Osram Case AnalysisCase Study

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Osram

The case study provides the analysis of the Osram's Euro Logistics strategic move. The company planned to implement the strategic changes for the European logistics operations, and the project consists of two stages. The Stage 1 is to start from 1991 with the aim to reduce the number of the company European warehouses from 16 to 7, thereby phasing out some of the country individual distribution operations. However, the Stage 2 starting from 1996 onwards, "Osram GmbH will take over ownership of all European stock and manage it centrally from Germany." (Bence, 1).

The objective of the study is to provide the analysis of the Osram's Euro Logistics decision to implement strategic changes of its European logistics operations through Stage 1 to Stage 2. The study uses the SWOT model to analyze the proposed states.

SWOT Analysis of Osram's Logistics Changes

The SWOT model is used to analyze the Strengths, Weakness, Opportunities and Threats of the Osram's European logistics strategic moves.

Stage 1

The Stage 1 of the Osram's logistic strategic move is to migrate the company warehouse from Europe to the low costs countries in the Eastern Europe in Czech Republic and Slovakia with the implication to reduce the overall company warehouse to 7. The study uses the SWOT model to analyze the company strategic move.

Strengths: The strengths of the strategic move are that the Osram will improve its market position in Europe and the United States. Coupled with the company strong financial positions, the company already established market shares in Europe and the United States will make Osram to achieve strong competitive market advantages. Typically, Osram possess a strong market position in lighting equipment. For example, the company enjoys 22% of sales globally with 34% market shares in Europe. Thus, the company strong financial and market positions will make the Stage 1 of the Strategic moves to be successful. Moreover, the strategic move will assist the company to enjoy power over buyers because the company will be offering its product at low price, which the buyers may not be able to resist.

Weakness: The weakness of facilitating the reduction of some number of the warehouses in Europe will make the company to incur the costs of closing these warehouses. Typically, the costs of closing down the warehouses in the high costs countries such as German and the United Kingdom are very high. In essence, Osram will shoulder the costs of closing down some of its factories in Europe. For example, the company will incur up to 200,000 per employee in Germany for closing down the warehouses. Moreover, Osram will need to incur additional costs of setting up the new warehouses in the Eastern Europe in Czech Republic and Slovakia. Osram will also need to incur legacy costs of disrupting relations with local suppliers. By consequence, the company will bear all the shut down costs as well as the start-up costs to implement the Stage 1 of the strategic move.

Opportunities: Osram will derive several opportunities by aggressively shifting logistics operations from the high costs countries to the low cost countries. First, the company will enjoy the low cost of operations and production. The company will also be able improve the service levels and lead-time. The company will reduce the overall logistics costs with the new system. For example, the company will enjoy 40% reduction in the cost of production as compared to the German cost of production. Moreover, the Osram's strategic move will assist the company to improve its market stability as well as reducing risk exposure to falling prices and increase global competitions. By reducing the number of company warehouses to 7, it is predicted that the company will enjoy cost saving of over DM 12 Million annually in the Europe. Moreover, the company will enjoy the reduction in the unit cost by shifting its warehousing to the low costs countries. More importantly, the company will be able to avoid expensive, painful and disruptive sudden closure of warehouses by transferring its logistics operations to the low costs countries.

Osrams will also be able to tap the skills of low wage labor in these countries to effectively manage its logistics operations. In the contemporary business environment, increasing number of low cost countries has a reliable pool of educated talent. In essence, increasing number of organizations has realized that low wage does not necessarily correlate to low skills. Thus, the company can take the advantages of the low cost labor in these countries to reduce the costs of operations and become a cost leader.

Threat: Osram is facing stiff competitions with company such as General Electric (GE) and Phillips. For example, the GE has taken the advantages of large pool of European market to advance into the European market in 1989. Moreover, the GE entering into Europe has instigated a major price war with Osram. Philips also poses a threat to Osram strategic move because Philips is aggressively competing with Osram in Europe. Similarly, both GE and Philips are considering moving their logistic operations to low cost countries.

Stage 2

After the completion of the Stage 1, the company will implement the Stage 2 with the aim to assume the overall ownership of the overall European stocks. More importantly, the company will manage all the European stocks directly from German, which will receive daily supply of the company product. The study analyzes the Stage 2 strategic move using the SWOT model.

Strengths: The Company will enjoy overall reduction in the transaction costs after the company takes over the European stocks. The strategy move will enhance the company decision-making process. Moreover, the strategy system will assist Osram to gain a clear view of the company inventory planning. Moreover, the strategy will assist the company to eliminate the grey markets, which will assist the company to improve the service level. Osram will also enjoy the benefits of economies of scale thereby assisting the company to enjoy a price advantages over its competitors.

Weakness: The Company will incur high costs of operations to complete the Stage 2 of the strategic move. For example,

Osram "will take ownership of all European stock and control of logistics purchasing functions from the BG's. German will move, manage, and plan the entire product deliveries, movement and orders and the remaining national warehouses will receive a daily supply from the Big Three DSC's" (Bence, 9).

In essence, the anticipated time to complete these operations is time consuming.

Opportunities: The completion of the Stage 2 will bring several benefits for the company. For example, the company will achieve the internal rates of returns of 25%. Moreover, Osram will enjoy a reduction in the depreciation costs making the company to enjoy the overall reduction in the cost of production. The company will also record a reduction in the total inventory holding costs making the company to increase the customer demand in overall Europe. Using the costs benefit analysis, Osram will enjoy the 781, 000 Dutch Mark costs saving from the new operation in the country A. The company will have the advantage of removing the obsolete goods by closing up the Danish warehouse.

Threats:

The national control warehouse can lead to several challenges because the company directors will not be able to have overall control of the final destinations. Moreover, the new system will make the company to lose the customer prioritization in Europe. There could also be a conflict of interest when the company wants to serve an important customer because the customer will need to accept the German will because German has a final decision over the destination. Moreover, some company directors might lose control of the cost planning.

Assumption

The study provides the following assumptions that could affect the Osram, strategic moves. The study assumes that there will no recession that could affect the company operations. For example, the recession can affect the company-anticipated benefits that the company aims to realize. Moreover, the study assumes that the there will be no increase in inflation which will further aggravate the costs of migrating from the high costs countries to the low cost countries.

The study also assumes that there will be no political crisis in the countries that Osram is migrating its logistic operation because the political crisis can disrupt the whole operations. The paper also assumes no changes in government regulations that will affect the company strategic move. In the contemporary business environment, some low costs countries are suspicious of the multinational countries. Thus, some of these countries make laws that can affect the operations of multinational companies in their countries.

The report provides sensitive analysis using quantitative technique to make assumption of the new strategic operations. The report uses the data in the Appendix 4 to conduct the sensitive analysis of the cost-benefit analysis.

Sensitive Analysis of the Cost-Benefit Analysis

The paper carries out the sensitive analysis by assuming that the company may record a 20% decline in the benefits presumed to be realized from the new system. The table 1 reveals the… [END OF PREVIEW]

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