Q1

a) The competitive advantage of a firm is a quality that the organization has that is not duplicated by another organization. This quality is what gives the firm the lead or differentiates the firm from others within the market or industry. After reading “Russia’s Factories Gear up for Efficiency” the competitive advantage cane be identified as offering new products specifically new components for railways and the oil industry. This is Chelyabinsk Forge-and-Press’s competitive advantage as no other firm is ale to offer these new products to these emerging industries. Another competitive advantage can be identified as a large quantity of parts offered. The article states, “The most important thing is that we now make far, far more kinds of parts”. This statement identifies another competitive advantage, as they are able to work with more clients and customers than other competitors. Also noted is the fact that the workers proudly show off metal links and other products they produce illustrating a level of quality that it not matched. This could be another competitive advantage of Chelyabinsk Forge-and-Press.

b) After consulting Kaizen Institute a number of changes were made. These changes are listed as follows:

a. Factory wide goals are implemented rather than production targets for individual employees. Now the employees are focused on the whole organization rather than a specific task.
b. Excess time used to step off the line to fetch parts. The change was to reorganize production resulting in an increase in productivity of 50%.
c. Excess time wasted on producing reports not useful. “Countless” hours were wasted on unnecessary paperwork. Now only reports that are NEEDED are produced, not supplementary or unnecessary reports.
d. A number of unfinished products (WIP) are left around. The solution was to streamline the operations of the facility to finish these items. The issue stemmed from the employees being instructed to “make as many pieces as they could at each operation, but not work as a whole”. This recommendation ties in with a) above.

c) Gartung’s prediction that “Some companies are chronically incapable of making quality products….. sooner or later, they’ll exit the market”. This statement is correct if the customer is looking for top-notch quality for their parts. Most customers do have this requirement however many other customers are just looking for the part to get the job done, as quick as possible and cheap as possible. Most of the time quality is synonymous with high price therefore the competitors may not be exiting the market as soon as he thinks as other competitors may be able to provide the product at a cheaper price and faster turnaround.

Q2
a) The key ideas behind the firms success is not the fact that they sell diapers but how the firm is able to sell diapers and attract loyal customers. These loyal customers then go on to buy other higher margin items from the website. This is how the firm is successful. The firm is also successful with the speed in which they are able to ship the items. Since customers value quick shipping, diapers.com is able to attract even more loyal customers that contribute to the firm’s success. Also the article states the firm offers 50,000 different products to its customers such as brand name baby wipes, shampoos and baby formula. Due to this scale, diapers.com is able to provide a number of different products, further attracting loyal customers and building firm success. Another practice that contributes to the firm’s success is the software developed by the company. The firm has designed a program that knows the dimensions of each product ordered and calculated the area that is needed for shipment. This saves the company on costs associated with shipped large boxes.

b) The process of Quidsi from a customer interface standpoint is a customer goes to diapers.com and orders from a wide range of products from the website. Once the order is placed, the packing slip is sent to the warehouse where the picker will pick the items from the warehouse and package them. Once the items are packaged, they are shipped to the customer.

c) Calculating the economic order quantity is a difficult task in itself. It is difficult to balance and calculate the level of demand that is expected for the product. Once the demand has been estimated, it is appropriate to balance the costs of holding that product in inventory with the level of demand. Figuring out the appropriate peak demand time and having enough inventory to satisfy this level of demand is the tradeoff. If there is a miscalculation or a timing issue, Quidsi will be faced with large amounts of inventory and no sales causing a loss.

d) One competition strategy that Amazon can implement in response to the competition by Quidsi is to offer free shipping on specific items that Quidsi is currently selling. According to the article Quidsi is offering discounted shipping costs on orders greater than $49. I believe that if Amazon were to offer a steeper discount rate on orders greater than $30, Amazon will be able to take away some of the loyal customers from diapers.com. Amazon can also provide more frequent sales and discount to returning customers. This will allow Amazon to build a strong loyal customer base in this market segment. These two suggestions are appropriate responses Amazon can implement in order to deal with the competition from Quidsi.

Q3
The four product life cycle phases are Launch, Growth, Maturity and Saturation. After these four phases a product usually goes into decline unless the product is revamped for the market. A product that went through these four product life cycle phases is the VCR. VCRs were first introduced in the 1980s for mass consumer consumption. Before that, the VCR was available primarily for commercial use where it was launched in the 1960s. At this point the VCR would cost roughly $1,000. The price for a VCR back in the 1980s was roughly $400 according to internet sources. This was the peak of VCR price while the product was in the growth phase.

As time progressed, the technology was refined and efficiencies were developed to lower the cost. Throughout the 1990s VCRs hit their peak with the maturity of the product. During this time I can remember from personal experiences buying our first VCR. At the time I believe my parents spent roughly $150 with the added bonus of a two tape set of Titanic. During this time computer technology began to expand exponentially and VCRs soon became obsolete. By the year 2000, DVDs and CDs flooded the market and was an appropriate alternative to the VCR. At this point it would be appropriate to say that the VCR began its decline phase in the market. The price of a VCR during this time dropped down to $50. As you can see, the price of the VCR has declined substantially since the growth phase. The price dropped to 1/8th the price it was back in the growth phase.

Q4
To continue with the example provided before with VHS tapes and VCRs I can provide an example where this technology met another type of technology that led to a shift towards a new S-Curve for the industry. As VHS tapes began to decline, and computer technology was increasing at a fast pace, DVDs and recording data was an emerging industry. Since you were able to record data on VHS tapes, consumers really valued this. With DVDs you were able to do the same thing with higher quality. This shift in technology from VHS tapes to DVDs created a new S-Curve for the industry of consumer recording products. As VHS tapes were at the maturity/saturation/decline stage of their specific S-Curve, DVDs and CDs were creating their own S-Curve beginning at introduction/launch. As time progressed DVDs and CDs became more popular and thus causing the VHS tape to become obsolete.

The market leader for the old technology is debatable however Sony and JVC were able to capture the majority of the market share for VCRs and VHS tapes. Sony continued their innovation and shift to new technology and lead the charge for DVD and CD production. Both JVC and Sony were able to shift their production towards the new technology very quickly. Through research it is not apparent that either of these companies, nor other big name players in the industry, were hurt by the shift in technology from VHS to DVD and CDs. In fact, the majority of the big players from VHS and VCR tapes adopted this new technology and was successful innovators of the new technology of DVDs and CDs.

Q5
After researching and analyzing the graph below of Facebook, I believe that Facebook will soon enter the maturation phase of the S-Curve. As you can see from the graph, the monthly active users are approaching an apex where I believe the growth of user will flatten out and maintain this level of users for a number of years. Due to the amount of people and items provided by Facebook, the users will stay constant at 1.2B over the next 5 years. I believe this steady state will be reached within the next 3 years. I believe that Facebook crossed the chasm (the point where the product or service has been adopted by enough customers to sustain growth) in July 2009. Based on the graph below, the number of Facebook users grew at a strong pace from this point forward illustrating that customers were adopting this service quickly and were able to support this service for further growth. Estimation Calculations:
Innovators/Early Adopters: 1B * 2.5% = 25,000,000 users
Early Majority: 1B * 50% = 500,000,000 users
Late Majority: 1B * 84% = 840,000,000 users
Laggards: 1B * 100% = 1,000,000,000 users

My joining date for Facebook was 2007 therefore I believe I fall into the early majority of users based on the graph above.

Q6

Initial Investment: $30,000
Unit cost: $20/unit
Unit sale: $85/unit
Margin: $85-$20 = $65/unit

a) In order for the startup to recover the cost of the investment it would be appropriate to divide the initial investment by the profit margin of the startup. Therefore the number of units = $30,000/($85-$20) = $30,000/$65 = 461.5385 units or 462 units. For the startup to recover the cost of the investment, they would need to sell 462 units.

b) As calculated above, the breakeven volume is 462 units. The amount of revenue that will be generated from the breakeven volume of 462 units = $85*462 = $39,270. Therefore the startup would raise $39,270 of revenue with the breakeven volume of 462 units.

c) If the price were to increase to $100, the new profit margin would be $100-$20 = $80/unit. Therefore the breakeven volume would equal $30,000/$80 = 375 units.
d)
@ $85 @$100
High demand: 550 units; probability: 60% High demand: 550 units; 40%
Low demand: 350 units; probability: 40% Low demand: 350 units; 60%

If the price were $85, the profit margin would be $65 ($85-$20 = $65). Therefore with the price at $85, the expected profit would be ($65*(.60*550 + .40*350)) = $30,550 less the initial investment of $30,000 the net profit would be $550. If the price were $100, the profit margin would be $80 ($100-$20 = $80). Therefore with the price at $100, the expected profit would be ($80*(.40*550 + .60*350)) = $34,400 less the initial investment of $30,000 the net profit would be $4,400.
Therefore it would be appropriate to sell the product at $100 since the net profit is greater.