The recent weather forecast of cold summer is not good news for the business. With the predicted cold summer, the company might not sell a lot of residential air conditioners (ACs). The sales volumes might further dip if the company fails to come up with strategies to increase sales even with the predicted cold summer. A dip in sales volume will affect the company’s anticipated profit since the profit margin is very small. This can be done by addressing areas of weakness. Even with a fierce domestic market, there are some short-term measures which can be implemented to enhance Daikin’s competitiveness and profitability. An improvement in quality or value-addition is not one of the preferred options because they had little impact on increasing competitiveness or attracting more customers.
Recommendations to the Board
ACs in the industry are chosen according to installed price and the amount of cooling required. Periods of extreme heat require ACs to be installed faster. This area presents an opportunity for Daikin to improve its competitiveness. The company should increase the speed of delivery and installation of ACs in its customers’ premises. From the usual 3-4 days period it takes for the customers to switch to another supplier, Daikin ought to try to deliver and install ACs faster than its competitors. The company should also collaborate with independent dealers so that stocks can be supplied in less than 24 hours from the earlier 3 days.
Given its widest product line-up in the market, the company should focus on selling the most often bought residential AC units in this season. Further, Daikin ought to employ sophisticated prediction of peak times so that it can match demand with supply.
There is a need to restructure the domestic market especially the way the 21 regional sales companies operate. There seems to be a big problem in inventory management. The company should develop an efficient and accurate method of carrying out inventory in collaboration with sales companies. The company should ensure that the sales companies also collaborate with the retailers to carry out effective and efficient inventory management. Rather than rely on experience and discussion with retailers to forecast sales, the company ought to suggest a better tool for sales forecast which is applicable to across all the sales companies. There is also evidence of unethical reporting of demand forecasts by the sales companies. Some sales companies did not provide precise demand forecasts. The company should come with measures to punish unethical business practices among its partners.
The factory deliveries can be further increased to thrice a week. Daikin ought to find a way of collaborating with retailers so that it makes deliveries of ACs more economical. Retailers need not wait to order and transport ACs with other electronics. Daikin can take up supplies on behalf of the retailers. Supply should be made even more efficient because retailers have minimum space to store a huge quantity of stock. A rapid order fulfillment from regional warehouses should be developed to supply retailers for products which are out of stock in the retailer’s stores.
The local market presents a huge market for Daikin given that in 1997 it sold 670,000 for the domestic market and 15,000 for export. The company should invest more activity on the domestic market through advertisements and improvement of the efficiency of supply and installation. The company’s assembly lines show that it takes approx. 138 minutes to complete one unit. The company should aim to improve this to less than 100 minutes or the fastest among its competitors. The company’s labor force should be reconstituted in such a way that it offers the best mix of permanent and temporary workers which will give the company maximum savings in labor costs.
Factory’s capacity requirements were accumulated by requested pre-PO delivery date and prioritized according to the date received. The decision not to accept orders for delivery during weeks where the capacity had been filled should be reversed. This is because the refusal would force the sales companies would try to convince the retailers to accept deliveries on a later date. As a result, the retailers might decline and opt to go for another supplier. The policy should be made such that orders are delivered within the requested time without fail to avoid losing orders and consequently avoid making false sales forecasts. The factory’s control should be decentralized so that the factory has more than one control center. Centers can handle certain units of the units for ease of management. The aim is to reduce the monthly average finished goods inventory.
Although the company’s R&D and purchase were functioning well, there is a need to achieve higher margins of cost-reduction by further minimizing costs associated with direct labor and overheads to beat the production cost of the competitors. In the long-term, part of the manufacturing should be relocated to China due to the presence of a huge unserved market and cheap labor. Further, Chinese suppliers are cheap due to cheap labor in China.
