OPERATIONS MANAGEMENT

ACE INSTITUTE OF MANAGEMENT

REPORT ON
“OPERATION STRATEGY OF GALANZ”

SUBMITTED BY: SUBMITTED TO:

RISHAV LAL SHRESTHA MR. RABINDRA SILWAL

MRINAL LABH

SUNSAY GUBAJU

EMBA 2019(Fall)
● Front Page (Rishav)
● Introduction (Mrinal)
● Galanz’s Competitive Strategy (Mrinal)
● Galanz’s Operational Strategies (Mrinal)
● OEM /ODM /OBM in terms of production, design, marketing, distribution, and customer service
(Mrinal)
● How it supported its competitive strategies (Sunsay)
● How can company utilize its resource to get competitive market advantage. (Sunsay)
● Galanz’s strategy of introducing OBM in international market. (Sunsay)
● Advantages and disadvantages of technology in Galanz’s success. (Rishav)
● How technology affected Galanz. (Mrinal)
● The challenges that faced Galanz and how it overcame the challenges. (Rishav)
● Mr. Liang’s achievements that lead his company to greater success. (Sunsay)
● Suggestions (Rishav)
- Low-cost strategy
- Market segmentation
- Outsourcing better choice in long run

The Galanz company had started as a down feather production factory in China during early
1970s. The company’s original name was Guizhou Down Product factory founded by Liang
Zhaoxian. During that industrial era, the Chinese government helped the privately owned
enterprises to export and gain competitive advantage in the global market.

With increasing globalization and modernization, during CEO Liang Senior visits to Japan, he
sensed the requirement of fast cooking and heating of foods for growing white and blue collared
Chinese people. And thus embarked on a journey to avail low cost microwave ovens in the
domestic market.

After the technological development of microwave ovens in US during 1950’s, there were not
much technological innovations with this product and thus, the price remained unaffordable for
the mass domestic market. The product prices of LG, Toshiba and Whirlpool ranged from RMB
1000 to RMB 3000, which made the CEO to envision its own product to win through cost
leadership strategy.

Through low labor and land cost advantages in China, the company purchased blueprints and
production lines worth $300,000 from Toshiba. And then, started purchasing different core
components like magnetrons required for production of microwave ovens from LG and Toshiba
who were also having presence of microwave oven business in the Chinese market.

Due to low cost of products, the annual sales of Galanz product in the domestic market showed
an exponential growth. Threatened by surge in demand of Galanz product in the Chinese market,
the suppliers of magnetron, LG and Panasonic stopped providing the core component so to cut
the competition.

This made Galanz to think to produce its own magnetrons. But this was not possible for time
being as it had traditionally only invested in building capacity for assembling final product but
now it required to build a company with Research & Development capability to innovate and
design its own product.

After aligning its selling price of the product in the domestic market through following cost
leadership strategy, now it had to further become self-sufficient in producing its own core
components for the final product.

Then CEO, decided to make the company an Original Equipment Manufacturing (OEM)
manufacturer and also embark of the path of innovation through continuous learning
methodologies. Thus, they knew they this would not be possible without purchasing production
equipment’s from foreign brands and now started recruiting engineers from Chinese colleges and
industries.

This strategy helped them transition itself from OEM to Original Design Manufacturing (ODM)
manufacturer and from then it started designing its own products and manufacturing own core
components at their own manufacturing facility. This also helped them get recognized in the
domestic market as being self-sufficient and innovators.

But there were more challenges on the way for them, as the surge in demand made them short on
magnetrons. Annual Sales demand had rose to 25 million units, but the estimated production
capacity was 16 million units annually creating a production deficit of 9 million units. Therefore,
now they required to increase their production capacity.

Now they realized to integrate a new strategy to increase their production capacity. Thus, they
asked their OEM clients to transfer their production and assembly lines at Galanz facility.
Through this strategy they were able to meet demands of that OEM client in same low cost
pricing and then use the extra free equipment of their lines for manufacturing additional products
for other clients. Through this exciting deal they were also able to attract domestic OEM clients
to transfer their Production and domestic lines.

Through this approach they were able to produce microwave ovens in much competitive price
and fully throw out the rival companies from the domestic market. Now Galanz decided to
involve itself in overseas market also. Presently, they were working domestically on three modes
OEM and ODM, and OBM (Original Branding manufacturing) but in the overseas market they
had to depend upon the imported countries’ channel for marketing and distribution. They had
initially collaborated with Wall mart and K mart to introduce their products in the US market.

At Walmart stores, the Galanz brand was not found recognizable by the end consumers but their
products were high in quality and inexpensive. Therefore, they sensed to recognize its brand in
overseas market also. Therefore, now their major aim was to transform itself to a OBM
manufacturer in the overseas market.

But still they faced an imbalance in production due to lack of magnetrons availability which the
CEO has decided to outsource their designed and branded magnetrons. To survive in growing
market, they have to wisely prioritize and distribute their products to match demands of their
OEM clients and at the same time balance production of their OBM and ODM products in the
domestic and overseas market.

From Exhibit 1: Production and Sales of Galanz Microwave ovens (1992-2003), it could be
observed that from the year 1997 to 2001 the company is able to grow its annual sales units from
1.25 million to 6 million in the domestic OBM mode, and further decline to 5 million unit sales in
the year 2003.

Its observed that as they grow their footprints globally through export of OEM and OBM
products their domestic sales unit decreases in OBM domestic market. It could be also observed
that they attain a maximum market share in domestic market on the year 2000 while it declines to
70% and stays stagnant the following year and declines to 65% the next year.

This phenomenon could be due to its higher focus on the overseas market as they start to brand
high quality products in cost competitive pricing strategy.

The innovative technologies like options of boiling, steaming and touchpads has helped them to
attain product differentiation compared to their other competitors. Through producing
customizable products, they are able to follow market target strategy. For example, Toyota a
Japanese automobile manufacturer had to study the road conditions and consumer needs of the
US market before developing an automobile feasible for their conditions. Similarly, Galanz also
had set up Research & Development facility at US to study the consumer needs of that market.
Through this approach they are able to become a likeable brand and attain stronghold in the
overseas market also. Integration of new technologies has played a crucial role in developing the
Galanz brand. From the initial stage, the CEO had made a wise decision to purchase overseas
production lines and technologies in their capacity. They had also made overseas companies and
their suppliers to transfer line & educate and train in the technical expertise areas. Through
recruiting engineers to develop a cutting edge research center is also noteworthy. Using
information management systems in their facility helped them reduce communication transfer
time and cut costs. Through availing updated technologies for production and investing 3% of
annual revenue in research and development, they are able to stand self-sufficiently with
strengthening differentiation market strategy.

Though they did all the required enhancements in mass production, they could have been more
focused on establishing modular or flexible assembly and production lines to produce
differentiated products for their captured diversified marketplace. Through excelling in Japanese
management practices like Just in time, they could effectively and efficiently manage their supply
chain and reduce costs. They follow the push strategy which leads on producing surplus
inventories due to improper demand forecasting methodologies. Rather the current position
requires them to follow pull strategy as they market requires diversified products for ever
changing customer needs.

Through this approach they will be able to accurately forecast the demand of their OBM, OEM
and ODM clients in domestic and overseas market. But to attain accurate forecasts and product
aftersales information, they would need to invest more on the Customer Service in the overseas
market. Initially, they did not have information on their end-product from the overseas market as
they were only working as OEMs and the end product quality issues and customer service was
handled by their OEM clients.

As now they have become major players in all the three modes of operation namely OEM, ODM
and OBM they need to expand their reach and presence on the customer service sector through
establishing standard easy accessible customer point of contacts both physically and virtually.

Its advised to operate in all three modes because the maximum annual sales could be observed in
through OEM clients. Therefore, if they accurately forecast the demands of their different clients
and transform their manufacturing facility with shortened production line change-over times, and
produce mixed-products in the production lines, they would be able to meet demands of all their
clients.

It is advised to make organizational structure more flexible and flat, as diversified culture based
marketplaces requires diversified needs and thus, to give more openness and free communication
practices will help them reduce decision making time and also help to empower their staffs.

The management trends from Toyota named The Toyota way is a well-known and respected way
of running an organization. They should learn best practices like Just in time, Kanban and
Kaizen, etc. from this well-established management strategy. It is advised that they form a
collaborative culture in the organization in which quality issues are given the highest priority
whether they be product based, Employee-relationship based or production based. Because if
problems are detected and reported regularly without any hindrances, this will help them attain
highest reliable and likeable product in the global platform. Through this approach they will be
able to have flexible and adaptable working environment, which will help the employees of the
organization stay satisfied and retain them for longer durations.

Through this approach they will also be able to reduce costs by not only developing themselves
but also develop their suppliers in the value chain. The company needs to find value based works
through capturing end consumer data from the fields. Because, to sustain in an ever changing
customer requirements sector, they would need to keep themselves updated through innovating
new cutting edge technological enhancements. As the growing technological research could wash
away the existing products in a short period. Therefore, their focus must not only be on
innovating their products but also the production lines so that they could follow cost leadership
strategy in the marketplace.

Outsourcing self-designed and branded magnetrons presently is the only option to meet the
production deficit of 9 million units, but in the long run they would either need to increase their
production capacity or prioritize clients (OEM, ODM or OBM) or develop their outsourced
partners to produce high standard components as required. To help their suppliers or partners
grow, firstly, they have to become highly effective and efficient through transforming themselves
in becoming a lean organization. Further they would have to analyze the cost of outsourcing if the
quantity of outsourced components increases.

Outsourcing in the long run will make them dependent on their suppliers, and previously they had
faced challenges in procuring the main components for microwave oven production through
suppliers. Because it could be estimated that their present production capacity would remain
stagnant and the demands will surge in coming years which will create a huge opportunity loss as
their existing or non-existing customers would switch to their rival brands. Before the gap
between demand and supply surpasses uncertainty, Galanz have to modify itself and not get fully
dependent on their outsourced suppliers.

Prioritization should be based on accurate forecasts, the one which will help to provide maximum
annual sales ie. presently OEM (export) and then at the same time not lose its ground in the OBM
sector. Therefore, as discussed it needs to expand its customer service in all the oversea key areas.
Through surveying the market needs at unexplored areas will help them establish themselves as a
recognizable brand. Through this they could be able to bring more creativeness and end user
required products to the desired market. User friendly & reliable products, accessible & quick
response customer service points, will help them to become a people’s brand.

Challenges helps one to find opportunities, and thus Galanz has been practicing to improve itself
by introducing products which is high in quality and low in cost. It has taken crucial steps in
developing itself from an OEM to a ODM and OBM both in domestic and global platform. The
right technology at the right time for the right thing has helped to achieve competitive advantage
not only in the cost but also in product differentiation portion. They would have to increase their
Aftersales presence in domestic and international areas now, so as to retain their loyal customers
and build a long term interpersonal relationship with their end users and partners.
They need to adapt to growing needs whether it be customers or their organizational structure.
They need to reduce inter and intra-departmental communication barriers through changing its
organizational cultural from highly bureaucratic to implementing flatter & flexible chain of
command mechanisms. Collaborative decision making tactics should be entailed which would
require inputs from the bottom hierarchical level staffs to make decisions. This path with take
them to continuously evolve and help them stay a learning organization.