Strategic Cost Management- Company - Strategy/Industry - Assessment Answer

December 22, 2017
Author : Ashley Simons

Solution Code: 1ADGI

Question:Strategic Cost Management

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Strategic Cost Management Assignment

Assignment Task

There are three components which should be addressed

Identify a company/strategy/industry in the news. Highlight the issues raised in the article.

Discuss the links between the article and the relevant course topic. This should be explicitly statedin the report

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Solution:

Introduction

Strategic cost management is an approach used for the management of the costs. It involves techniques that can simultaneously be applied to improve the strategic position of the company and at the same time reduce the costs(Oyerogba 2014, p.234). Strategic cost management can effectively applied in wide range of service and manufacturing firms. The strategic decisions made aim at aligning the organization with its business environment. It also gives the direction of the management of the internal interdependencies(Shah 2011,p.3). Generally it deals with the organizational goals together with the allocation of the resources required for the goals to be achieved(Pius 2013,p.116). The uses of strategic management tool could effectively aid in the provision of necessary information on the strategy formulation and evaluation of the strategy implementation. It also sheds more light on the practical challenges together with the adopted strategy. This essay will focus on the conceit of strategic cost management and how it was applied in Apple.

Apple Inc. is a technology-based US company that is specializes in designing, developing and selling consumer electronic products, software. The company also offers other online services(Katherine 2012,p.23). The company’s headquarter is in Cupertino,California.Some of the hardware produced by the company includes the smartphones, different types of tablets, media layer for iPod, Macpersonsal computer, apple smart watch among others. The consumers software produced include osX and IOS, iTunes music player, and the Safari web browser. Some of the online services provided by the company include iTunes, Apple and Mac Apple stores. The company also provides the ICloud. The company was established on April 1st1976 by Steve Jobs, Steve Wozniak and Ronald Wayne. It was later incorporated on early 1977 and named as the Apple Computer Inc. After about 30 years of operations it dropped the word Computer. This was meant to reflect its expansion into the consumer electronics apart from the earlier focus on the personal computers(Apple, 2012).

The company has devoted to operate different from others despite the rising numbers of new firms dealing with the same products. China has been aver big competitors of Apple since it produces cheaper products which may attract more consumers due to their costs. The Apples business strategy is based on its distinct ability to make its own operating systems, hardware, and application software that are meant for its consumers(Apple, 2012). It has successfully gained competitive advantage over other produces because of its reputation of innovation. It is has established distinct history in the consumer electronics industry which has resulted to being trusted by the customers (Katherine, 2012). The loyal customer base is attributed to its philosophy of aesthetic design with unique advertising strategies. One of its major strategies is promoting and growing its own retail and online stores. Apart from this its retailers it also ensures they reach more consumers(Pius, 2013). The reached customers are assured of high quality sales together with after-sales services.

According to Atul (2013,p.69), the company has had an objective of selling cheaper phone. Their main goal is to sell well integrated phone which gives more experience. Despite the existing completion the company had to develop strategies to ensure that they achieve this at the lowest cost possible(Meyer 2015, p.90). The operations of Apple is governed by the following four pillars which include: offering a small number of products, stay focused on the high end, focus on profits over company market share and develop a long term effect that make the consumers to keep yearning for more and more Apple products(Apple, 2012). Apple has successful attempt to increase the market demand depend of its products via differentiation. This comprises of strategies that aim at making its products distinct and more appealing to the consumers as compared to competitors such as the android introduction(Fogliasso 2014,p.162). Despite the existence of the tight competition, Apple products have succeeded in creation of more demand for its products. It has been able to gain control of the prices through product differential, innovative advertising and broad loyalty .It also makes its consumers to be always anxious of the new innovations(Meyer, 2012). Its success is based on it’s the ability of its customers to be willing to pay more and having a maintained premium price for its products. This has led to creation of temporary entry barrier to most of their competitors. It also uses minimum adverts price (MAP) strategy to prevent its resellers and dealers from advertising their products below a certain minimum price(Backer 2013,p.805). The MAP strategy is usually enacted by marketing subsidies which is given by the manufactures to the retailers.

Apple has been able to maintain its popularity despite the production of high priced products because it gives its retailers a marginal wholesale discount(Backer, 2013,p.901). The percentage is often too small for the retailer to make enough profit margins. This then makes it impossible for the retailer to make a big discount offer to their customers. As a result the consumer pays price that is almost close to the one recommended by the manufacturer retail recommended price(Apple, 2012). In some cases the retailers may give up on the small profit margin and offer the product at lower price in order to attract more customers. However, the latter scenarios are prevented by offering of monetary incentives to the retailers. The incentives are meant to ensure that the goods are sold at the MAPs set by the manufactures. The move is very efficient because it hinders resellers from outdoing competing with the the Apples. Own stores(Pius, 2013). It also makes sure that none of the resellers is more advantaged than the others. Eventually the strategy enables Apple to ensure that its distribution channels are clean and it’s also makes more direct sales. A study done by showed that Woods(2 012,p.262)iPhone are not under tight pricing models since they are sold at reduced prices with wireless contract agreements.

 

Apple vision is to provide primer products and charge premium prices. Although Apple’s cheapest goods are mid range priced, the company offers a high quality user experience in its product features(Atul, 2013). Both the hardware and the user interface are developed to give more value fro the price hence keeping the profits high. This makes it outcompete other firms such as Android and the low cost smartphones. The emergency of Android has allowed more new manufactures to venture into the smartphone market which is further enhanced by the different available turnkey processing solution(Backer, 2013). Unlike Apple most of the manufactures have focused on the low cost devices and compromised the quality.

Apart from the above described strategies the use of value chain analysis has also been of great help. It has succeeded in the perfection of their innovation activates. It usually starts from its new ideas of the products design through R&D together with its strategy capability and extensive funding(Apple, 2012). After that the products is then manufactured followed by more committed marketing strategies. Each of the steps in the changing is considered to be an avenue of competitive advantage. The use of the value chain analysis enabled the management to tell the key activities in the firm which comprises the value chain of the organization(Woods, 2012). The analysis gives the firm a potential of suitable competitive advantage. The competitive advantage of the company depends on its ability to perform critical activities together with the value chain better than the competing organization’s(Meyer, 2012). In the acquisition of the raw material, Apple collaborates with OEM, partners to delegate the raw material acquisition process. It also does supervision to ensure quality control. An automated receiving system is used in the receiving of the raw material. The use of this system has helped them reduce the facility footprint and the need for more storage spaces. Despite the fact that Apple smart phone have the highest margins in the industry the, the company has still struggling to ensure that they reduce their production costs(Olabisi, 2012). After the goods have been manufactures the company has different forms of both direct and indirect distribution channels. Some of the channels used are retail stores, online stores and the direct sales force. Apple expands its distribution ability via expansion of its own retail stores globally for high quality buying experience of their products. Finally it also reduces its production cost be the use of economical packing. It makes use of slim and light yet protective of their products.

Conclusion

There are several reasons that can prompt a company to carry out strategic cost management. Mostly the companies strive to cut the cost in response to the short term requirements or weakening of the organization’s’ strategic strength(Adeniji, 2011,p.67). Lack of trust due to the top down controls is very sensitive and does not suit with the employee involvement. In most cases the firms are under pressure to reduce the short term costs but they do not considers the suitability of the changes and how they effect on other people(Olabisi 2012,p.206). If not done properly cost reduction strategies can result to uncertainty and anger and may with time hinder the success of the programs.Efficient packing design not only reduces the materials and waste but also lowered the emissions production during transportation.

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