SomPack which is a Turkish manufacturer, had to make a hard decision about its substantial corporate strategy, because in the mid-1990s SomPack realized that China was a threat. China had been making inroads into U. S. Market. The main issue was the labor cost differentials, so SomPack tried to set some ways to reduce labor costs and increase the capacity. The company took a step to product assembly that is the lipstick mechanism and the mechanism was high volume component that has multistep process. They had a machine custom-designed, but the machine was so sensitive to operate and defects occurred.
Then, they decided to redesign the parts of assembly to decrease material cost, but it also did not work well. If they would have the workers assemble the parts manually, it would have more cheaply than the machine. SomPack customers used to order large demand and the company was on the top, but the Chinese suppliers started to get those demands. Based on all past experience, company decided to go for low-cost Chinese moulding machines. For SomPack industry, they still found cost differentials of more than fifty percent relative to Turkey.
Thus, they were trading a good line to decrease their costs based on cheaper equipment and selective outsourcing, while not decreasing the quality and service of the final product they ensure their customers to any reasonable extent. INTRODUCTION Since the mid-1990, SomPack, a Turkish manufacturer of cosmetics packaging products, had been having rough days because of the Chinese suppliers who produce lower-cost and lower-quality goods, as a competitor. SomPack started the job by making injection moulds for plastics products.
The company entered the business with mould making for electronics, home products and automotive industries. In 1980`s SomPack started to packaging cosmetics stuffs. SomPack was famous with their production quality and good customer relations. It was a family-owned group. To make a decision between choosing low-cost and low quality products strategy, I recommend SomPack to no to change their substantial strategy based on high quality of the product, according to the customer`s satisfaction. The question is; should Turkish manufacturer of osmetics packaging called SomPack, change their strategy through reducing the quality of either process or products in order to compete with low-cost products from China, or, should SomPack try to resist Chinese low-cost products and try to keep their product quality same? The case is dealing with the research through the decision of joining them, instead of beating them. BODY OF PAPER OPTIONS It is a decision case that company has two options. The first option is changing corporate strategy that means decreasing the quality of a product or still having same corporate strategy that means high-cost, but also high quality. CRITERIA
As for criteria, SOMPACK believed that if they increase the quality, they would not compete with its international and local competitors. That is, they are facing with low-cost competition in the international and local market. Moreover, low quality and low cost products were increasing in market share. SomPack could not adjust ERP system. Productions were based on estimates and for large sizes that sought to minimize set up times utilize any spare capacity. However, with orders varying substantially, often the company produced too many parts of one type and had store them, while at other times there were not enough parts for a new order.
The other criterion is SomPack had some strategic faults about choosing mould machines. For example, they told that the expensive machine is the best and it would decrease the labor costs, but they could not use the machines that they need to use. Thus, it causes some problems about the moulds and to fix they had to pay much more for labor costs. Another criterion is SomPack`s customers` demand cheap products. Moreover, SomPack loss their suppliers and the customers due to the Chinese affects in cosmetic market. Lastly, large customers who could control suppliers in China increasingly preferred to deal with them directly.
Customers increasingly approached SomPack for smaller order quantities, and when they needed to change their product mix often, so SomPack could not have depended on Chinese suppliers for such products either. FACTS Facts are related to criteria. There are some economic and also social facts that are connected to economic ones. Economic facts are that the company was trying to reduce labor costs, product quality by the use of cheaper raw material, use of cheaper costs and machines. Also, the social facts occurred due to loss of customers.
Those customers started to look for new countries to find a new company. That is, SOMPACK was famous with its quality products and good customer relations, but they had to decrease costs because of the fact that global crisis and foreign competition had increased. ACTION PLAN SomPack`s goal is to be different than the other companies on the base of production`s quality and service. SHORT-TERM STEPS SomPack should reduce the costs as much as they can by the use of cheaper equipment and selective outsourcing, but at the same time they need to keep the quality and service high.
Furthermore, they need to hire ERP expert to adjust the system better. LONG-TERM STEPS For the long-term steps they tried to find a better Chinese partner and try to be competitive in the market. They should play active role in expo. Through presenting their products. Also, they can train effectively their workers about the use of moulding machines. Lastly, they need to get more certificates. RISKS According to short and long terms there are some risks; first of all quality can reduce and it causes loss of the customers who value quality.
Because of low-cost raw materials using products can be nondurable and those products returning costs could be much more higher for the company. CONCLUSION In conclusion, as I mentioned before it is a decision case and my decision is same with the company`s last decision which is “If you can`t beat them, join them. “That is, it was not the right time to take the risk of investing heavily in increasing quality. I preferred first option because, the first option aims reducing the cost of production. I do not prefer second option because; SomPack would go with high cost productions that decrease the profit margin.
Moreover, even though they aimed to differentiate themselves based on quality and service, it was not the right time to take the risk of investing heavily in increasing quality across the board with hope they could attract much larger and better customers.
References http://whatiserp. net/erp-basic-knowledge/erp-software/ Source: http://blogs. cfr. org/setser/2008/11/10/does-a-bigger-boom-imply-a-bigger-bust/#more-4021 Source: http://teknikkalipplastik. com/urunler. asp? dil=53 http://www. tradekorea. com/products/plastic_moulding. html