Reference no: EM131672267

Heartsong must find a cost effective solution to reduce its inventory carrying costs, but their solution must not jeopardize their reputation. They have an established worldwide reputation as the provider of choice for high quality, leading edge artificial heart valves, and failure to advance their Research and Development (R&D) programs would likely result in loss of reputation and market share. They could choose not to compete in the new, emergent market of specialty heart centers, but that could result in competitors gaining a competitive advantage, which may not be overcome in the future. It could also damage their reputation because customers may question their viability as a long-term supplier if they are unable to compete now. If they still choose to risk not competing then such a decision would likely only be a temporary reprieve for the company, because of the changing dynamics of hospital ownership. Many of the standalone hospitals are being bought and incorporated under regional and national umbrellas of corporate ownership. This would result in larger orders being placed which would eventually exceed their manufacturing capacity. Therefore, they have no choice but to address the issue of inventory carrying costs now, because any other decision would be detrimental to their long term viability. The CEO of Heartsong, Doc Watson, is not a victim of strategic shortsightedness and must have performed the same analysis and reached similar conclusions. The second step in analyzing a company's competitive strength is to assess its competitively important resources and capabilities. Heartsong's physical resources such as manufacturing plants and equipment, superior production technology, and patents are valuable, tangible resources. However, the intangible resources such as human assets and intellectual capital truly create a difficult to replicate core competence, which is the source of their strongest competitive capability. Their brand, image, and reputation, which they have attained in the marketplace, are also key intangible resources, but not something that could not be replicated by other competitors. Heartsong is effectively managing its resources and capabilities in a dynamic manner. They have seen the opportunity to expand into new markets, as opposed to relying on an outdated strategy and previous accomplishments, and have taken the necessary actions to evaluate their ability to compete. A Strengths, Weaknesses, Market Opportunities, and Threats (SWOT) analysis would have been the next step in determining the best way forward in devising a new strategy to take advantage of the emergent market opportunity. They would have realized a competitive deficiency existed with their ability to compete effectively in an emergent market. Under the Strength analysis, they would have realized their strong brand name, reputation, and good customer service capabilities could turn into potential weaknesses due to their lack of financial resources to grow and compete in emergent markets. Under the weaknesses analysis, they would have realized they lack the financial resources to grow the business and pursue promising initiatives. Under the Market Opportunities, they would have realized they would not be able to compete in emerging markets and maintain their standing in existing markets without developing a new strategy for inventory and distribution. The only way for growth to occur is for them to cut costs in R&D, manufacturing, and inventory carrying. The next step in analyzing a company's competitive strength is to assess whether its cost structure and customer value proposition are competitive. Under the value chain, the use of benchmarking is a powerful tool, which companies can use to compare their practices and/or processes against others in the industry in order to evaluate and/or improve their own value chain activities. The value of benchmarking is the ability to take proven lessons learned from competitors and implementing them to improve the cost savings and effectiveness of the company adopting best practices. These best practices might be implemented with minimal risk and a short learning curve. Since Heartsong already has a worldwide reputation for high quality products, it would not be difficult to imagine they have already implemented best practices as part of their manufacturing processes. It would also not be farfetched to conclude they studied how other companies decided to handle their logistics problems, which likely led them to their EdFex, outsourcing solution for distribution of their product. The use of EdFex as their forward channel ally is fraught with both benefits and risks. In order for it to be considered as a viable option, the benefits to be achieved must outweigh the risks, and the company must consider more than just cost savings. The benefits could be a reduction in inventory carry costs, more warehouses to stage from, shorter delivery times, possible savings in distribution costs from shipping in bulk to staging warehouses, as well as cost savings from negotiated from long-term contracts. The risks could include labor strikes that stop or impair EdFex operations, cost increases built into the contract that pass through to Heartsong such as increased costs in fuel and packaging, EdFex going out of business, damage to products, delivery of the wrong product, logistics software interface costs, logistics software training costs, and possible damage to company image resulting from mistakes made by their potential partner. It would appear Heartsong is taking all of the necessary steps to evaluate their strategy and competitive strengths and weaknesses to enable managers to focus on exactly what strategic issues they need to address. At face value, the EdFex solution looks as if it might solve the problem of cutting inventory carry costs, but it should not be the only answer to the way forward. The company needs to continue evaluating all of its processes and capabilities on a continuing basis to ensure it is updating its strategy and adopting best practices where it fits within its business model and strategic vision.