The Five generic competitive strategies and Mini case of Tata Motors Case SolutionÂ
Cost Cutting Methods
In this technique the company will try to achieve all the possible economies of scale and to reduce its fixed cost. The company can easily achieve economies of scale in transportation, production, distribution and other areas which are generating a huge fixed cost. In transportation the firm can do this by procuring the materials in full truck load which will reduce per unit fixed cost. However, same approach will be used in manufacturing as the company will try to manufacture products as full plant load which will reduce idle time and per unit manufacturing cost.Finally, in distribution the company can achieve this milestone by using the same distributor for all or majority of its products to reduce its distribution cost. The company can also take advantage of the learning and experience of its personnel to reduce cost while it can also pursue multiple suppliers to bargain and to procure goods at low prices. Moreover, the company can also re engineer business processes to reduce the cost level. On the other hand, the firm can also integrate backwards to achieve low cost. However, there is another crucial option which can be chosen to reduce the cost structure is outsourcing low value activities to other companies at a lower cost.(Michael, 2011)
Revamping the value Chain
Any firm can revamp its value chain by numerous options such as selling the goods directly to the customers, choosing the supplier which are near the production facility, eliminating low value added activities. Selling the goods directly to the customer which is also known as forwards integration can lower the cost for customer by bypassing or removing the margin of the wholesaler and retailers. On the other hand,choosing the best supplier near the production facility will reduce cost by reducing the carrying, handling, holding and shipping cost for the raw material while the company can also use JIT (just in Time inventory system) to lower down its cost. Finally, eliminating low value activities can add more cost but no value for customer, by removing those activities a lot of capital and cost can be saved.(collins, 1985)
Identifying the cost drivers
Cost drivers are those activities which significantly generate cost for the company and they can also lead the company towards low or high cost structure. These cost drivers may be from the manufacturing side, management side, forward channels and backwards channels. These cost drivers can be identified by using value based accounting. Moreover, they can also be identified by closely watching the cost of different areas but the first method is more appropriate and recommended. The difference between normal and activity based accounting (appendix 1)is that the cost based accounting only notices the overall cost while the activity based accounting breaks down the cost into different activity.
Pros and Cons of the Low Cost Strategy
There are numerous advantages of the strategy which include increased sales, reduced cost, increased market share and increase company reputation. On the other hand, this strategy has some pitfalls such as aggressive cost reduction ignores some key activities furthermore, some customers ignore the company products while thinking that they will not perform in the same way as other high priced products are performing.Lastly, the quality of the product may be compromised.
Timing of low cost strategy to bolster the revenue
The timing of this strategy is crucial as, this strategy doesnâ€™t work well if the timing is wrong. The time in which this strategy works best is as follows
- When Competition is Vigorous among Rivals
- Identical Products are available in the market
- There are few ways to differentiate the offerings
- Buyers needs are identical
- Buyers have numerous option of similar product to choose from…………. Â Â Â Â Â Â Â Â Â This is just a sample partial work. Please place the order on the website to get your own originally done case solution