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        Roy Crawford has argued for a reduction in both the product range and customer base to improve company


        (b) Assess the operational advantages and disadvantages to Bonar Paint of choosing such a strategy.

        (15 marks)

        正確答案:(b) Divestment of products or parts of the business is one of the most difficult strategic decisions. As apparent in Bonar Paint areduction in the products and customers served by the firm is likely to cause significant changes to the firm’s value chain andsystem. Currently Bonar Paint supplies its customers, regardless of size, directly and this inevitably means that theirdistribution costs are increased. The reduction in products and customers may allow a choice to be made about the costs ofsupplying customers directly as against using distributors to handle the smaller customers.In using the value chain one is looking to identify the significant cost activities and how those costs behave. Some costs maybe affected by the overall size of the firm e.g. advertising while others affected by the batch size being processed. The changeto fewer products will lead to a bigger batch size and a number of positive consequences for costs. The value chain’s majorbenefit is in identifying and quantifying the links that exist between various activities within the firm and between the firmand its customers and suppliers. In Bonar Paint’s case does a reduction in product range lead to less product failures andconsequent warranty claims? Does simplifying the product range lead to shorter lead times and better delivery timeperformance for its customers? Above all, a good understanding of its value chain will let it know if it changes an activity whatare the consequences for other parts of the system.In terms of reducing the product range, before such a decision is taken Bonar Paint must carry out a thorough analysis of thepattern of customer demand for each paint type. In all probability it will find that 80% of its sales come from 20% of itsproduct range. Having given this qualification, reducing the product range can have a number of beneficial results on otherparts of the value chain. The immediate effect is likely to be that Bonar Paint produces fewer batches over a given time periodbut produces them in larger quantities. This will bring cost savings but the impact on other parts of the value chain is equallyimportant. The beneficial effects are:– With a smaller product range the control of raw materials and finished inventory will be simplified affecting inbound andoutbound logistics. This will improve the inventory turn and make for better product availability.– With an improved inventory turn this will reduce the firm’s working capital needs and release significant amounts ofcash.– A simpler operations process should facilitate staff savings and support more automation.– Warranty claims and support costs could be reduced.– Bonar Paint will be purchasing fewer raw materials but in greater volume and on a more regular basis. This will lead toimproved price and delivery terms from its suppliers.– Bonar Paint can offer improved product reliability and better delivery to its customers and should improve its marketshare.In terms of operational disadvantages, these therefore are largely in terms of the impact on customer service levels seen interms of product range availability. Once again it is important to have accurate information on the sales and profitability ofeach product so informed divestment decisions could be taken. Care must be taken to identify any paints, which thoughordered infrequently, and in small quantities are a pre-cursor for customers ordering other paints. Some important customersmay require that the full range of their paint needs are met in order to continue buying from Bonar Paint.Reduction of the product range and customer base is an important strategic decision. Eliminating non-contributors or ‘dog’products both in terms of paints and customers is a key part of managing the product portfolio. However, inertia both in termsof products and customers is a real strategic weakness. In terms of the three tests of suitability, acceptability and feasibilitythe analysis suggests that only acceptability is likely to be an issue. Tony Edmunds needs to be convinced that it is anappropriate strategy to adopt. It is the lack of accurate sales analysis that lies at the heart of the problem and that is his areaof responsibility!
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