PART1.

Problem Identification
ABC company is a US based trading company who specializes in dealing with the sales and purchases of remote control devices. The company buys remote controls from Chinese OEM manufactures, and then sells them to overseas customers. End user usually is the subscription household of satellite TV. The business runs smoothly. The company focuses on one major type of remote control but with different configurations. The figure below depicts how different configurations verify the product. Configuration A B C D S E Insert card Y Y Y Manual Battery Gift box Y Y Y Y Y Y Y

Figure.1 Different configurations for remote controls

As is shown above, there are six different configurations of the remote control i.e.A,B,C,D,S,E ,which all need different accessories like insert card, manual, etc. The Y in the figure stands for where a certain kind of accessory is required under different configuration. For example, configuration B remote control needs manual and battery to be regarded as finished goods. We can understand the companies product variety from the above. Years ago, ABCs business volume increased dramatically from 0.8 million to 1.8 million units/month after an acquisition of a major competitor. But with the growing competition and demanding customer requirements, ABC started to find that it reached a bottleneck where it could hardly further achieve cost reduction. It is also difficult to handle such big volume after the acquisition. Therefore, the company needs to identify the current problems and develop a sustainable procurement strategy to maintain the competitive edge. In order to clarity the existing problem, hereby we utilize a precise SWOT Analysis tool to look at it in a more well-rounded way. S.W.O.T. Analysis

Strengths: ABC company owns a reputation and experience in the trading practice of remote controls. The strong position in the market has secured the company with a relatively large customer base. The contracted factories are big OEM manufactures (the suppliers) that mainly located in mainland Chinas Pearl River Delta area, whereas the customers are renowned international electronics brands from US / Korea, etc. The two figures below show ABCs main suppliers & customers location and trade terms. Supplier Location Panyu, Guangzhou Bai Yun Qu, Guangzhou Dongguan, Guangzhou Shenzhen Shenzhen
Figure.2 ABCs main supplier location

Customer Location America Mexico Brazil Canada Thailand Korea Indonesia Venezuela Peru

Terms FOB Port (China) FOB Port (China) FOB Port (China) FOB Port (China) FOB Port (China) FOB Port (China) FOB Port (China) FOB Port (China) FOB Port (China)

Figure.3 ABCs main customer location and Trade Terms

We notice that ABC has a wide variety of customers with their locations home and broad, and FOB term the most frequently used trade term involved in the deal. Since ABCs business volume soared from 0.8 million to 1.8 million units/month after the abovementioned acquisition of a major competitor, this illustrated that its advantageous position in the market was backed up by the large business volume.

Weaknesses: Despite the advantages it enjoys, ABCs existing business mode seems not supporting the huge business volume. And new problems emerged after the acquisition. Normally, once ABC places orders from factories, those factories in PRD will then immediately start to make the remote controls. Upon their finishing the products(Finished Goods), ABC will take delivery at Factories and arranges transportation to deliver the goods to Customer-nominated Chinese port. That is how they sell remote controls to overseas customers and it could take a few weeks for the products to reach the Chinese loading port. The arrangement is one at a time as follows. Factory A Factory B Factory C -> Customer X -> Customer Y -> Customer Z

Since the business volume is more than doubled after the acquisition, now customers require quicker response with lead time of only 3-4 days after order. It means that for normal customers, ABC will have to implement weekly delivery in terms of frequency and some high-volume customers may require twice delivery in a week, which apparently the current business mode does not sustain. Besides, ABC company offers different configurations for remote controls. Therefore, so as to stabilize support, ABC has to keep finished goods buffer of all configuration types in the factories. High inventory cost will tie up the cash flow and the factories are reluctant to keep the stock as well. Transportation cost increases at the same time due to the high frequency and the smaller parcel size. Facilities and material handling cost will also become another factor under the doubled demand. Taking the above into account, ABC s existing business mode tends to lead to extensive lead time that fail to meet the new customer demand and the associated increasing cost will weaken the competitiveness. The trade-off between time and cost becomes the key.

Opportunities: Remote control technology has a wide variety of application in different industries these years, which creates substantial opportunities for ABC company. Traditional products include Television/remote controls, automobile controllers, PC controls, etc. With the development of science and technology, more and more remote control devices have come into our daily lives where video game consoles and photography remote controls are good examples. Video game consoles like Sony PS3 and Nintendo Wii have emerged and long exposure shots are needed in photography. Plus, using of remote control devices are not limited to entertainment purpose but industrial and military purpose. These all open up opportunities for ABC company to diversify the product range and penetrate into new markets. Threats: Threats come from many facets and competitors behavior will always be among them. But the biggest threat for ABC company remains to be the appreciation of RMB. The appreciation of RMB means that the price of various Chinese resources, especially land and labor, will go up in relative terms and this will speed up adjustments to the products and even the industry. The situation ABC faces is not an exception. As RMB appreciates, cost of purchasing those remote controls will increase leading to problems such as fiercer competition, lower profit margins, potential risks of losing customers. ABC may have to consider shifting some of the focus from international markets to Chinese domestic markets. Additional, any changes in financial, legal or political aspect could affect the business continuity and thus becoming the threats.