In a recent story from Bloomberg news, Michael Kors (MK) is heading down the path of no longer being a growing brand name in the fashion industry. The luxury goods maker missed its projections for the third quarter and is now losing its stakeholders. In a Bloomberg article, the CEO of MK, “John Idol said in August that profitability would decline this year because an experiment to bring in fall products earlier in the year didn’t work.” Another reason Michael Kors isn’t doing so well is because other retail stores are competing on discounts. (Bloomberg)

From the book we learn that in order “to increase sales, many companies offer quantity discounts to their customers. A quantity discount is simply a reduced price for an item when it is purchased in larger quantities.” (Heizer) Michael Kors doesn’t seem to want to play along with this idea. In the Businessweek article, MK says they won’t be reducing prices this holiday season, “just so everyone can have find a python-fringe tote or fur trimmed parka under the tree.” But with the decline in profits, wouldn’t you want to sell at a discount and get your inventory out the door? And missing their projections means they have more inventories in store than they should have and MK ends up having an over supply of inventory.

If Michael Kors continues to miss its projections and if they don’t do as well as they expect for the holiday season then their inventory will continue to grow and a brand like Michael Kors cannot risk missing projections because of the costs of the goods and the cost of holding it as inventory. As we know holding costs, “the costs associated with holding or “carrying” inventory over time” (Heizer), also come along with more costs such as storage and interest on storage.

Michael Kors states that they will not reduce their prices for the holiday season even though they are seeing a fall in sales. What do you recommend for the brand to do in order to boost up sales? Do you think sales will pick up because of the holidays?

Sources:

Heizer, Jay, Render, Barry. Principles of Operations Management: Sustainability and Supply Chain Management 9 ed. Boston: Pearson, 2014. Print.

http://www.bloomberg.com/news/2014-11-04/michael-kors-shares-decline-after-sales-growth-misses-estimates.html

http://www.businessweek.com/articles/2014-11-04/why-michael-kors-cant-afford-to-cut-prices-to-spark-holiday-sales

Puppy mills are horrible places where low budget facilities breed dogs strictly for profit. The dogs often suffer permanent damage from the unhealthy conditions and lack of socialization. Dogs have always been considered man’s best friend, starting as early as 15,000 years ago. In earlier times, dogs were chosen very selectively, based upon the health of the dog and whether the dog would be suitable for the lifestyles and environment the dog would be introduced to. However, many people are beginning to shy away from the idea of a quality, healthy dog and are beginning to buy their new best friend simply based upon appearance from the puppy mills. Since people are going to buy the cutest dog possible without knowing much about it, many pet store chains are taking advantage of this and display their dogs for everyone to see, knowing that someone will be suckered into buying a dog without even knowing anything about it. When someone sees one of those adorable puppies, it rarely ever crosses their minds where that puppy actually came from, and if they knew, they would be devastated.

Beginning in the post-World War I era, Midwestern farmers realized that they could easily make a profit by selling live dogs almost like a crop, by mass producing them with minimum cost in mind in order to make an enormous profit, which became the beginning of what is known as a puppy mill. A puppy mill doesn’t necessarily have a definition, however as defined by the ASPCA, a puppy mill is “a large-scale commercial dog breeding operation where profit is given priority over the well-being of the dogs.”

According to the American Pet Association, U.S. pet-ownership estimates that the average annual amount spend $213 by dog owners on routine veterinary visits. This clearly shows how much people spend a great amount of money for their dogs. Not only are the puppy mills making profit, but also our economy. Buyers do not really know where and how these puppies were raised. For instance, in the United States, there are an estimated ten thousand licensed and unlicensed puppy mills selling over two million puppies annually. Many people may think that the puppies they are buying from the local pet store was being given quality care, however in most cases it was living under the worst of conditions possible. In the United States, there are barely any requirements for puppy mills to uphold and there are also many loopholes, and their needs to be more provisions made in order to stop puppy mills from being able to abuse any more animals.

My question to the class:  What do you think about the Puppy Mills? It is creating profit to many places, but is it morally good?

 

https://www.petfinder.com/helping-pets/puppy-mills/prisoners-profit-puppy-mills/

https://www.aspca.org/fight-cruelty/puppy-mills/puppy-mill-faq

Apparently, it took 10 years for Reynolds American to realize that smoking is truly bad for you. Being the second-largest tobacco producer in America; this is a bit ironic. The new corporate policy, that is effective in the start of 2015, bans workers from smoking in the corporate offices located in Winston-Salem, North Carolina.

The workers will be given a “designated indoor smoking area” to smoke their cigarettes. However, electronic cigarettes will be allowed outside those areas.  The company is deciding to come in to terms with the safety of its products and states, “We’re well aware that there will be folks who see this as an irony, but we believe it’s the right thing to do and the right time to do it.”

So, what kind of effect does this have on the market place and operations of the company? Basically, the company is entailing that traditional cigarettes are harmful. They are sending out a mass message to their consumers saying that, the company is providing them with cancer sticks. So, who in their right mind would go buy a product from a company that bans their own workers from using it?

Imagine meeting a McDonalds employee and finding out that they can’t consume a Big Mac at work because the obesity rate has been skyrocketing. This would make a lot of people concerned about ever buying McDonalds again.

A business will only succeed, if they create and keep their customers. The company has sent out a marketing message that just might confuse their consumers. This decision might drop sales, having a massive effect on the operations of the company. The finances of the firm might get injured and the overall direction of the business might also get hurt. This message is not only concerned with marketing, but it affects the decision-making about production and operations as well.

The company might need to re-evaluate their strategic plan so it does not go in the wrong direction. The point of a strategic plan is to set the direction of a business, so the products and services meet the overall business objective. But, then what happens in this case when the company is setting a corporate environment that goes against the product they are mass-producing?

How will employees that smoke deal with situation? I’m certain that as a smoker; a person working for a tobacco company is very proud and happy with what they do. So, will this make them unhappy and reduce their work ethic?

Personally, I think that this decision might have a negative effect on the sales, work ethic, company morale, and overall operations. People have known for decades that smoking cigarettes is bad for their health. Regardless, of the warnings they have continued to smoke.

What kind of effect do you think that will have on the company? Is this a good decision or bad?

 

 

References:

http://www.chicagotribune.com/business/breaking/chi-reynolds-smoking-ban-20141023-story.html

http://www.tutor2u.net/business/strategy/strategy_marketing.htm

Aside from these three automobile manufacturing companies designing and building fast cars, BMW, Mercedes, and Audi also make up a significant portion of the luxury car market. Luxury cars are regarded as the highest quality of mass produced automobiles and thus can be identified as product-based. These companies consider quality to be one of their highest principles as evidenced by BMW’s slogan “The ultimate driving machine.” They care about every measurable detail and the best way to ensure their customers superior quality. These companies have been able to maintain their reputation as the top manufacturers and have been in a fierce competition for the luxury car market share.  

The luxury automobile market has expanded in recent years due to increased demand around the globe, but specifically the Chinese market. This has spurred success for luxury cars and has created a desire for more products. These companies therefore have the responsibility of taking action to fulfill the demand and seize the chance to increase growth and profits. BMW is the largest producer of luxury cars currently, however in the third quarter of this year, BMW did not meet the sales growth of its German counterparts. While BMW’s deliveries rose 5.8% from last quarter, Audi saw a 7.2% increase and Mercedes saw a 9%.

After thinking about the importance of quality with the models of these three companies coupled with their contest for the luxury car market, specifically in China. I was curious as to whether or not any of these three companies were concerned with the any of the quality awards or in accordance with certain certifications that were discussed during last week’s online session. After further investigation, I found that BMW is the only one of the three that maintains all the quality management systems at their production facilities in accordance with the standards of the ISO 9000. This helped me understand why BMW is the largest producer of vehicles averaging more than 80,000 more vehicles than its competitors this past quarter. As we discussed, two of the standards of the International Organization for Standardization are to enhance quality and reliability at a reasonable price and increase distribution efficiency and ease of maintenance. These qualities may be the reason why BMW may maintain its position despite outside factors like “Audi push(ing) ahead with a program to invest 22 billion euros ($27.5 billion) by 2018 and Mercedes expand(ing) with vehicles like the upcoming M-Class coupe.” Due to their ability to fulfill their customers needs and maintain and high functioning quality management system, I think they may be able to preserve their position as the biggest manufacturer.

This article also made me think about my work within the construction industry and how buildings are inspected to ensure that the quality is up to the standards of the building code. However, there are certain certifications like LEED, which means the building conforms to detailed guidelines and is an exemplary example of a sustainable and energy efficient building. These structures are known for their quality and ability to lower costs, undercut minimum codes, and provide for further sustainability. Whether it is a quality management standards or a certain certification excellence in class always seems to it manifest itself differently in varied industries.

Questions:

1)   Do you think that BMW should be worried about Mercedes-Benz and Audi overtaking them as the biggest manufacturer?

2)   Is it worthwhile for Mercedes-Benz and Audi to work towards quality management so that they satisfy the standards of a program like ISO 9000?

3)   Do you have any experiences with an award for quality in your line of work that shows that recognized products are indeed exemplary? Or maybe not?

Sources:

http://www.bloomberg.com/news/2014-11-04/bmw-profit-beats-analyst-estimates-on-x5-suv-demand.html

http://www.bloomberg.com/news/2012-01-09/bmw-keeps-sales-lead-as-top-three-luxury-car-makers-post-record-deliveries.html

http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/produktion/fahrzeugfertigung/intelligente_prozesse/qualitaetsmanagement.html

Images:

http://www.autoguide.com/auto-news/2010/12/demand-for-german-luxury-vehicles-abroad-has-automakers-working-overtime.html/p90068813-3

http://www.imaginelifestyles.com/luxuryliving/2011/05/bmw-stomping-mercedes-benz-just-29-sales