Post on 18-Nov-2014
description
YOGYA GROUP STRATEGIC OBJECTIVE AT RISK
“TAKING YOGYA GROUP TO THE NEXT LEVEL”
YOGYA GROUP is faced with savage competition, with price war being carried on the
competition rivals are pushed to lower their price in order to remain competitive to their
customer. Profit margin is diminishing, even in some products they have to reduce their
price below their marginal cost just to keep their customer out of their rival’s territory. Now
profitability is very difficult to retain. YOGYA GROUP needs to make action towards this
severe condition. There are not many options, whether to achieve cost leadership or make a
significant differentiation to keep the firms alive and achieve their strategic objectives.
RETAIL BUSINESS IN INDONESIA
Retail business is direct sale of goods in any type of outlet such as kiosk/stall,
traditional/modern market, department store, boutique, etc including delivery service,
which generally supplies for purchasers personal consumption.
Retail business in Indonesia can be classified into two main groups, i.e. Modern Retail and
Traditional Retail.
Modern retail is basically an expansion of traditional one. This retail format emerged,
growing side by side with economic, technology developments, as well as changing in
society life style which demands a more comfortable shopping experience.
Modern retail first emerged in Indonesia when Sarinah Department Store was established in
1962 and this system continued to grow during 1970-1980. Early 1990 is a milestone for
foreign retailer entrance into Indonesia, marked by the first operation of the largest
Japanese’s retail chain ‘Sogo’. Modern retail grew rapidly when the Government, by
President Decree No. 99/1998, removed the retail business out from foreign investment
1
negative list. Before the decree was issued, there were very few foreign retailers operated
in Indonesia.
At present, there are various types of modern retail ranging from Modern Market,
Supermarket, Department Store, Boutique, Factory Outlet, Specialty Store, Trade Centre,
and Mall / Super Mall / Plaza. Growth of these types of modern retail outlets will continue
to follow economic development, technology and demands made by society lifestyle.
Challenges in Retail competition
Afterwards, Retail Market, which has experienced high performance, will face several
challenges. One of the major challenges will be the possible slowing down of turnover
growth as an impact of economic slowdown due to 2008 global crisis.
At present, people’s purchasing power has been affected and is predicted to continually
decrease due to the slowing down of economic growth. However, as Modern Market offers
consumer’s basic need, this type of market is forecasted to remain developing, although not
as high as before. If during 2004-2008 modern market turnover grew on average 20% per
year, thus, in 2009-2010 - when the negative impact of global crisis on real sector reach its
peak, turnover of modern market is forecasted to increase at only 5-10%. Yet, as global
economy improves, by year 2011, turnover growth will bounce back to its level of growth as
before global crisis.
Another challenge comes from regulatory framework. A fact that Traditional Market is
weighing down gradually, which is shown from declining of their turnover and the lesser
consumers shop in Traditional Market, have forced the Government to issue several policies
that regulate harmony between Modern Market and Traditional Retail.
YOGYA GROUP
Back sixty years ago, Gondosasmito established Toko Djogdja in Kosambi, Bandung. The
shop was focused on Batik which made in solo and Yogyakarta. at that moment they still
taking goods from Cibadak with a real minim capital not rarely payee behind a.k.a owes at
2
the shop owner . The Shop was 100 m2 large with only ten workers. The shop managed to
hold out to twenty four years without significant progression. Changes was finally occurred
when Boedi Siswanto Basuki join the family business. He married to Gondosasmito’s
daughter, Tina Handayani. The Shop enter its new regime under Boedi siswanto’s control. a
big opportunity come when Budi Siswanto Basuki the owner of Djogdja is offered a land in
Sunda street, blessing of saving which he has save for many years he finally bought that
land. And that is the first breed of Djogdja, Named Toserba Yogya, located at Jln Sunda 60
Bandung, 300 m2 large with 40 workers.
To cope with the existing competition, Toserba Yogya begins its expansion outside Bandung.
At the beginning of 1984 Toserba Yogya established its branch in Cirebon. Four years after
Cirebon expansion Yogya spread it wings to Tasikmalaya, followed by Sukabumi, Jakarta,
sumedang, kuningan, indramayu, majalaya, Garut and subang.
When monetary crisis knocks over Indonesia Yogya almost experiences bankruptcy but
blessing of sprier and readiness of thinking from the owner and his team Capability and
Character which strong Yogya successfully rise and reach feather in one's cap though resides
in middle of incursion minimarket and Hypermart which many spread over in Bandung, now
Yogya has around 52 store which spread over in West Java.
In Indonesia the competition draw both Supermarket and hypermarket in to the same
battle. Hero, Superindo, Giant, Carrefo, ur are counted as rivals in the competition. Within
group of supermarket there are six major player i.e. Hero & Giant, Carrefour, Superindo,
Foodmart, Ramayana, Yogya & Griya. These six retail networks account for 76%
supermarket turnover in Indonesia, as displayed on the following table.
3
Supermarket Market Share 2008
NO Supermarket Share
1 Hero + compact Giant 14,61 %
2 Carrefour 13, 95 %
3 Superindo 13, 35 %
4 Foodmart 12,19 %
5 Yogya Group 11,62 %
6 Ramayana 10,61 %
7 Others 23, 67 %
Source : Media Data 2009
YOGYA GROUP’S STRATEGIC OBJECTIVES
Vision : Constantly being customers number one choice
Mission : Loyal to fulfill customers demand
Yogya group established its corporate strategy 2009 into two main objectives. To achieve
17.5% annual sales growth and to achieve merchandising excellence measured by detailed
SKP (Stock keeping period) for the inventory of each type of products (food : 23 days,
4
nonfood : 27 days and Households/GMS : 50 days). By maintaining growth of sales and ideal
SKP it is expected to keep the firm financially healthy so they can sustain the appalling
competition they are currently facing.
To support their effort to achieve the desired goals, Yogya Group weaved 3 moral
philosophy values to their daily operation activities. Honesty, loyalty and modesty.
What Yogya Group have done : Cost leadership
Yogya Group has claimed to have been striving for cost leadership to achieve its strategic
objectives. From the upstream process to the downstream process, yogya group work
everything they can to reduce costs while on the other side, service level is still subject to
their primary concern. It improve its traditional supply chain to get the advantage.
Yogya Group believes that in order to achieve cost leadership there are sources of cost
advantages that could be utilized by firms in retail industry. Not as much like in
manufacturing industry, there are only few sources that are available for firms in retail
industry to exploit, as in retail industry the value chain process are cut and shortened.
There are only few nested processes in every steps of process in completing the supply
chain. There are supplier relationship, purchasing, inventory management, Sales and
operations and customer relationship. These are sources of cost advantage that have been
wielded by Yogya Group :
1. Technological software of firms such as quality of relations among labor and
management and Organization culture. In Yogya Group the quality of relationship
among the worker and management are superbly maintained. There are strong
kinship surrounds the daily working attitude at yogya group. By developing strong
kinship among the firm it will reduce possible and labor cost such as cost of high
employee turn over. There are three core corporate value at Yogya group, Honesty,
Loyalty and modesty. Those three core values contribute fair cost reduction to yogya
group’s cost reduction objective. It will prevent workers from stealing, reduce cost of
poor service quality provided by employee to customer and helps Manager to
maintain labor cost at reasonable and fair level.
5
2. Supply chain activities, Starting from Purchasing, distribution system, inventory
management to the Sales and operations
Yogya Group believe that cost leadership strategy work best when there are only few ways
to achieve product differentiation that bring value to the customer, when the competition is
very tight, price war occurs, and profit margin are diminishing. Those are conditions the are
facing.
Yogya group always make sure they have fair and beneficial contract with their supplier. If
they can assure this, it will support their cost cutting policy on daily basis. Here is the
description on how beneficial contract could help the firm to maintain it low cost
operational.
1. With beneficial contract we can make sure that lead time of delivering goods
ordered will not took very long time before we can receive the ordered goods. With
lead time beneficial to our operations Yogya can prevent Stock Out cost and making
a lean inventory system.
2. When receiving goods,Yogya double check the goods and matched it with purchase
order, if there is spoiled or wrecked goods detected, beneficial contract could
approve us to return those particular goods back to the supplier, so we prevent cost
of shrinkage.
6
purchase order by Purchasing
dept.
PO received & confirmed by
Supplier sales rep.
Ordered goods delivered
Oredered goods received and
checked by Receiver
inventory update
Payment check and update
Term of payment agreement based
on contract
benefit for cash flow
Payment and further order
3. Beneficial contract help Yogya to maintain and control its cash flow, they usually
calculate the stock keeping period of selected goods and push term of payment to
be longer than the stock keeping period as possible.
Within The operational processes, Yogya pressed down their overhead cost to retain
profitability. In each divisions cost prevent action and cost decompression is valued at every
activities. But not all employees understand the importance of this philosophy. Yogya still
need to enhance their employees understanding about cost leadership. Regular training and
development scheduled for their employees. On those training, The management always
remind and weaved the importance of cost leadership attitude among the employee.
Is it enough?
Retail industry which Yogya group have been facing from beginning, have come to the point
that the competition is savage and profit margin from each products they sell is diminishing.
This problem is also faced by Yogya Group rivals such as Hypermart, Carefour, Superindo
and Giant. Especially in West Java, The only region that Yogya Group is operating, every
retailer have to press down cost so they can improve their pricing strategy and profitability.
Apparently, what Yogya has been doing is also been done by the competitor. Event the
Operational Director is having a headache thinking new ways to get on top over his rivals.
“What we do, everyone can do, and we will do, everyone is going to do it too” said the
gentleman. It appears that all of the competitors in the industry have the same ability or
access to its supplier and customer. “there’s nothing else that we can do to create
distinctive advantage to win the market share over the rivals! All we do is keep press down
costs and keep an eye of what our rivals do. If it means to drop the price below the marginal
cost temporarily for specific product, then we must do it. Otherwise they will get the big pie,
not us!”
The cost leadership is no longer cost leadership if everyone is equally adept on doing it. It is
actually no longer provide Yogya a strategic advantage over its rivals. It is not enough if
Yogya are going to achive their strategic objective, 17,5% growth of sales. Carrefour have
done so well on their one stop shopping trends, Private labeling and cost leadership. Is it
7
enough for them? Rivals are now doing the same thing. If it is not enough then maybe Yogya
have to look the other way. It is difficult time for Yogya and there is nothing much that
Yogya could do in this competition except doing what the others going to do and so on.
While there is plenty of area available for expansion, should Yogya continue to survive the
war at west java retail competition? Or they could take a chance on expanding their flag to
other regions with risk of new market that doesn’t even know that they are exist…
8
Teaching Note
Case Synopsis
This case describe how Yogya Group strive to achieve its strategic objective i.e. 17,5 % sales
growth by focusing on Cost Leadership while the competition among rivals is very tight and
that everyone have the same strategy on dealing with rivals and to achieve their strategic
objective.
Teaching Objectives
This case was written for Strategic management class in Magister Management at
Parahyangan Catholic University, Bandung. It gives students a chance to develop their
analytical and conceptual skills concerning the retail competition faced by Yogya with their
Cost Leadership strategy.
Immediate Issue
In current conditions of the competitions, Everyone on the competition is doing the same
thing while there is not much options to differentiate from others. This Create a conditions
of where Profit is diminishing and difficult to achieve their strategic objective.
Basic Issue
1. Strategic Advantage (Cost Leadership)
2. Strategic Objective at risk
Suggested Student Assignment
1. Do you agree that there is not much options left for Retailer in West Java to get a
Strategic Advantage over its rivals ?
2. What is the biggest risk that Yogya Group will face if they are to stay in west java
competition? How should Yogya Group Act?
9
Case Analysis
Competition is made not to be perfect, there will always be leader and follower, it is
supposed to be dynamic. Every firm has its own core competencies, then from this
competencies value creation are supported. What occurs in retailer industry seems to be a
headache to every manager involved. Profit margin is limited, even low operational cost
focus still could not give them cost advantage as all players have same capability to press its
operating cost. By the way, it is depend on the commitment of the management on how
they see the word cost leadership. If the words only means words not as policy or a matter
that have to be concerned in every business decision, then I’ll say they don’t really
understand the absolute needs of cost leadership. It needs long time commitment and
control. It needs real daily basis control and report. It needs evaluation and mitigation.
Giving training regularly doesn’t always prove to be effective. If we are going to give
training, then we need feedback. How to get feedback? We need to give target and
evaluation to the employees.
I am not quite agree that there is not much options left for retailer to differentiate, there is
always a way. By using the correct tools we can identify further actions that we could take.
We identify our positioning and we take it to the next level.
It is true and normal if rival keeps their eye on their opponents, watching what they do and
imitate, analyze what they are going to do next and steal their moment. It is true that the
competition is not very friendly but I think Yogya Group could still improve and do better.
Evaluating their products would very helpful in reducing cost. Product review should be
scheduled more often and customer survey should determine customer needs deeply. Fixing
basic needs of customer that have been problems (parking lot) will also benefit Yogya in the
long run.
10
1. Do you agree that there are not many options left for Retailer in West Java to
get a Strategic Advantage over its rivals?
I don’t agree….. When there is a will, there is a way… Here is my plan….
PLAN A
Continue being committed into cost leadership would be a good answer when
firm’s financial positions are not adequate to support market development
(geographical expansion). It is difficult to keep up with fierce competition, and
players hope that they never get trapped in a dilemma between low costs and
good quality. Once they have determined to go for this approach, then here are
aspects that need our attention so we can make this strategy work for your
business.
Technological improvement, being a low cost provider requires plenty of flexibility
in product procurement. We need to be able to respond quickly to shifts in
market dynamics. Therefore, we cannot afford to maintain expensive equipment
designed to manufacture specific products. Sell off such equipment or
unnecessary components. Invest your capital in other technology areas such as
coming up with innovative techniques for cost reduction.
Evaluate our products periodically, take a look at our existing product, and
determine whether your targeted market segment really needs its existing
attributes. Often, price-sensitive customers want products that fulfill their
promise of delivering one result. The other add-ons, which are costing you and
also the customer, are not needed. Think simple.
Find cheaper materials for internal work processes. Expensive materials don’t
necessarily mean good quality, while lower prices don’t always equate to inferior
quality. Never compromise on quality. It pays to do your research and test some
inexpensive available materials for usage in your internal activities. In the long
run, your business becomes more cost-effective, and thus in a better position to
11
continue your low-cost leadership strategy. This will press down our overhead
cost.
We don’t have to spend millions on advertising. Price tag already obtains
attention from consumers. We do not need to spend huge amounts of money on
marketing to create more hype for your brand. I am not suggesting that you cut
out marketing totally, but that you spend only on what’s definitely going to
benefit your sales. For example, reach out to your customers by providing
samples of your new and improved product, emphasizing the attractive price, and
give a few clues on how you manage to offer this price. In addition, Yogya group
has its own first mover advantage which gave them the lead in winning customers
heart and stronger customer brand awareness.
People are wary of things that seem inexpensive yet claim to be of good quality. It
is thus important to communicate to them that you have implemented a new
production process that allows production costs to be cut, for example. They
want to believe you, and you need to provide information to back your business
up.
Your position as a low cost provider gets stronger as you build up your business’
cost effectiveness. I talked about evaluating your technological capabilities in the
first point, because I believe that external factors are susceptible to changes, and
these changes can come on suddenly, such as a price hike from raw material
suppliers. Therefore, maintaining internal efficiency is the most important way of
achieving cost effectiveness for your business.
PLAN B
If the financial conditions provide possibility for Yogya to develop its market, than
we should use strategic tools like ansoff matrix to determine the next step.
To portray alternative corporate growth strategies, Igor Ansoff presented a matrix
that focused on the firm's present and potential products and markets
(customers). By considering ways to grow via existing products and new products,
12
and in existing markets and new markets, there are four possible product-market
combinations. Ansoff's matrix is shown on the next page:
Existing Products New Products
Existing Markets Market Penetration Product Development
New Markets Market Development Diversification
Ansoff's matrix provides four different growth strategies:
1. Market Penetration - the firm seeks to achieve growth with existing products
in their current market segments, aiming to increase its market share.
2. Market Development - the firm seeks growth by targeting its existing
products to new market segments.
3. Product Development - the firms develops new products targeted to its
existing market segments.
4. Diversification - the firm grows by diversifying into new businesses by
developing new products for new markets.
Selecting a Market Growth Strategy
The market penetration strategy is the least risky since it leverages many of the
firm's existing resources and capabilities. In a growing market, simply
maintaining market share will result in growth, and there may exist opportunities
to increase market share if competitors reach capacity limits. However, market
penetration has limits, and once the market approaches saturation another
13
strategy must be pursued if the firm is to continue to grow. The competition has
reached the phase that it is very hard to get result in growth if we are still doing
market penetration. While there is another option provided by ansoff, let see the
next adequate option below.
Market development options include the pursuit of additional market segments
on other geographical regions. The development of new markets for the product
may be a good strategy if the firm's core competencies are related more to the
specific product than to its experience with a specific market segment. Because
the firm is expanding into a new market, a market development strategy typically
has more risk than a market penetration strategy. But on the other side Pursuing
additional market on other geographical regions would pay off more and growth
is very likely to be reached.
2. What are the possible risk that Yogya Group will face if they are to develop its
market on other geographical regions? How should Yogya Group Act?
From a business perspective, staying with current existing product in current existing
market is a low risk option, we know how the competition works, and the market holds
few surprises for us
However, we are going to expose ourselves to a whole new level of risk either moving
into a new market with an existing product, or developing a new product for an existing
market. The market may turn out to have radically different needs and dynamics than
you thought, or the new product may just not work or sell. And by moving two quadrants
and targeting a new market with a new product, you increase your risk to yet another
level.
We ought to manage the risk appropriately. For example, if we are switching from one
strategy to another, make sure that we research the move carefully, that we build the
capabilities needed to succeed in the new strategy, that you've got plenty of resources to
cover a possible thin period while you're developing and learning how to sell the new
product, or are learning what makes the new market tick, and that you have firstly
thought through what you have to do if things don't work out, and that failure won't
"break" you.
14
There is always ways to handle risk, here are steps of handling risks:
1. Identify strategic risk and functional risk
2. Measure the risk identified
3. Monitor the risk
4. Control the risk
5. Embed risk awareness in organizational culture
15