1. B200 PROCESSES MODULE

2. Themes of the Processes Module encourages thought about what organisations actually do and introduces the main activities that they undertake. introduces a series of processes, each requiring appropriate resources to produce the desired outputs. how all organisations aim to add value while minimising costs. examples of organisational activities in processing customers, materials and information.

3. Student Key Learning Outcomes Processes Module recognise and describe the processes in the activities of an organisation recognise and describe the resources used in the activities of an organisation describe the behaviour of an organisation in terms of the processes and resources used in its activities. critically assess how useful it is to take a process perspective in understanding the behaviour of an organisation (more details in processes study guide p69)

4. Chapter 6 Marketing in a Changing World by Kotler, Armstrong, Saunders, and Wong We define marketing as “a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.”

5. Introduction Today’s successful organisations are strongly customer focused and heavily committed to marketing Marketing is used by small and large organisations, inside and outside the public sector, customer goods, service, professionals, and not for profit industries

6. What is Marketing? Marketing is not selling but it is satisfying customer needs. Selling and promotion are part of a larger marketing mix: the set of marketing tools that work together to affect the marketplace. Marketing can be defined as a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. See figure 6.1 Core Marketing Concepts on reader page 71

7. Needs, Wants and Demands Human have complex needs. They include physical, social, and individual. When a need is not satisfied a person will: Look for an object that will satisfy the need (developed countries) Try to reduce the need (un-developed countries) Human wants are the form taken by human needs as they are shaped by culture and individual personality. Wants are described in terms of objects that satisfy need. As society evolves, the wants of the members grow. People have few basic needs but almost unlimited wants but they also have limited resources. People therefore want to choose products that provide the most satisfaction for their money. When backed by buying power, wants become demands.

8. What is a Product? A product is anything that can be offered to a market to satisfy a need or want. The concept of a product is not limited to physical objects. It could be a good or a service. Sometimes the terms used are: satisfier, resource or offer. Its important when selling a product to provide a “solution to a need”.

9. Value and Satisfaction Consumers make buying choices based on their perceptions of product’s value. You will VALUE each existing product according to how close it comes to your IDEAL product. The guiding concept is customer value. You will end up choosing the product that gives the most benefit for the money spent – the greatest value.

10. Exchanges, Transactions and Relationships Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is the act of obtaining a desired object from someone by offering something. Exchange is possible if the two parties have something in value to offer, are willing to deal with each other, accept or reject other’s offer, and must be able to communicate and deliver. For an exchange to actually take place the parties should come to an agreement. A transaction consists of trading values between two parties. $90 a night for a hotel room is a monetary transaction. Trading some eggs for cabbage is a barter transaction. Transaction marketing is part of the larger idea of relationship marketing. The assumption is: “build good relationships and profitable transactions will follow”.

11. Markets A market is the set of actual and potential buyers of a product. To understand a market look at three different ways in which traders could meet their needs (see figure 6.2 on page 75 of the reader) 1.Self-sufficiency: they gather the needed food for themselves 2.Decentralised Exchange: each person sees the others as potential buyers 3.Centralised Exchange: where there is a merchant and a marketplace

12. Marketing Marketing means working with markets to bring about exchanges for the purpose of satisfying human needs and wants. Exchange processes involve work. Sellers must: Search for buyers Identify their needs Design good products Promote them Store and deliver these products; and Set prices for them A sellers’ market is one in which sellers have more power and buyers must be the more active “marketers”. A buyers’ market is one in which the buyers have more power and sellers have to be the more active “marketers”. Most markets these days are buyers’ markets.

13. Marketing Management Marketing management is demand management. Marketing managers might face any of the following states of demand (p.76): Negative demand No demand Latent demand Falling demand Irregular demand Full demand Overfull demand Marketing management: seeks to affect the level, timing and nature of demand in a way that helps the organization achieve its objectives.

14. Five Alternative Concepts for Marketing Activities There are five alternative concepts under which organizations can conduct their marketing activities 1.The production concept: customers will favour products that are affordable and that management should focus on improving production and distribution efficiency. The production concept is useful in two situations: When demand exceeds supply, When cost is too high and improved productivity is required to bring it down. 2. The product concept: customers will favour products that offer the most quality, performance and innovation, and organisations should make continuous product improvement. The product concept can lead to “marketing myopia”.

15. Five Alternative Concepts for Marketing Activities (Cont’d) 3. The selling concept: consumers will not buy enough of the organisation’s products unless it undertakes a large scale effort in selling and promotion. A selling oriented organisation thus focuses on short term results. 4. The marketing concept: achieving organisational goals depends on determining needs and wants of target markets, and in delivering desired satisfaction more effectively and efficiently than competitors. Under the marketing concept, organisations produce what consumers want, thereby satisfying consumers and making profit. Sales come from new and repeat customers. Customer retention is achieved by customer satisfaction. Marketers must balance creating more value for customers against making profits for the organisation.

16. Five Alternative Concepts for Marketing Activities (Cont’d) 5. The societal marketing concept: the organisation should determine the needs, wants and interests of their target markets and deliver the desired satisfactions more effectively and efficiently than competitors in a way that maintains or improves the customer’s and the society well being (example is Johnson and Johnson, page 81 of the reader). SOCIETAL MARKETING CONCEPT Society (human welfare) Company (profits) Consumers (want satisfaction)

17. The four goals of the marketing system Maximise consumption: which in turn will create maximum production, employment and wealth. Maximise consumer satisfaction Maximise choice by maximizing product variety. Maximise quality of life: This includes not only the quality, quantity, availability and cost of good, but also the quality of the physical and cultural environments.

18. Marketing Challenges in the 1990s Increased global competition: Geographical and cultural distances have shrunk allowing companies to greatly expand their geographical market coverage, purchasing and manufacturing. The result is a vastly more complex marketing environment for both companies and consumers. The changing world economy: current economic conditions create both problems and opportunities for marketers. The call for more ethics and social responsibility: the ethics and environmental movements will place even stricter demands on companies in the future. The new marketing landscape: companies must become customer- oriented and market driven in all that they do.

19. Activity Exam Questions (Question 2: 2006 exam) 2a. There are five alternative concepts under which organizations conduct their marketing activities. List these five concepts, with a brief description of each. 2b. Which of these concepts could be adopted by Smith Wholefoods? Explain your answer. 2c. Using materials from B200 processes and giving examples, discuss what relationship marketing is and why it is important for every organization.

20. Chapter 10 Concept of a Manufacturing System by John Parnaby

21. Main points At one level of abstraction all manufacturing systems are the same, on more detailed examination they are all very different. Manufacturing systems must be designed by taking into account both steady and dynamic performance, also insuring there are an adequate number of controllable variables to compensate the effects of uncontrollable decisions.

22. Main points (cont’d) Understanding the interrelationships between the various sub-systems of the manufacturing system, and understanding the part played by manufacturing as a sub-system within the business system should improve the design and control of manufacturing systems. Information flows (data acquisition and sorting, information flow and systems control) and plans or set points should be well defined to allow people to be effective controllers of the system.

23. A Basic Manufacturing System The next slide is a diagram of a basic manufacturing system in terms of inputs and outputs. This shows that not all inputs to the system are controllable by management, and disturbance must be manipulated by controllable inputs such as resources and plans as other inputs are not controllable.

24. Manufacturing System Sales fluctuations Reputation Profit Production rate, profit, delivery Raw materials, availability and cost Business environment Social pressures Resources and plans Not Fully Controllable Inputs Input-Output Analysis You have seen this type of model before in the Environments Study Guide

25. Five inter-related stages of manufacturing system design 1.Subsystem input-output analysis working backwards from the product requirements 2.Steady-state design using specifications from stage 1 3.Dynamic design 4.Specification of data-collection system required 5.Control system design Now Go through example 4 on page 141

26. Control of the Manufacturing System There are two areas of control which have to integrate in practice: PROCESS CONTROL Automated control of technological processes to manual set points with overall managerial supervision PRODUCTION CONTROL Control by people, based on information flow systems involving computers, of processes involving people and machines

27. Control – a summary of needs There is a clear need for good control systems to counteract external disturbances which interact with manufacturing systems. Control has to recognise the many constraints including legislation. Paperwork, administrative systems can obscure logic in manufacturing systems. The author (1981) was optimistically looking forward to achieving more effective control through improved computer systems (MRP and ERP). Manufacturing systems must be adaptive to survive. Dilemma of ensuring that overall system operational and control objectives are clear, whilst paying sufficient attention to detail at all levels

28. Chapter 11 Logistics and Competitive Strategy by Martin Christopher Effective logistics management can provide a major source of competitive advantage. Simple model is “Competitive Advantage and the Three Cs”. Needs seeking benefits At acceptable prices Assets and Utilisation Assets and Utilisation Customers Company Competitor VALUE Cost differentials VALUE

29. What is Logistics? Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and its marketing channels in such a way that current and future profitability are maximized through the cost- effective fulfillment of orders.

30. Productivity Advantage Successful companies either have a productivity advantage or they have a "value" advantage or a combination of the two. Productivity or cost advantage refers to the ability of the organization to differentiate itself, to the customer, from its competition by operating at a lower cost and therefore at greater profit.

31. Productivity Advantage: The Experience Curve In many industries there will be typically one competitor who will be the low cost producer and more often than not that competitor will have the greatest sales volume (market share) in that sector. There is substantial evidence to suggest that big is beautiful when it comes to cost advantage. This is partly due to economies of scale which enable fixed costs to be spread over a greater volume, but also due to the impact of the "Experience Curve". Experience Curve: all costs, not just production costs, would decline at a given rate as volume increased (p. 151).

32. Value Advantage The value advantage gives the product a differential "plus" over competitive offerings. The product is purchased not for what it is, but for the promise of what it will deliver. These benefits may be intangible, (i.e. they relate not to specific product features but rather to such things as image or reputation). Alternatively the product may be seen to out-perform its rivals in some functional aspect. Equally powerful as means of adding value is service.

33. Logistics and competitive advantage matrix In practice, successful companies will often seek to achieve a position based upon both productivity advantage and value advantage. A useful way of examining the available options is to present them as a matrix (See page 153 of the Processes book).

34. Logistics and Competitive Advantage “Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product.” The value chain disaggregates a firm in to its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors.” Logistics as an activity in the Value chain can contribute to competitive advantage (fig. 11.6 page

35. The Mission of Logistics Management The mission of logistics management is to plan and co- ordinate all activities necessary to achieve the desired levels of delivered service and quality at lowest possible cost. Logistics must therefore be seen as the link between the market place and the operating activity of the business. The scope of logistics spans the organization, from the management of raw materials, right through to the delivery of the final product. Figure 11.7 on page 156 illustrates this management process. Note that customers and suppliers are part of the logistics management process.

36. The Supply Chain and Competitive Performance “The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer.” Supply chain management is not the same as ‘vertical integration’. Logistics is primarily concerned with optimizing flows within the organization whilst supply chain management recognizes that internal integration by itself is not sufficient (fig.11.9 p159).

37. Supply chain management differs from classic materials and manufacturing control in four ways: 1. It views the supply chain as a single entity rather than relegating fragmented responsibility for various segments in the supply chain to functional areas such as purchasing manufacturing, distribution, and sales. 2.This feature of supply chain management flows directly from point 1. It calls for -and in the end depends upon- strategic decision making. It is a shared objective of practically every function on the chain and is of particular strategic significance because of its impact on overall cost and market share. 3.Supply chain management provides a different perspective on inventories which are used as a balancing mechanism of last, not first resort. 4.Supply chain management requires a new approach to systems: integration, not simply interface, is the key.

38. The Changing Logistic Environment As the competitive content of business continues to change, bringing with it new complexities and concerns for management generally it also has to be recognized that the impact on logistics of environmental change can be considerable. Of the many strategic uses that confront the business organization today, perhaps the most challenging are in the area of logistics:  The customer service explosion  Time compression  Globalization of industry  Organizational integration

39. The customer service explosion  Quality and excellence. The customer in today's market place is more demanding, not just of product quality, but also of service.  Attainment of service excellence in this broad sense can only be achieved through a closely integrated logistics strategy.  The ability to become a world class supplier depends as much upon the effectiveness of the organization's operating systems as it does upon the presentation of the product, the creation of images and the influencing of consumer perceptions.

40. Time Compression  In the case of introducing a new product, there are many implications for management resulting from the reduction of the “time window" in which profits may be made.  The concept of logistics lead-time: how long does it take to convert an order into cash.  To establish enduring competitive advantage and to ensure timely response to volatile demand a new and fundamentally different approach to the management of lead-times is required (Integrated approach).

41. Globalisation of industry  A global company is more than multinational company. In global businesses, materials and components are sourced world- wide, manufactured off-shore, and sold in many different countries  Caterpillar case: local market needs can be catered for from a standardized production process.  Whirlpool: seeks to standardize on parts, components and modules and then through flexible manufacturing and logistics to provide the specific products demanded by each market.

42. Organisational integration  The classical business organization is based upon strict functional division and hierarchies.  In these conventional organizations, materials managers manage materials. Whilst production managers manage production and marketing managers manage marketing.  Yet, these functions are components of a system that needs some overall plan or guidance to fit together. Managing the organization under the traditional model is just like trying to complete a complex puzzle without having the picture on the box cover in from of you.

43. Challenge of Logistics Management Cutting short the pipeline: the presence of inventory in the supply chain (components, work- in-progress and finished goods) adds to the total pipeline length. Improve pipeline visibility: poor co-ordination in the supply chain results in a lack of visibility in the logistics pipeline. Managing logistics as a pipeline: the management of added value is best accomplished by focusing upon the materials flow rather than upon traditional notions of functional or departmental efficiency.

44. Conclusion Under logistics management, the goal is to link the market place, the distribution network, the manufacturing process and the procurement activity, in such a way that customers are serviced at higher levels and yet at lower cost. Thereby achieving the goal of competitive advantage through both cost reduction and service enhancement. Logistics management demands that all those activities which link the supply market to the demand market be viewed as an interconnected system. The management of that added value is best accomplished by focusing upon the materials flow rather than upon traditional notions of functional or departmental efficiency.

45. Reading to be completed by NEXT WEEK Read Understanding Business Processes chapters 12,13, and14 to prepare you for the next tutorial.