Galanz - Grade: B+ PDF

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Galanz Case Study of Operation Management...

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Introduction Galanz, headquartered in Shunde, Guangzhou province, was originally a township enterprise employing a few workers dealing in the trading of down feather products. It was founded in 1978 by Liang Zhaoxian’s father, Liang Qingde ( Liang Senior hereafter), the former deputy chairman of the industrial and transportation office of Shunde country (1973-1978).

The company’s original name was Guizhou Down Product Factory. It produced down feather products for overseas clients to earn foreign exchange. At the time, companies were not permitted to export products without a quota. Since the company was jointly owned by the Foreign Trade Department of Guangdong Province and the Shunde government, it was able to obtain the required quota and by 1992, its export volume was more than RMB 23 million.

Case Summary Galanz become the largest microwave oven manufacturer in the world. They competed based on lower cost through efficient utilization of capacity and process improved, with combining Original Brand Manufacturer (OBM), Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM) to achieve economy of scale. Nowadays, they have 60% to 70% of domestic market share, and 50% of the global market share.

Used Order Winner / Order Qualifiers in Early Stage of Development While Galanz did not have any technological competitive advantages in the early stages of production. When they developed their first microwave oven was in 1992, their CEO Liang Zhaoxian when his first time visited in japan and it made him has an interested in developing microwave oven because the microwave oven as a great potential in china. They purchased the production technology and key component parts from japan and

hiring an expert from the other side. It made them became the winner in microwave oven market in that time.

How was the way to be succeeded in microwave oven market, they did have an abundant access to low cost labor and land allowing for expansion and increased production. They offering a low price was thus the only way to compete in the market and this positioned Galanz to engage in a low price structure while concurrently implementing cycles of price-cutting, which was an effective strategy against the competition. Within two years Galanz became market leader in China by occupying 25% of the domestic market.

Due to their growth and low cost product, a price war emerged between Galanz, Samsung and LG while Toshiba and Panasonic limited supply of the magnetron. Galanz did not alter their low cost strategy and the significant increase in demand for microwaves in 2003, ensured Galanz dominated the market. Price war is the reason for Galanz to became the winner in the market,

They are offering a low price with high quality productTheir strategy was so successful that it forced Samsung and LG out of the microwave market.

Past Growth Strategy First is the sales strategy, they are using the knowledge sale method to promote their microwave oven for example, when the consumer buying their oven they will give them a book for new ways of cooking and food presentation for free or they will write something in the magazine to attracts people to buying their oven. Second, they are building a sale network in the whole china, mainly they have cooperation with the agency there. Third, they are using the low price to occupy their oven in the market. Fourth, they keeps trying to develop different products in different markets to keep their place in the market, easily to make the consumer always remember their brand.

Moreover, they used development strategy. In 1992, Galanz decided to develop a new product line which was microwave oven to being the winner in the market.

Besides, they used the financial strategy. Galanz was hiring the consultancy firm as their consultant to formulate the plans for them to suits for international strategy needs.

In addition, they are well using in talent strategy. As Galanz always hiring some talent people to work with them for Galanz’s future development. It can help to maintain and well manage the knowledge management in company.

Production strategy is the main strategy of Galanz. Their production and marketing strategy was extremely effective allowing for exponential growth. They did not change their strategy and focused on this business while closing production of other products. It could be argued that their growth should have been significantly higher had the supply of magnetrons not been limited in the mid 1990’s.

The role of technology In its infancy stage of Galanz, it had to import equipment and technology from other companies such as Toshiba to close the technology gap and hired engineering professionals who have the technical expertise in microwave oven knowledge.

Fast-forward to the early success stage of Galanz. It became notable as it applied low price strategy. In order to achieve the strategy, Galanz acquired production lines from other companies so as to increase the production through a free production line transfer, assembly technology , part customization, production site improvement, training for Galanz’s operators and staff (from Fillony, Toshiba, Sanyo, Whirlpool, GE, SEB, DeLonghi) and used the excess capacity to produce microwaves under its brand name for the domestic market. However things went south when Galanz was refused to supply of the most important components, magnetron, used in production, which resulted in

stimulating it to design and develop its own product innovation. Therefore, investing in R&D to create their own magnetrons became Galanz's top priority.

Thereafter, Galanz's business directions changed from “made in china” to “created in china”. The previous experience of importing advanced technologies from overseas partners set the foundation for Galanz to establish its technical capabilities for equipment to design and develop its own magnetron. Subsequently, Galanz has initiated major invest in magnetron in 1997, as well as it was able to launch Galanz-made magnetron which was a better version than the Japanese ones in terms of quality and function by 2000. It means that the production of the Galanz microwave oven was no longer limited by the number of magnetrons supplied by the foreign suppliers.

After the magnetron technology matured, Galanz continued to invest in R&D in order to enhance the internal R&D structure and to facilitate the design and development of new product since it became the beneficiary of R&D activities. To this end, the technology has added more and more new features to the product and eventually Galanz produced a high-end product, light wave oven, which was able to target the luxurious niche market.

Ultimately, the successful transition led the company to provide more ODM service to its large OEM clients as well as to receive more orders for Galanz brand products. Furthermore, the new technologies and investments in R&D were able to accomplish product differentiation and cost reduction. Subsequently, Galanz product can be suitable in different market.

As Galanz China was founded in 1978, in 1992 Galanz entry to the microwave ovens market to develop their new business, now it was ranked as #8 of the top ten home appliance makers in China.

One of their successful reason should be they had a clear and effective operational objectives. There are six issues include cost, quality, flexibility, delivery, service and innovations. On the same way, Galanz base on their operational status to adjust their operational objectives to fulfill what their need.

On the beginning time (start up stages), Galanz need to build up their business from zero to one, their main target should be earn enough profit to settle their operation cost. And base on the capita consumption index, the low price strategy should be effective to win more market sharing. By the way, the cost control should be important issues, Galanz base on cheap labor cost, low rental cost, shift working etc. to control their cost and manufacture lots of product and sell to the market. Also the delivery should be another main issue, Galanz need delivery their product to customer before their client settle the payment.

In the middle stages, Galanz get lot of sharing in the china market base on their strategy, but they had a new challenge form their competitors. Because their main parts supplier should be their competitor too. They cut down the parts supplier to decrease Galanz production. In this moment, Galanz had adjust their operations objectives, not only focus on cost and delivery only , they also focus on quality and flexibility. Galanz had purchase their parts form different supplier and start to produce by themselves. Also Galanz want in improve their product quality, good quality product let customers build confidence and loyalty. And the flexibility strategy to get more OEM orders to create another business life to increase the income. Galanz add these two object to help them win more market sharing and profit.

Now, Galanz had effective cost control include material cost, labour cost, production cost etc, the good supply chain service help Galanz deliver the goods to fulfill their client’s order, the S.O.P. (Standard operating procedure) let Galanz product had stable quality and the flexibility strategy let Galanz develop different kinds of customers. However those

not enough to response today's market needs, Galanz had added service and innovations in their operational objectives to increase competitiveness.

Whether business-to-business (B2B) or business-to-consumer (B2C) services, Galanz provide good customer service for response client’s requirement fast and effective, develop a good relationship to increase client loyalty. On the same way, innovations help Galanz improve their product line more smart and effective to manufacture more product to launch to market and create blue ocean. Also, Galanz had transformed to ODM business mode to earn more income. Galanz base on those six operational objectives to keep their business grown up.

Galanz understand the world market change very fast, they need different strategies in different periods, so their operational objectives base on the actual situation adjust their ranking, form beginning only focus on cost and delivery, then change to cost, quality, delivery and flexibility, nowadays they focus on cost, quality, delivery, flexibility, services and innovations. Galanz change their operational objectives to response today's market what they needs, that should be Galanz successful reason.

Competitive Strategies Galanz’s competitive strategies is to sell in lower price of microwave oven. However, they also can maintain their products in high qualities and to enhance their business in Chinese market.

Operation Strategies For the operation strategies, their working production line become 24/7 for producing the products. Which means, they are well-used of time to produce more and more product for sales.

Original Equipment Manufactures OEM is refers to Original Equipment Manufactures. An OEM is a company that manufactures or develops something that is sold by another company. In the computer world, it can refer to both hardware and software. In Galanz Case Study, they purchased all its magnetrons (a core component of the microwave oven) from foreign suppliers such as Toshiba and Panasonic.

Original Design Manufacturer ODM refers to Original Design Manufacturer. An original design manufacturer (ODM) is a company that designs and manufactures a product, as specified, that is eventually rebranded by another firm for sale. Which is similar to OEM. In Galanz Case Study, as they running the very low cost strategy, many companies gradually mastered the design and production of magnetrons, Galanz transformed itself from an OEM to ODM firm.

Original Brand Manufacturer An original brand manufacturer, or OBM, is typically a company that sells an entire product made by a second company or including a component from a second company sources as its own branded product. Selling the product of the second company under its own brand just adds a virtual extrinsic value to the product. In Galanz Case Study, they operated in the OBM mode in the Chinese market and a combination of the OEM (1996) and ODM modes in the overseas market. In recent years, due to increasing recognition of its brand, its OBM business had begun to experience growth in the overseas market.

Galanz has transform from OEM to ODM. Which means, their price wars of major supplier in domestic (Chinese), but the setup product line in Shanghai for Chinese market. Only able to get commitments for three million units of magnetrons per year from each. In the past, LG and Daewoo agreed to supply Galanz before, but later also refused for similar reasons.

Difference between OEM/ODM and OBM. Our assignment will use five categories to talk about the differences between OEM/ODM and OBM. Start with production. Production of OEM/ODM is, they will do the quality control, design of products and they will produced to wholesales. But for OBM, the retails either the entire products or components parts produced by a second company. Which means, outsourcing the products to others may being affected, just like Galanz outsources the core production to competitors before.

For the design part, OEM/ODM company will designed the product they are assigned to make, they have to meet the needs of clients. However, OBM company always selling the products of the second company under their own brand to add the value to the products. OBM company will add some different designed to it for being unique products.

In marketing part, OEM/ODM do not sell directly to the market but they will take the produce order by another company or clients. OBM company will allow sales operations to forecast changes in market demands. Furthermore, OBM company always have a developed marketing department for forecasting the trend, and they will think of how to make profit of the sales.

Besides, distribution part is different from OEM/ODM and OBM base company. OEM/ODM always arrange the distribution system to the company with simple and easier way. But for the OBM, they will manage the distribution system for convenient and easier way for customers. The main point is to take competitive advantage over their competitors.

Last, customer service part is important for OBM. OEM/ODM based company always provided the local customers with technical support and other services, it always depends on the products. For OBM based company, they will build a supply chain, delivery and

marketing. They always concern about the after sales services. Therefore, they will create a customer service direct line to refer the problems of products and help to maintain the qualities and image of company.

As Galanz Overseas customers do not familiar with Galanz brand of microwave ovens. OEM/ODM can only make the locals deeply know their brand. Which makes Galanz transfer to OBM. As the overseas citizens already know the Panasonic or other big brand company. Liang junior began to offer the microwave ovens of Galanz to the K-Mart and Wal-Mart superstores. It can help to build the market of the company and enhance the market share. Galanz much more focus on branding and it leads the people know more about Galanz.

Last but not lease, technical support in Galanz case, Fillony helped Galanz to set up the R&D centers overseas to showcase the microwave ovens selling in different countries. Nowadays, Galanz has become the strong branding company, and they can produce the products by themselves as well.

Conclusion Galanz case study has a lot of knowledge to learn. Including R&D, OEM, ODM, OBM etc. Besides, their strategies can let the writers know deeply of the way when company wants to grow up their business and market share. The difference of OBM between OEM/ODM are clearly understanding how to develop and transfer the business module....