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Growth Strategies And The Material Decoupling Point

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    Growth Strategies

    Marketing is mainly responsible for achieving the profitable growth for the company. Marketing managers must identify, evaluate and select market opportunities and put down strategies for capturing them. Corporate management’s main action should be a review of whether any opportunities subsist for improving its present business performance.

    Ansoff has invented a useful framework for detecting new rigorous growth opportunities called Product-Market Expansion Grid. The company first considers whether it could gain more market share with its current products in their current market. Next it considers whether it can find or develop new markets for its current products. Then it considers whether it can produce new products of probable interest to its current markets. After this, it will also revise opportunities to develop new products for new markets.[i]

    These growth strategies can be presented in a matrix:

    Current Product
    New Product
    Current Market
    Market Penetration

    Strategy
    Product Development Strategy
    New Market
    Market Development Strategy
    Diversification

    Strategy
    Matrix:  Product-Market Expansion Grid

    Market Penetration Strategy

    Market penetration is a strategy for company growth by increasing sales of current products to current market segments without changing the product. It might add new stores in current market areas to make it easier for more customers to visit. In fact, Grameen Phone (the largest mobile phone company in Bangladesh) is adding an average of 12 canters in a month, 12 months a year. Improvement in advertising, prices, service, menu selection or store design might encourage a customer to stop by more often or to buy more during each stopover.

    Market Development Strategy

    Market development is a growth strategy for a company by identifying and developing new market segments for current company product. For instance, managers can review new demographic markets. Perhaps new groups – such as senior consumers, young people or ethnic groups etc. managers also can review the geographical markets. GP *is now trying to enter in the Asian market, especially in the ASEAN countries. It is also developing its international markets.

    Product Development

    Product development is a strategy for company growth by offering modified or new products to current market segment. For example, Banglalink (a reputed telecommunication company in Bangladesh) has increased its service offerings in an effort to bring customer into its network by launching reduced rate for peak and non-peak hours. The company has also partnered other firms to sell its service in corporate world and to extend its brand to new service, such as ‘B’link desh’ or ‘ladies first.’[ii]

    Diversification Strategy

    Diversification is a strategy for company growth through starting up or acquiring business outside the company’s current products and markets. Diversification is the most difficult growth strategy for any service or manufacturing company. By applying this strategy an organization has to enter into a new market with new product. For example, Citycell offers CDMA technology for mobile telecommunication. If it wants to enter into the GSM technology then it has to deal with new customer and new product. The popularity of GSM technology may encourage Citycell to switch the CDMA technology. The company will need big budget to enter in the GSM market with new telecommunication service.

    Three types of diversification are possible. They are –

    Concentric Diversification Strategy

    The company may seek new products or services that have technological and/or marketing synergies with existing product lines, even though the new products themselves may appeal to a different group of customer.

    Horizontal Diversification Strategy

    A company may start a computer type manufacturing operation because it knows hoe to manufacture a specific product. Second, the company might search for new products that that could appeal to its current customers even though the new products are technologically unrelated to its current product line.

    Conglomerate Diversification Strategy

    A company may produce products even though producing them requires a different manufacturing process. Finally the company might seek new business that has no relationship to the company’s current technology, products or markets.[iii]

    Managers of a company may apply other strategies for growth and expansion. They are –

    Integrative Growth

    Often an organization’s profits and sales can be increased through backward, forward or horizontal integration with in its market. A company might acquire one or more of its suppliers to gain more control or generate more profit (backward integration). Or company might acquire some wholesalers or retailers especially if they are highly profitable (forward integration). Finally, the company might acquire one or more competitors, provided that government does not bar this move (horizontal integration). These new sources may still not provide the desired sales volume. In that case a company must consider the previous Diversification Strategy.

    Downsizing Older Business

    Downsizing is a growth strategy of reducing the business portfolio by eliminating products or business units that are not profitable or that no longer fir the company’s overall strategy. There are many reasons that a company might want to abandon products or markets. The market environment might change, making some of the company’s product or market less profitable. This might happen during an economic recession or when a strong competitor open new door. The firm may have grown too fast or entered areas where it lacks experience. This may occur when a firm enters too many foreign markets without the proper research or when a company introduces new products that do not offer superior customer value. Finally, some products or business just grew old and die.[iv]

    When a firm finds products or business that no longer fit its marketing strategy, it must care fully cut, harvest or divest them. Weak businesses usually require a disproportionate amount of management attention. Managers should focus on promising growth opportunities, not squander away energy trying to salvage vanishing ones.

    All types of growth strategies must require the following steps –

    Identifying the major elements of the business environment.
    Describe the mission of the organization in terms of its nature and function.
    Explain the internal and external forces that will affect the growth strategies.
    Identifying the basic driving forces that will direct the company on the future.
    Develop a set of long term objectives
    Outline a general plan of action that defines the logistical, personal and financial factors.

    The top managers of an organization apply the above steps to evaluate the environment of the organization and develop the growth strategies.

    Material Decoupling Points

    The decoupling point methodology is associated with the material decoupling point and information decoupling point. To improve in the supply chain dimension material decoupling is very much important. Many problems of a supply chain can be exhibited in the material flow pipeline. Material flow pipeline are the distortion of marketplace sales information as it is transferred upstream through the supply chain. To make rational planning and delivery resolution, a business must be able to divide out unforeseen event from real orders as marketplace move the upstream.

    The DCP (decoupling point) of material flow of the delivery pipeline of a product or service are stocked up as a calculated and crafted part of the strategy. The material decoupling point is the related concepts of product design for manufacturing or logistic postponement and modularization. The material flow is an essential element of recent delivery pipelines. By applying the material flow of decoupling points company is competitive throughout the product lifecycle.

    The material decoupling point is mainly a consumer order processing lead time continuation. The point of supply chain is a place where the customer’s order is dealt with the product availability. The material decoupling point forecasts the accepted probability of the fulfillment that enables the activities to start. It satisfies the future demand before the confirmation of any order.[v]

    Order Penetration Point (OPP)

    The place where a product is assigned to a particular customer is called the order penetration point (OPP) of a material flow. The material flow was primarily controlled by plans and forecast before the point is being introduced. Afterward the material flows are controlled and delivered according to customer orders. OPPs often affect the supply chain of an organization. In a material flow the general theory is that the order types used and control philosophy applied are generating more capital tied in supplies in the different stocks of the supply chain than someone would expect.  This theory is preferable if similar believes and less order types were used. Many design-to-order industry and customer goods organization strictly define OPP as the nature of the process. OPP can be used to manage the material flow of a supply chain

    By using the order penetration point a firm can determine the production management principles, layouts and strategies that should be applied to manage the whole operation process. In an OPP the customer’s order delivery time is considered from the OPP to reception of the goods. That means there is a basic difference between the inventory cost and the delivery time. As this is a decision making process, it varies for different commercial environments. For example, if we consider a paper mill then selling from the warehouse close to the market may not cover the existing market price especially for large product blends.

    Mass customization of the consumer’s order begins from product purchasing as well as product engineering. The product may customize to order and the parts of the product are purchased for that specific order. This kind of process can be applied to the ships or large investment like jute or paper mills. On the other hand is pure modularization. Make-to-stock firms distributing highly combined consumer goods like ice cream and soft drinks. These goods are very much closed to the end user. The management scientists usually contradict the mass customization but they support customized standardization toward the middle ground. In reference to the paper industry the location of the OPP makes the companies different to run.

    OPPs can easily make the supply chain process complex. To avoid the complexity a company should research the following questions:

    How are OPPs currently located at the specific business?
    How do various OPPs affect the whole throughput time in the supply chain?
    How should OPPs be stated in terms of improving operational effectiveness in supply chains?

    Let’s take a jute mill’s OPP. In case of jute mills it leaves only three possible OPPs. They are – machine, stock and in some cases the depot for large order all three – machine, stock and depot – are used, which a close needs to assign them to each and every order.[vi]

    The material decoupling point or the OPP (Order Penetration Point) of a jute mill can be differentiated in various criteria. They are the customer, product type, brand, servicing system and supply channel. Too many OPPs quite often reduce the efficiency of a service channel.

    So the minimum number of OPP is enough to develop the material flow. It also helps to make the orders simple and more efficient. OPPs can be divided in fine jute production. All the jute mills should exercise their proper OPPs so that they can assign the orders of customers can be handled properly. In the material decoupling points it will be harmful to use the outdated computer system for utilizing the full production capacity.[vii]

    Optimizing number of material decoupling points provide simpler order treatment and more effective production planning. When the orders are clearly defined, the supply chain and the application of all parties become automatically systematic. As a result the entire chain will act in a rational manner.

    The main target of an organization is better capital turnover. Profitable operation and capital turn over will be the automatic out come of effective utilization of material decoupling points. For better material decoupling points controlling is essential. To improve the performance of the supply chain the material decoupling pints are needed to use more effective methods of controlling. Orders that are usually located at the OPP should be planned, produced and distributed in accordance with specific principles. Those principles should be based on the demand of the market.

    Relation between Growth Strategies and Material Decoupling Points

    A growth strategy of a manufacturing organization is closely interconnected with the material decoupling points of the supply chain. Growth strategies of a firm are the planning of marketing process and the material decoupling points are the meeting point of order and plan.

    In case of market penetration strategy where a firm operates in the existing market with current product does need various order penetration points. Usual OPPs are more efficient for order processing. The organizations naturally use simple supply chain for the customer’s order in case of market penetration strategy. As there is no diversification in the order process companies need not to change the material decoupling points.[viii]

    If a company operates in the market development or product development strategy then it will require various types of material decoupling points. In market development strategy companies enter in to new market and in product development strategy companies launch new product. In both cases companies have to maintain or introduce different material decoupling points so that they can properly deliver the demand of the customer.

    Finally diversification strategy always creates difficulty for the organization to serve the orders of the customer. In this strategy company launches new products in new market. So the companies have to research about the efficient material decoupling points. In the supply chain, after the information flow, the companies have to use different decoupling points for serving the orders of the customer.

    The material decoupling points follows the growth strategy of an organization. The more complex strategy the companies have the more material decoupling points they need.

    References

    P. Kotler & G. Armstrong, (2001). Principal of Marketing. (10th Ed)
    Dr. Mizanur Rahman, 2006, ‘Bazarzatkaran’, 5th Edition
    Philip Kotler, (1999). Marketing Management. (The Millennium Edition)
    Ireneusz Fechner, (2006), ‘Service Level Modeling in the Supply Chain with the Usage of Solutions Based on Decoupling Point Concept’, Log Forum, Vol. 2, Issue 3, No.1.
    Rachel Mason-Jones, Denis R. Towill (1999), ‘Using the Information Decoupling Point to Improve Supply Chain Performance’, the International Journal of Logistics Management, Vol. 10, Issuue 2, pp.13-26
    Martin Rudberg, Joakim Wikner (2004), ‘Business and Management, Industrial and Production Engineering, Business & Management Studies and Engineering’, Production Planning & Control, Vol. 15, pp. 445-458
    Hameri, Nikkola, J.,(2001) ‘Order penetration point in Paper supply chains’, Paper and Timber, Vol. 83, No. 4, pp. 299-302
    Christian Azar, John Holmberg, Sten Karlsson, (2002), ‘Decoupling – past trends and prospects for the future’, pp. 33-37
    << www.sou.gov.se>>
    << www.emeraldinsight.com>>
    << www.logforum.net>>
    <<www. taylorandfrancis.metapress.com>>

    [i] Philip Kotler, (1999). ‘Marketing Management’. (The Millennium Edition)

    * (Grameen Phone)
    [ii] P. Kotler & G. Armstrong, (2001). ‘Principal of Marketing’. (10th Ed)

    [iii] Philip Kotler, (1999). ‘Marketing Management’. (The Millennium Edition)
    [iv] P. Kotler & G. Armstrong, (2001). ‘Principal of Marketing’. (10th Ed)
    [v] Martin Rudberg, Joakim Wikner (2004), ‘Business and Management, Industrial and Production Engineering, Business & Management Studies and Engineering’, Production Planning & Control, Vol. 15, pp. 445-458
    [vi] << www.logforum.net>>

    [vii] Hameri, Nikkola, J., (2001) ‘Order penetration point in Paper supply chains’, Paper and Timber, Vol. 83, No. 4, pp. 299-302
    [viii] <<www. taylorandfrancis.metapress.com>>

     

    Growth Strategies And The Material Decoupling Point. (2016, Dec 19). Retrieved from https://graduateway.com/growth-strategies-and-the-material-decoupling-point/

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