AUT MBA

468911 Operations Management

Assessment One_Group Project

Name Student ID:

Vivek Anand 0792735
Michelle Chung 9902843
Mahsa Dordahan 0437571
Rob Marks 1140706
Jaclyn Philpott 1132740
Angelina Rodriguez 0432359
Summary report of the meeting of the Board of Directors

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This report presents a brief summary of the issues faced by Galanz in relation to the operations
management of the company and recommended operational strategies to ensure Galanzs continued
growth and prosperity.

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1. Order Winners and Qualifiers

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The order winners and order qualifiers for the business in the early stages of was the same
price/cost. This competitive characteristic is what caused the customers to choose the companies
good and services over those of our competitors along with making Galanz a viable competitor.

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The factor of price/cost lead to reduced profits for the competition and allowed an increasing hold in
the Chinese Domestic Market.

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2. Objectives

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The importance of Galanz operations objectives in terms of its VOC and VOB in the early days was
to deliver a low cost microwave which would be affordable by most Chinese households.

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Speed

Dependability

Flexibility
Quality

Cost

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We believed that by delivering and attracting the masses with new time saving ways of cooking
then this technology would become indispensible within the household. After purchasing the
technology blue print from Toshiba, sales have exponentially grew production ever since. High
volume production was the key then to keep the cost low for a stock standard, basic low quality
microwave. The polar diagram below shows the importance of each performance objective to the
Galanz operation in the early days.

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Early Years (Then)

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VOB

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VOC

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Over the years our objectives needed to change as we faced tough situations. Some of our
competitors limited supply of parts which pushed the business towards innovation, to build its own
components and meet the demand. While our core objective still remained to be cost driven,
delivering low price to the customer and keeping its own expenses down to capture the market
share. In order to improve quality and keep the cost down, we invested more than 3% of the
company revenue in R&D and continued to manufacture 90% of the microwave components in
house using technology that we had developed ourselves. The polar diagram below shows the
importance of each performance objective to the Galanz operation as this has changed over the
years.

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Speed

Dependability

Flexibility
Quality

Cost

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 Over the Years (Now)
VOB
VOC

In the early years, Galanz was able to use all of its operational efficiencies to create microwave
ovens with low complexity and therefore were easy to produce in a mass volume. From Diagram 1
we can see there are no major gaps between the VOC and VOB and Galanz was able to create an
excellent synergy between the two which led to increased market share.

In recent years we have seen the OBM market grew and with this so has its operational complexity.
In recent years the VOC has had a major influence on the operations of the business and has
caused internal issues with the expanded product lines. Diagram 2 shows the VOC is demanding
greater quality for a lower cost with innovation and dependability. Galanz will need to address these
gaps and look to invest in R&D of its production in order to close these gaps.

3. Technology

Technology has played a great role in the success of the business. With little to no production edge
in early years, a number of technology initiatives including have ensured the business has moved
forward.

Production and design are two strong areas within the business in which technology has had an
influence in the following ways:

The purchase of the blueprint from Toshiba for the original microwave over,
The import of assembly technologies has helped reduce costs for the business.
The ability to provide more products with differentiated features.
The mastering of the magnetron technology has enabled the business to produce on-
masse.
Technology change over the years has enabled the re-brand from Made in China to
Created in China.
Localised design of our products.
Investment in R&D has proven fruitful along with learning from overseas partners and
importing the most advances technologies through these relationships.
Costs have been reduced as differentiated features in its products give increased
flexibility.
Manufacturing around 90% of our own components has ensured greater efficiency.

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The business has been able to understand the importance of adjusting products available to market
through new offerings as a direct result of investment in research and development.

All of the above initiatives have seen greater efficiency, greater exports, brand awareness and a
greater use of resources.

4. Competitive and Operation Strategies

The competitive strategy of Galanz is cost leadership which has resulted with increased market
share by being aggressive in the local market with ongoing price cut cycles leading to a price war in
the Chinese Domestic Market. The price wars which started in 1996 and have been ongoing through
until 2002 has ensured that competitors have reduced profits in the microwave oven market as
shown in the below table.

Stages of Galanz Price Wars

199 40% discount Sales increased 650,000 Units Market Share increased
6 to 35%
199 29-40% discount Total annual sales reached Domestic market share
7 2,000,000 units was 47.6%
199 30% discount Annual production output reached Market share increased
8 4,000,000 units to 60%
200 40% discount Annual sales reached 10,000,000 Domestic market share
0 units reached 76%
200 30% discount Annual sales reached 13,000,000 International market
2 units. share was 40%

Galanzs cost leadership strategy is transferred to its international OBM markets where it is known
for its ability to undercut local competitors.

The operational strategies Galanz has undertaken has been the transfer of production through OEM
Agreement, a focus on research and development and product innovation, making use of resources
by increasing production capacity through running production 24 hours a day, bringing the
production of component facilities in house and an overall drive and need for self sufficiency in the
ever changing market. As a strategic fit operation, Galanz has been able to reduce manufacturing
costs through the operations strategies outlined, ensuring a lean manufacturing business that has
the ability to increase production when required.

OEM/ODM
Production Is based in client specifications .
Production is mass produced for
numerous brand companies. Low
labour cost. Production costs driven
down through economies of scale.
OBM
Specifications are based on design from
the R&D department. Production
numbers are based on forecasting from
the Marketing Department.

Design ODM design comes from their in- Localised design to suit each target

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 house R&D team. Design becomes
ODMs Intellectual property
OEM driven by client design
specification.
Marketing OEM/ODM Clients market their own
products with their own branding.
They take responsibility for the
marketing strategy, forecasting and
associated costs. No brand exposure
for the ODM/OEM producer.
market. New products are designed
based on its in-house R&D team and
research stations in the OBMs target
market.
Products are marketed with the Galanz
brand. Sales forecasting is completed by
Galanzs marketing department. Galanz
is responsible of the marketing strategy.
OBM builds brand equity and creates
brand awareness (strategic stretch) and
brand loyalty (incremental innovation)

Distribution Distributed through Clients own chain Distributed through partnerships or

or value-added resellers. OBMs own distribution channels.
Customer Clients have their own after sales Their own unless this is outsourced.
Service support centres.
The operations strategy supports the competitive strategy through being productive translating to
low product costs, having a high degree of flexibility being able to change when required by the
demands of the market or potential future of the market, dependability ensuring that all products
meet specifications and arrive on time, speed being fast at delivery and new innovation and quality
being right and having a high degree of non-error.

5. OEM/ODM versus OBM

6. Development

OBM
the OBM business returns higher profit margins and therefore should be continued and developed in
the international market. There are associated risks that have been identified in doing this such as:
Potential issues with forecasting
A wider range of models with lower volume production runs
High overheads
Risk of being seen to compete with OEM customers

Being the largest microwave manufacturer in the world, with strong commitment to R&D, expertise in
manufacturing, logistics and quality control, and increased brand recognition in the overseas market
Galanz has gained the competitive advantages for OBM export business. We need continue to
increase investments in innovation and branding in order to sustain the competitive advantage in the
global markets and ensure that incremental gains are made to ensure profitability.

OEM/ODM
The OEM/ODM business should be continued due to its operations strengths of low cost in
overheads, the provision of forecasts from customers which enables risk to be managed properly,
high volume and low variance and due the Galanz being a current industry leader.

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In todays viciously competitive world of OEM, major OEM customers might seek lower costs
elsewhere if production was to be stopped or may withdraw from microwave oven and focus on
other goods.

However, it is significant that Galanz combines both OEM/ODM and OBM exports. Electronics is
scale-intensive industry, OEM/ODM businesses are crucial to fully utilize Galanzs production
capacity. In addition, ODM creates our own intellectual property which we are proactively patenting
on an international level.

Established relationships with major OEM brands who are seeking the economies of scale and the
growing ODM market will enable us to consolidate our OEM/ODM business while pursuing the OBM
potential in the emerging international markets.

7. The Future

To lead the business to a greater success, Mr. Liang and the board of directors for Galanz, must
concentrate on renewed strategic focus towards innovation and increase its investment and
resources into to create a leading ODM in the world market.

In the current competitive market, the directors should give priority to focussing on developing the
ODM and OEM sectors of their business especially since the OEM business has been its core and
major revenue generating business so far. The continued production of innovative products while
making incremental gains will ensure profitability and the innovation focus will creative further
business opportunities through a varied product offering. Investment should also be made in
researching and developing production facilities with the capability to take on more diverse and
innovative production lines but still have a lean production strategy and keep inventory to a
minimum.

Whist focusing on their ODM and OEM sectors, they could continue to look for solutions for some
problems they have encountered in their pursuance to be an OBM company i.e. delays in new
product development process due to failure to arrange prototype production and testing, the need to
provide competitive level of customer service to a wider market with variant needs, desires and
expectations and others.

It would be advised that Galanz form a co-opetition alliance (in established markets) with local
providers of after-sales and customer service support in more sophisticated markets where
consumers are looking for low cost with a good service behind it. Galanzs OBM business has
potential risk and could impact on other areas of the business if it damages its brand through poor
customer service and after-sales support especially if looking to make headway into America.

Recommendation to the Board of Directors:

In order to grow Galanz market share and future, the board must fight and win its battles on all
fronts. It is our recommendation that its future resources must be invested in innovation both in

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design and production capability. We believe an operational strategy that focuses on innovation and
market leadership in OEM and ODM will have a positive flow-on effect to its OBM Business.
Benefits include using its resources and production facilities with increased product lines more
efficiently and therefore allowing Galanz to deliver a highly innovative product at affordable prices.

OBM Domestic Market:

In this highly competitive domestic market, Galanz has lost ground to its competitors (losing 10%
market share from 2002 to 2003). In order to regain market share, Galanz must focus on meeting its
customer demands for innovation coupled with the need to keep prices low. Increased investment
into the Production R&D will enable Galanz to deliver cost effective products with innovation. We
recommend Galanz continues to keep its cost leadership strategy in the domestic market but this is
only possible through heavy investment in Galanzs production facilities to meet the future demands
of its customers.

OEM/ODM Market:

Galanzs OEM Market has become the cornerstone of the business and now makes up 47% of its
total sales units compared to 25% three years ago.

We recommend heavy investment in R&D both in design of new components, more efficient
production techniques and investing in research institutes both in China and in the United States.
We believe that focussing on becoming a world leader in ODM will allow Galanz to retain and grow
its OEM market and grow its more profitable OBM market.

By continuing to drive OEM Business in with its innovative production capabilities, Galanz will be
able to create better efficiencies for its more innovative production lines and therefore reduce overall
production cost. The increased focus on ODM will create a situation whereby OBM customers are
locked into Galanzs ODM innovations and will require greater dependency and therefore a greater
surety of future orders. This could also protect Galanz when fighting these same competitors in the
more profitable OBM markets.

OBM International Market:

Galanz continues to gain market share in the International market (from 35% in 2001to 44.5% in
2003) but this growth has also brought on a greater degree of risk due to the increased complexity
created by an increased product line and the need to provide a more complete after-sales service to
OBM customers in order to protect its brand.

Galanz will need to invest heavily into marketing and creating an effective internal sales forecasting
system in order to protect its risk of carrying too much inventory. While we recommend investing in
forecasting and market research systems we also recommend outsourcing the after-sales service.
We recommend that the board investigate possible alliances (co-opetition) with other OBMs in order
to provide the necessary level of customer care.

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