instrument. Essential information for computing the venture spending plans include pertinent specialists: scientists, innovation experts, augmentation specialists, input suppliers, and vegetable ranchers. However, the farm’s budget expenditures must be calculated using the current production practice. Each farm space should be allocated using specific hectare dimensions. For example, the farm plot can be set at 4 hectares per crop. As a result, tomato, onion, and potato production will carry single plots of four hectares.

The supposition is that the homestead has framework for vegetable production under plastic passages that could be used at one hectare of arable land. However, the model accommodates additional hectare of plastic passages for cultivation. Please note that labor accessibility is estimated at 5,500 hours per year. Consequently, labor wages should be paid daily based on the LP model.

In looking for an ideal generation arrangement, it is imperative to perceive the model’s stability for profit maximization. Consequently, the model must be flexible to accommodate changing production conditions and practices. Three diverse situations have been utilized to examine the impact of the most restricting constraint in cultivating tomatoes, onions, and potatoes in Algeria. The fundamental distinction among model scenarios is in market and capital imperatives.

Figure 1. Linear programing model scenarios for tomato, onion, and potato cultivation in Algeria.

The operations management practices for the production of tomatoes, onions, and potatoes in Algeria as applied by FAO include human resources, supply chain management, inventory practices, maintenance, quality management, location strategy, scheduling practices, labor management, and quality of harvest, layout strategy, process, and capacity design (Food and Agricultural Organization 3).

The LP model must align with the cultural practices of cultivating vegetables. By implication, the operations department within the organization must sensitize farmers on the vegetable best practices. The operations management categories include transplant practices, plastic mulch cultivation, irrigation practices, fertilizer management, weed control, sprayer management, insect management, diseases, psychological challenges, and marketing and production cost.

Tomato cultivators can undertake spending plans to gauge production and initial investment costs. Spending plans incorporate cost for those variables that improve crop yield. Because crop production techniques vary among producers, every cultivator needs to adjust spending appraisals to accommodate his or her individual circumstance. However, the farmer must compute the fixed and variable cost of production after harvest. The difference in summation revealed the profit or loss for the planting season. Please note that the cost of production is an independent variable. By implication, the farmers must implement farm practices required for tomato production. Thus, seedling transplant must be carried out at specific periods of the crop’s life span. Consequently, insect management, weed control, lime application, fertilizer application, and disease control must be effectively managed.

The variable or working expenses change with social practices, location, and cultural practices. Variable cost for vegetable production include seed cost, manure, chemicals, fuel, and labor. The table below summarizes the cost of tomato production as applied by the organization.

The above table supports cost evaluation based on independent variables. As a result, the table gives you a chance to investigate the expenses at various phases of planting. However, the components of fixed cost include asset ownership, depreciation, security, taxes insurance, and general overhead costs. A large portion of these expenses is a perquisite for vegetable cultivation no matter the profit. Thus, land ownership cost can either be a fixed or variable expenditure. Because it shifts from region to region, from locale to district, and whether it is flooded or non-watered, it is excluded in this speculative spending plan.

Please note that personal land must be assigned a cost of production to avoid cost error estimation. Thus, land is fixed cost based on FAO assumptions for agriculture in Algeria. Cost is in this financial plan despite the fact that no cost has been recorded. Because yields and costs change from year to year, an endeavor is made to assess profit maximization in tomato production. Consequently, the LP model must be replicated for other vegetable production in Algeria. Fruitful tomato production and administration is challenging and. like any farming product, it is troublesome. It remains a financially plausible venture for Algerian vegetable cultivators. Undertaking spending plans can be utilized to aid farmers in the decision-making process. The cost estimation analysis must be conducted to ascertain the contribution margin, rates of returns, and profit.

Conclusion

This operation management practice will assist farmers in the planning and implementation of production practices. Consequently, the technique will improve the yield and maximize profit in tomato, onion, and potato production. Farmers can allocate and reassign resources based on the contribution margin of each variable. Thus, the linear programing model supports profit maximization in vegetable production. However, each department must be managed by competent personnel to improve the performance and productivity. To avoid the effect of change management and succession, employees must be included in the change strategy. In looking for an ideal production technique, it is imperative to perceive the model’s stability for profit maximization. Consequently, the model must be flexible to accommodate changing production conditions and practices.

Works Cited

Barnes, David. Operations Management: An International Perspective, London, England: Thomson Learning, 2008. Print.

Chenhall, Robert. “Reliance on Manufacturing Performance, Total Quality Management and Organizational Performance.” Management Accounting Research 12.3 (2010): 37-56. Print.

Dilworth, James. Operations Management: Design, Planning, and Control for Manufacturing and Services, New York, USA: McGraw-Hill, 2013. Print.

Food and Agricultural Organization (FAO). Web.

Slack, Nath, Chambers Sanders and Johnston Rall. Operations Management, New York, USA: Prentice Hall, 2011. Print.

Stevenson, Williams Operations Management: Operations and Decision Sciences, New York, USA: McGraw-Hill Series, 2014. Print.

Introduction

Business trends in the corporate world are always changing. Some of the factors that impact on firms include economic decline, change in consumer preferences, and level of competition. To keep up with the changes in the business environment and maintain a competitive advantage, it is important for companies to regularly make fundamental and strategic appraisals of their operations (Smart, Awan & Baxter 2013).

In this paper, the author will provide a proposal for the management of Central World (WC) Products Plc. (HK). The suggestions will focus on costing systems, profitability analysis, and strategic assessment. The cost accounting system framework will be used to estimate the price of different products for profitability evaluation, inventory appraisal, and expenditure control. Profit analysis will be carried out by looking at the four levels of proceeds margins. The four include gross, operating, pre-tax, and net profit levels. The strategic assessment will be used to provide the management of Central World with analysis and guidance on the best alternatives available to help the company to start trading again.

Proposed Cost System, Profitability Analysis, and Strategic Appraisal

Profitability and Sales Outlets

Differences between strategic and traditional management accounting

Management accounting is the process of preparing executive accounts and reports. The reports provide companies with accurate and timely information required to make both long term and short term decisions. The information can be statistical, financial, or non-financial. Gilkar (2007) is of the opinion that the process is crucial to the implementation of the best organizational strategies. Compared to financial accounting, management entails the creation of monthly reports for the internal stakeholders of a company.

The stakeholders include department managers and chief executive officers. The reports presented to provide information on the sales revenue generated, raw material and inventory, variance analysis, as well as the available cash. Other data shown include states of accounts payable and accounts receivable, trend charts, and the number of orders in hand (Gilkar 2007). According to Bhimani et al. (2015), there are two forms of management accounting. The two are traditional and strategic accounting. The two differ from each other in a number of ways.

Traditional management accounting involves the evaluation of business performance based on long-established systems and standards. The practice is beneficial to companies that offer a narrow range of goods or services. In addition, the approach is used by businesses that do not require custom designs. Warren, Reeve, and Duchac (2011) observe that traditional management accounting focuses on cost reporting and utilization of fixed assets. Some of the primary concerns associated with the practice include ineffective and imprecise performance measurement of organizations carrying out activities in non-conventional means.

On its part, strategic management accounting focuses on merging organizational goals with other relevant business information. The aim is to provide an appropriate model to help company managers to make suitable business decisions (Warren, Reeve & Duchac 2011). The approach also analyses external information on the impact of resources, costs, market share, prices, and cash flow (Horngren, Harrison & Oliver 2008). The evaluation helps managers to determine the best tactical response to given business situations.

Other differences between traditional and strategic management accounting systems are in terms of reporting units, the approach used in cost and profitability analyses, performance appraisal, and ownership. On the basis of the strategy used in cost and performance appraisal, for example, traditional management accounting uses ex-post control. It achieves this through product costing systems, monthly departmental budgets, and period based manufacturing expenditure. In addition, performance appraisal is conducted on a monthly basis. On its part, strategic management accounting uses the ex-ante control-based methodology and life-long outlays to analyze cost (Bhimani et al. 2015). In addition, performance evaluation is carried out on the basis of three or six-monthly multi-dimensional reviews.

Expected profitability: Computations

The calculations used to show the expected profitability of the different types of Central World’s sales outlets for the coming year will be based on activity-based costing (ABC). The reason for using this methodology is that ABC provides companies with important information on cost drivers and activities carried out by the business. In addition, the approach provides vital information on the relationship between clients, markets, costs, and products.

Profitability analysis of CW’s outlets and shops

The table below shows calculations aimed at determining the outlets that make the most profits for CW:

Table 1: Profitability of outlets.

CW has a known overhead cost of $200,000. The cost needs to be allocated to all the outlets to get a complete view of the profitability.

The table below shows the calculations for apportioned overheads:

Table 2: Apportioned overheads.

The calculations show that there is a need to allocate overhead costs more fairly to determine the correct expected profits. To ensure proper allocation, CW should determine what makes some outlets costly to deal with compared to others. Some of the factors could be the way the personnel working in these outlets interact with customers and the expenses used in order systems. Such expenses include post, telephone, and internet. For example, if it takes half as many posts, internet, and telephone expected to make orders in department stores outlets, the focus should be on determining how to reduce the costs. In addition, if customers in CW’s shops place more orders compared to those from departmental store outlets, their own shops should get the largest share of the cost of processing orders.

Calculation of total activity cost

The next step of calculating the expected profitability of the different types of sales outlets for the coming year will involve determining the total activity cost by each task. The duties carried out by CW to effectively serve the clients include making sales calls, processing orders, picking and packing, shipping, and making credit control calls.

The table below shows total cost by activity:

Table 3: Total cost by activity.

The company has a total of 15 stores and shops. As a result, the total activity cost by task for the firm is 29150 × 15 = $437250. After getting the cost of each activity performed by CW, the cost of each product and client contribution can be calculated using the second principle of activity-based costing. There are two different types of outlets for CW. As a result, activity costs should be split evenly between all the shops. The measure to be used will be activity drivers.

The final step will entail calculating the expected profitability of the outlets by combining the total activity costs with contribution expenses from table 1. The table below shows the expected profits and loss by outlet:

Table 4: Expected profits and loss by outlet.

Comments on the results and figures obtained

A number of findings were made from the calculations of the expected annual earnings in relation to the profitability of CW. In terms of profit margins, for example, the computations show that CW’s total earnings will be $665,000. In addition, the calculations show that CW’s own shops will generate more profits at the end of the coming financial year compared to the departmental stores. In terms of cost allocation, CW’s own shops will require more expenses for processing orders and making deliveries. The reason is that the shops receive more customer orders.

Importance of the Profitability Analysis

Usefulness and limitation of the profitability analysis

Profitability analysis

Profitability analysis allows business managers to predict the success of a proposal or optimize the gains of an ongoing project (Gilkar 2007). In addition, the evaluation is used to anticipate potential sales and profits specific to given aspects of the business. Such items include geographic regions, customer preferences, and product types (Bhimani et al. 2015).

The information generated through profitability analysis will help Central World (CW) in a number of ways. For example, it will help the management to increase the annual revenues of the organization by attracting more clients. Profitability analysis enables companies to set prices for various products. Amending prices and making them affordable will prompt more clients to seek the firm’s goods and services (Drury 2007). As a result, the sales department will focus on retaining customers who have reasonable demands and value and who are willing to pay for the company’s products.

The profit analysis will also help CW to determine the most and least profitable products. The company provides clients with high-quality gifts and household products. The products generate varying amounts of revenue for the company annually. Through profit analysis, CW will be able to determine that products that are in high demand in the market (McLaney & Atrill 2012). Such items can generate huge profits for the company if sold well. In addition, CW will be in a position to determine the products to be sold and to be bought in large quantities.

The information generated by the profitability analysis will help CW to optimize its responses to changing customer needs. The preferences and wants of the consumers are constantly evolving (Warren, Reeve & Duchac 2011). As a result, it is important for companies to keep track of the changes. Failure to meet the new demands and preferences lead to loss of competitive advantage and reduced revenues. One of the factors associated with the change in needs includes the technological advancement of a current product. Another importance of the profitability analysis information to CW is that it will help the company to evolve its mix of products and maximize its medium and long term earnings

Limitations of profitability analysis

Some of the probable limitations of the profitability analysis include timing, risk, and value problems. The timing concern is brought about by the fact that CW may sacrifice some of its current earnings while anticipating future revenues. The case is evident when a company wishes to introduce a new product that requires high start-up expenditure in the market. Profitability analysis entails calculating Return on Common Equity (ROE). Smart, Awan, and Baxter (2013) note that ROE captures the profits of one year only. As a result, the analysis may fail to provide full information on the effects of long-term decision making.

Another probable limitation of the profitability analysis is the failure to state the risks taken by CW to generate its total ROE. The reason is that, at times, the approach focuses on profits without putting into account risks. As a result, the process can generate inaccurate information on expected financial performance (Drury & Tayles 2006).

Another limitation of the profitability analysis is the misinterpretation of information and future business trends. The issue is linked to the value problem. Profitability evaluation that focuses on ROE analyses return on investment using the information in book value and not market worth (Bhimani et al. 2015). Due to the differences between the two components, a high rate of equity may not lead to increased revenue on investment for stakeholders and the entire company.

Other important information about the company

Additional information about CW is needed to make an informed judgment about the fundamental and strategic appraisal of the business. The factors to be taken into consideration include liquidity, efficiency, profitability, and leverage ratios.

Liquidity costs

Liquidity cost calculation is an approach used to measure the amount of monetary and easily converted assets that are needed to cover debts and provide a broader picture of the business and its financial situation (McLaney & Atrill 2012). If CW fails to realize enough sales, it may be unable to meet its financial commitments. Liquidity costs can avert this problem through current and quick fraction calculations.

By analyzing CW’s current costs, one is able to determine whether or not the company is capable of generating enough revenue to meet its short term financial obligations. On its part, the quick costs will measure CW’s ability to access money on a timely basis to support the immediate demands aimed at making the company more profitable. The computation of a quick ratio involves dividing the current assets with the liabilities (Gilkar 2007). Based on the trends in the industry within which CW is operating, a ratio of 1.0 or higher will be a sign that the firm is in a good position to meet its demands, make huge profits, and maintain a competitive advantage. As a result, CW must work to ensure that its cash is not underutilized. To avoid underutilization, the company can invest more in other projects.

Efficiency Levels

Efficiency is calculated over a 3 or 5 year period. The computation is used to forecast the performance of specific areas of the business, such as operational results. Drury (2007) notes that the approach uses inventory turnover calculations. The analysis of efficiency ratios will provide information on how long it will take for the company’s products to be sold and replaced in the coming financial year.

The calculation will entail dividing total purchases with the average stock at a given time. Assessing inventory turnover has a number of benefits for a business. In CW’s case, for example, information on supply turnover will help the company to increase its profits each time goods are sold at the right prices and replaced on time. In addition, management will be able to improve the company’s buying practices and stock management. Information on turnover can also help in making informed decisions by determining the inventory networking capital ratio.

The average collection period provides important information about CW and its sales. The data will be needed to make informed choices. The evaluation of collection duration provides companies with the average number of days that clients take to pay for their products (Horngren, Harrison & Oliver 2008). The period will be determined by dividing receivables with total sales and multiplying the result by 365.

Customers

Information on the types of customers in all the sales outlets will help in making informed decisions about the fundamental and strategic appraisal of CW. Smart, Awan, and Baxter (2013) note that all customers are not equal. Some clients generate positive net margins compared to others. In addition, some customers are high maintenance. As a result, they are not profitable for the company in any way. Information on clients will help the management make informed choices by focusing on a new customer base and getting rid of those costing the business money. Eliminating such clients will help CW to focus on more profitable customers in its sales outlets. It will also help the company to address the gross margin concerns.

Conclusion

Profitability analysis is important for every organization. The reason is that the evaluation helps companies to identify those business areas that are performing well while finding solutions for those that are failing. The analysis carried out on CW will help the company to develop the appropriate strategies to improve its profitability. It will also make it possible for managers to make informed choices, which are required for the company to continue trading.

References

Bhimani, A, Horngren, C, Datar, S & Rajan, M 2015, Management and cost accounting, 6th edn, Pearson Education Limited, Hoboken.

Drury, C & Tayles, M 2006, ‘Profitability analysis in UK organisations: an exploratory study’, The British Accounting Review, vol. 38, pp. 405-425.

Drury, C 2007, Management and cost accounting, 7th edn, Cengage Learning, London.

Gilkar, N 2008, Profitability analysis: an exploratory study, Atlantic Publishers & Distributors (P) Ltd., New Delhi.

Horngren, C, Harrison, W & Oliver, M 2008, Accounting, 8th edn, Prentice Hall, Upper Saddle River, NJ.

McLaney, E & Atrill, P 2012, Accounting: an introduction, 6th edn, Pearson, Harlow, England.

Smart, M, Awan, N & Baxter, R 2013, Principles of accounting, 5th edn, Pearson New Zealand, New Zealand.

Warren, C, Reeve, J & Duchac, J 2011, Accounting, 24th edn, South-Western/Cengage Learning, Sydney.

The Philip Morris Heat Stick

The Philip Morris Heat Stick can be classified as a specialty product and is considered as a new product line under the different types of new products category (Richardson and Gosnay 55). The heat stick is the company’s attempt at staying relevant in a changing market environment where the use of e-cigarettes has gained a considerable level of popularity among U.S. based tobacco smokers (Felberbaum 1).

The heat stick is different than its other e-cigarette counterparts since, instead of vaporizing a flavored liquid that contains trace amounts of nicotine, the heat stick instead heats dry tobacco which creates a flavored vapor (Mulier, Chambers and Liefgreen 22). This alternative variant to the “classic” e-cigarette is supposedly “healthier” than its actual cigarette counterpart since the smoke that is produced has no tar. As a result, it is supposedly a better alternative to other e-cigarettes since it allows the user to get a fuller tobacco flavor without cancer-causing additives.

Product Life Cycles

Traditional cigarettes are currently in the declining stage of the product lifecycle. While this may not seem as apparent due to the sheer amount of smokers, studies such as those by Murray have indicated a 35 percent decline in the number of cigarette smokers compared to a decade ago. This is in part due to a wide variety of different education and health campaigns sponsored by numerous global governments aimed at limiting the number of smokers (Murray 341).

E-cigarettes, on the other hand, can be classified as being in the introduction stage and mid-way towards the growth stage of their product lifecycle (Paley 153). Yes, they have grown in popularity over the past six years, but they are still isolated to a relatively small niche market due to the inherent expense of having to buy an e-cigarette kit (Schneider and Diehl 651). The long term implications this has on the marketing strategy of Philip Morris is that the company should start investing in developing marketing campaigns centered on its e-cigarette brand. Due to their status as a niche market product, e-cigarettes marketing campaigns focus on traditional methods such as signboards and leaflets as well as non-traditional methods such as online banner ads and promotions (Mackey, Miner, and Cuomo 98).

Marketing methodologies that center on the use of television ads, which have a greater scope, have yet to gain popularity among e-cigarette sellers. One of the main reasons behind this is the fact that the current e-cigarette market is composed of an amalgamation of small to medium scale companies. On their own, they are unable to match the marketing budgets of major companies like Philip Morris.

Not only that, attempting a joint television marketing strategy by these SMEs (Small to Medium Enterprises) is not possible since each has developed its brand name which makes a joint television advertisement through a major network unlikely to occur. It is due to this that Philip Morris has a considerable market advantage since it is capable of leveraging its financial resources and experienced marketing department to produce television advertisements that would enable it to target larger audiences and, as a result, bring more attention to its heat sticks compared to these smaller companies.

Stages of Product Development

The most important stage in the product testing process of the heat stick is the marketability tests that the firm will utilize. The problem with introducing the heat stick into the present market is that many present-day e-cigarette users are used to using liquids in their e-cigarettes. Heating tobacco may not be as appealing since it is limited to just one flavor compared to the hundreds if not thousands of liquid e-cigarette flavors currently available on the market today.

The company needs to determine if sufficient appeal can be generated to justify commercializing the product on a large scale in multiple markets. If it fails to do so, it could likely release a product that has little in the way of mass appeal and could cost the company billions of dollars in unsold merchandise. Another factor to take note of is that not all markets will respond well to the e-cigarette and, as such, multiple markets need to be tested for their viability.

Impression on the potential success of the heat stick

Based on the work of Branston and Sweanor, it was noted that the popularity of e-cigarettes was, in part, due to a lack of sufficient legislation and regulation. They had fewer regulations imposed by the government since they were considered as a relatively new product being introduced into the American market and insufficient studies were conducted that indicated that they were harmful (Branston and Sweanor 14).

This allowed suppliers to openly sell them to high school students and young adults. One of the main contributing factors to their rise in America was their popularity among high school students which translated into continued product patronage when they graduated and started college or entered into various career paths.

The study of Kim showed that nearly 90 percent of individuals addicted to tobacco started young and, as such, the use of e-cigarettes during an individual’s high school years results in a greater likelihood of them continuing to utilize the product well into the future. From this perspective, it would seem that the Heat Stick of Philip Morris has a considerable amount of potential since it is a well-known brand and the ability to draw young consumers early enough could result in long-term product patronage. However, the problem with the introduction of this product is in its timing (Kim 1).

On May 5, 2016, the Federal government made a ruling indicating that new regulations are now being put in place to keep e-cigarettes out of the hands of children. Within 90 days of the judgment, the sale of e-cigarettes to anyone under 18 will be banned, and adults who are under the age of 26 need to be able to show proper identification. This landmark ruling could have a devastating impact on the ability of e-cigarette liquid and set producers to develop long-term patronage of their products. Due to their unique ability to produce a lot of vapor, their technological nature, and their stylish designs, e-cigarettes appealed to young consumers who wanted to appear “cool” (Perkins, Karelitz, and Michael 106).

This ruling by the FDA constrains the targetable market resulting in the need to develop new marketing concepts that target consumers in their early to mid-20s or even in their 30s. This casts a considerable amount of doubt on the long-term viability of the Heat Stick considering the currently overly saturated market and the new limitations that have been put in place. Yes, the heat stick is not a traditional e-cigarette but it is still likely to fall under the same legislation.

Works Cited

Branston, J. Robert, and David Sweanor. “Big Tobacco, E-Cigarettes, And A Road To The Smoking Endgame.” International Journal Of Drug Policy 29.(2016): 14-18. Print.

Felberbaum, Michael. “Philip Morris Int’l to Sell Marlboro HeatSticks.” Washington Times. The Washington Times, 2014. Web.

Kim, Annice E. “Using Twitter Data To Gain Insights Into E-Cigarette Marketing And Locations Of Use: An Infoveillance Study.” Journal Of Medical Internet Research 17.11 (2015): 1. Print.

Mackey, Tim K., Angela Miner, and Raphael E. Cuomo. “Exploring The E-Cigarette E- Commerce Marketplace: Identifying Internet E-Cigarette Marketing Characteristics And Regulatory Gaps.” Drug & Alcohol Dependence 156.(2015): 97-103. Print.

Mulier, Thomas, Sam Chambers, and Dan Liefgreen. “Marlboro Kicks Some Ash.” Bloomberg Businessweek 4469 (2016): 24-26. Print.

Murray, Conor. “Western Australian Cigarette Smokers Have Fewer Small Lung Nodules Than North Americans On CT Screening For Lung Cancer.” Journal Of Medical Imaging & Radiation Oncology 53.4 (2009): 339-344. Print.

Paley, Narton. The Marketing Strategy. Crest House, 2007. Print.

Perkins, Kenneth A., Joshua L. Karelitz, and Valerie C. Michael. “Reinforcement Enhancing Effects Of Acute Nicotine Via Electronic Cigarettes.” Drug & Alcohol Dependence 153.(2015): 104-108. Print.

Richardson, Neil, and Ruth Gosnay. Develop Your Marketing Skills (Creating Success Series). Kogan Page, 2010. Print.

Schneider, Sven, and Katharina Diehl. “Vaping As A Catalyst For Smoking? An Initial Model On The Initiation Of Electronic Cigarette Use And The Transition To Tobacco Smoking Among Adolescents.” Nicotine & Tobacco Research 18.5 (2016): 647-653. Print.

Due to the rapid technological progress, countries have become increasingly intertwined in their economic activity through integration into the world economy. According to Arkolakis et al. (2018), the integration process generally depends on a country’s decision about its specialization. It can either decide to specialize in production or focus on innovation processes and outsource its production to another country. Since one of the impacts of globalization is a decline in multinational production costs, many countries tend to choose the second option. In this case, the profit from the outsourced production will flow back to the place of innovation to compensate for associated expenses. In short, they decide to export ideas and import goods afterward, which proves to be an increasing-returns-to-scale activity (Arkolakis et al., 2018). On the contrary, focusing on production provides only comparative advantages.

When companies choose to produce for particular markets, they find themselves facing a dilemma. Locating production in the proximity of the selected market might not reduce the production costs, but it successfully reduces the associated trade costs. Thus, the production specialization allows for efficiency gains if the economy produces for the local markets. However, production specialization could cause the country’s terms of trade to deteriorate (Arkolakis et al., 2018). In addition, low innovation might ultimately limit the economy’s growth prospects.

Therefore, in the short-term production costs management, a good practice would be to focus on logistics and efficiency gains assessment. Another option would be to import innovation, which allows controlling production costs and competitive profit from production specialization. However, in the long run, if the multinational production costs continue to decrease, the most optimal decision would be to consider shifting to innovation activity in search of cheaper production elsewhere.

References

Arkolakis, C., Ramondo, N., Rodríguez-Clare, A., & Yeaple, S. (2018). Innovation and production in the global economy. American Economic Review, 108(8), 2128-2173.

Among global food manufacturers, Nestle is one of the largest producers that distributes its products almost in every country of the world. It is a multinational and multi-brand corporation that provides high-quality foods and brings innovation to the industry. The main strategic priority of the company is to increase growth, which would create an immense scale and maximize cost efficiency per unit (Nestle Global, 2020). Apart from the global supply, outsourcing processes to countries with cheaper labor helps Nestle to generate additional resources. Apart from a variety of local subsidiaries, the company manages more than a dozen brands that allow them to target different consumer groups offering both low-cost and premium-class products. These brands cover a large part of the global food sector, offering goods such as bottled water, baby food, or chocolate. The chosen examples of products are Purina One dry cat food, Gerber baby food, and Nescafe 3in1 instant coffee. All these products are strong competitors in their markets, mainly due to the cost-efficiency of production.

Purina One is a global brand that provides high-quality pet food. As the company states, its main advantage lies in innovative formulas that respond to different nutritional needs (Nestle Global, 2020). The strategy is based on generating value for the customers, but the company keeps prices relevantly low compared to other premium cat food. That is why the strategy for Purina One can be defined as a best-cost provider which allows to “upscale product attributes at a lower cost than rivals” (Thompson et al., 2017, p. 122). Two other competitors Whiskas cat food produced by Mars Inc. And Hill’s Science Diet adopts different pricing strategies. The former offers cheap food of relevantly low quality, while the latter is similar to Purina One in terms of nutritional parameters but costs significantly more.

The same strategy is applied to Gerber baby food that offers high value for the optimal price.

Foods produced by Beech-Nut and Heinz provide similar value and target the same type of customers, but do not have such a global scale as Nestle. Nescafe 3in1 is a leader on the market of instant coffee products. It has several serious competitors, such as Starbucks VIA Ready Brew Coffee, mostly in the U.S. and Jacobs Kronung in Europe but none of them is as globally known as Nescafe. Unlike two previous products, this brand uses the overall low-cost provider strategy with broad differentiation of customers.

Nestle Nespresso offers a system of espresso machines and pod coffee capsules with which everyone can make high-quality coffee at home (Nestle Nespresso, 2020). For these products, Nestle chose a focused differentiation strategy targeting high-income households and offering them a premium-class product with excellent service. On the U.S. market, Nespresso systems compete with Keurig coffee makers. Such brands as Lavazza or Illy offer competitive products mostly in Europe, while none of them has such a global scale as Nespresso. According to Hill et al. (2019), competitive advantage can be sustained when it is rare, valuable, non-substitutable, or costly to imitate. In the case of Nespresso, its main advantage is built on the quality of the good and service, which is valuable, and the scale of Nestle production, which is difficult to imitate. Although the technologies are also competitive, they do not give a long-term advantage as they can be easily rendered. Although the competitors cannot easily match the power of Nestle manufacturing, its main challenge for Nespresso product lies in substitute products, namely other ways to brew coffee.

By making critical strategic choices for Nespresso, Mr. Jean-Paul Gillard proved the necessity for the companies to be adaptive to the environment. The key decision was to change the business model from B2b to B2C and target households instead of restaurants and offices. Moreover, the initial retailing alliances proved to be inefficient in providing high-quality service to the customers. Thus, Mr. Jean-Paul Gillard chose to optimize the operation and concentrate the production within one company. Moreover, the implementation of various sales channels helped to reach many customers and make the purchasing convenient for them.

The solutions taken by Mr. Jean-Paul Gillard in the management of Nespresso were able to revive the company and make the brand thrive. The importance of these decisions lies in the fact that he faced multiple problems at a time and was able to solve them all successfully. Key strategic choices, along with tactical improvements, such as the new sales model, helped to increase sales. Although the company uses niche targeting, there might be alternative strategies applied. As the company’s global supply chain provides a significant competitive advantage, Nespresso might adopt the best-cost provider strategy to increase sales and minimize costs per unit. This solution may be relevant, as the product requires significant investments in innovations, design, and research. Thus, the proportion of indirect costs in the product.

Strategic decisions are crucial for the success of the product as they entail the answers to the questions about “who?” “how?” and “what?” in product management. The case of Nespresso demonstrates how the success of the same products depends on the chosen strategy. From an unsuccessful project, it transformed into a thriving brand due to the correct business model and consumer targeting. Moreover, this example reveals the importance of adaptability to the environment which took place in this case. Mr. Jean-Paul Gillard demonstrated courage in facing critical issues and changed primarily flawed strategy into a successful one. However, not all companies have the chance to correct strategic mistakes. In this case, Nestle did not suffer significantly from the problems with its subsidiary, while smaller companies with a narrow set of products depend on the strategic choices even more.

References

1. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2019). Strategic management: Competitiveness and globalization. 13th edition. South-Western College Pub.
2. Nestle Global. (2020). Web.
3. Nestle Nespresso. (2020). Web.
4. Thompson, A. A., Strickland, A. J., Gamble, J., & Thompson, A. A. (2017). Crafting and executing strategy: The quest for competitive advantage: concepts and cases. 21st edition. McGraw-Hill/Irwin.