QUESTION 1

MEGABYTE LTD

Background

Megabyte Ltd (ML) is a computer manufacturer based in USA. It was established in 1980 by Mega Bite. It has customers in several countries. During early 1980s, ML assembled personal computers for one of the largest computer manufacturer. After ten years of existence, it started manufacturing its own brand, Megabyte and sold through retailers

The Strategy

In 1994, ML reviewed its strategy of sale. All intermediaries between ML and customers have been eliminated. ML supply chain consists of only three stages, namely, Suppliers, Megabyte itself as manufacturer and end users. The founder, Mega Bite, firmly believed on the advantages of the Direct Sale model. The benefits include-

• Reduction or elimination of supply chain inefficiencies of channel. For instance, significant reduction of stock carried out previously by many supply chain partners

• Real time information about the Market

• Instant feedback on pricing

Direct Sale Model

The Direct Sale model was based on the use of internet and virtual integration. Customers can plan their own configurations and place orders directly via internet, phone calls and electronic catalogues. In most cases, manufacture starts only after a customer placed a firm order and has to make an initial payment of 50 %. Therefore ML enjoys negative working capital and receives payment from customers before it pays to its suppliers. ML supply chain efficiencies, late customisation, Built-to-order and Direct Sale strategies gave it a competitive advantage

Success

The Direct Sale strategy became a real success. Within a few years, sales increased four folds. Several competitors started to emulate this strategy. Paradoxically, no one succeeded as ML. Within a few years after adoption of this strategy, ML became a major global PC seller

imitations

The Direct Sales strategy has however certain disadvantages. These include-
• ML was responsible for all related support costs
• ML has to handle hundreds of information requests

Experts underline that this strategy is sustainable when support costs represent a relatively small proportion of each product's overall cost

In the last two years, the strategy seems no longer working or at least not in the way it used to be. Recent problems have led to a slowdown of sale. The problems include:

- long delays in supplies

- recall of some important components

Future

Megabyte is seriously contemplating to take remedial measures to recapture its loss market

You are required to-

(a) Explain how the direct sale strategy helped ML to become a highly successful PC manufacturer

(b) Several competitors emulated the direct sale model. Explain the possible reasons for the competitors' inability to become as successful as ML

(c) Explain the possible reasons for the decline of ML during the last few years

(d) Suggest the appropriate strategies that ML might pursue in future to recapture its lost market position

QUESTION 2

(a) Explain the concept of strategic supply chain management

(b) Explain the contribution that a well-developed procurement function could make to help the supply chain become more effective and efficient

QUESTION 3

Identify the internal and external factors to an organisation that may signal for major changes in an organisation

QUESTION 4

(a) Explain Kraljic's purchasing portfolio matrix

(b) Discuss how this model could be used by procurement professionals in order to pursue effective procurement strategies

QUESTION 5

Discuss briefly the seven key tasks of the strategy process. Identify one strategic tool to carry out each task