Every management activity of a project or organization requires processes. Product production is also a set of processes.
Many managers create their own processes, other managers (project management or product management), for example, follow defined popular and established practices. Reference: Trends and features of modern management, By: Marta Cooper, April 20, 2020 PolicyMatters, ISSN: 1941-8280, 1941-8272
Many businesses and projects change significantly under the influence of globalization, integration, liberalization, informatization, digitalization and others. These processes seriously affect the activities of various organizations and project managers and product managers, revealing favorable opportunities and at the same time creating potential threats to their development. Reference: What is production management, brightonbot.com This determines the complexity of strategic issues.
As a result of the modern expansion and deepening of scientific and technical research, new productions are being created, and the existing ones are being improved. Others are dropping out of the real sector of the economy, and new industries and activities are emerging in their place.
As a result of the global internationalization of production, the range of goods has expanded, while shortening the life cycle of products in the most technologically complex industries. Reference: Emergence and development of Industrial and Production management, mstsnl.net
The moral aging of the products causes managerial activity and regulation.
The diversity in the commodity world has led to complications in the sale of goods in local and other markets. The accumulation of problems is also due to the improvement of the schemes of the movement of goods, the organization and the methods of sales.
The main economic problem to this day remains the excess of production capacity in most global projects. What is lacking are not the products, but the customers. The problem is not supply, but demand. Overcapacity leads to hypercompetition, in which too many products fight for too few customers. And most products and services do not differ from each other.
The result: high price competition and an ever-increasing number of bankrupt companies. Therefore, the goal of every company is to build such a competitive strategy with which to achieve a significant advantage over competitors.
This report focuses on a study of the sales management of an exemplary organization. Here are the following main tasks:
- To present the essence and characterize the management and the challenges for the development of distribution as a result of globalization and integration on a global scale;
- Characteristics of the distribution channels, the participants and their specific behavior;
- Presentation of the principles and factors for design and construction of production systems.
Analysis of management processes
By production process we mean the set of interconnected labor and natural transformation processes of making a new product and optimizing the product process. Reference: Product Optimization Practices in Product Management, BVOP.org
Production processes can be classified on several general grounds: the type of industry; the type of operations and the final product; the type of processed materials and the nature of the physico-chemical processes, the nature and the manner of impact on the materials; the nature of the passage of time.
In each phase of the production process (PP) the control of the details and qualification of the product is performed by separate operations of the technological process. It is obvious that discrete production processes are characterized by an extremely large number of technological impacts on materials, when they are often completely different from each other and require the use of different types of technological equipment.
Cost and profitability (this is a percentage that is added to the cost and forms the manufacturer’s profit. This percentage may vary depending on the company’s position in the market, but currently there is a list of goods – consumer basket.
For such goods there is an upper limit set by the government) form the factory – the factory price or the cost of production. When VAT is added to them, a wholesale price is obtained. With the addition of trade mark-ups and taxes to them, a retail price is obtained. At import prices and for some types of goods there are some elements such as excises, customs duties, taxes.
Significantly, the price is one of the tools of marketing – the mix with respect to the company’s profit, as it includes elements that make a profit. The price also has a relation to the turnover of the company (the turnover is equal to the quantity at the price), therefore optimization of the price is sought. It is the most dynamic element of marketing – the mix, as it can change with the decision of managers, in different markets, in the same market at different times. In this sense, it is most often used to stimulate demand and others. The price expresses the package of benefits and costs for creating the product. It is directly related to distribution – the longer the distribution channel, the higher the price. It is also related to the promotion, as the cost of the promotion is calculated in the cost.
Factors influencing pricing decisions
The price of a product is not an end in itself, it is a means to achieve company goals. In this sense, in its development, as a policy, strategy or specific price, we should take into account the influence of three main groups of factors. These are the internal (in the organization itself, which are susceptible to influence), the external factors (outside the organization, accepted as such, and the company management must take them into account).
Another possible goal is to position itself as a company offering high quality. The pricing policy is oriented towards high prices.
There are two presumptions:
- high quality is created at a high cost;
- the high price is a sign of high quality, but the quality work must be serious;
Another goal is to make a profit in short periods of time. This is a purely financial goal. The pricing policy is oriented towards high prices.
The goal can be deep market penetration or increasing market shares. With such a company goal, the price is oriented to the average price level, to a policy of price differentiation.
Price targets – price targets can be considered in two main groups:
- financial in which profit and turnover are pursued;
- marketing goals, in which the pursuit of market share, positioning the company in the market, building a market image.
Costs – are calculated in the cost and are taken into account in terms of their classification into fixed and variable.
The requirements for the product are the first initial action and definition that we need to form.
The expectations in the distribution channel are mainly related to the amount of commissions, as a kind of market is formed there. Reference: Definition and tasks of production management, stc-montreal.org
In order to have information, price elasticity analyzes (Ke = ∆D / ∆P) are needed. Consumer perceptions are in the sense of how the customer perceives the price (sensitive, personalized, loyal and indifferent customers).
Cross-elasticity is also sought, with consumer perception surveys providing information on the price cap.
An important point here is competition, as each company operates in certain conditions of market competition.
Price determination phases
- Setting price targets;
- Assessment of the target market for price and purchasing power;
- Determining the demand – a forecast is made for the possible quantities to be sold on the target market;
Analysis of the relationship between demand, costs and profit this analysis is done using the critical point method (CER);
Evaluation of the prices of the competition – comparisons are made between the prices and the qualities of the company goods with the competitive ones;
Choice of pricing policy here should be formulated pricing policy as a philosophy of prices;
Choice of price methods – with their help a specific price is determined.
Determining a specific price
This includes testing the price, its psychological shaping and choosing a pricing method.
The possible price can have three levels:
- Minimum, which is determined by the costs of the company;
- Average, which depends on the prices of competitors and substitute goods;
- Maximum, due to the unique qualities of the product.
Several basic approaches and a wide variety of pricing methods have been established in the pricing policy of the companies:
“Cost plus” method – the easiest and most popular method, which is expressed by adding some markup to the purchase price of the goods and thus form the selling price. There are two types of allowances:
Standard – the same size for all goods;
Different – a consistent increase in the amount of allowances for the movement of goods from producer to consumer.
Method “ensuring profitability and target profit”
This method is also cost-based. In it, the company seeks to determine a price that will provide the desired profit.
In general, the formula for the target profit price can be expressed as follows:
Profitability costs /% / x basis for determining profitability
Consumer price estimation method
This is a marketing method because it is based on the consumer’s idea of what the price should be. By using different price influences, the companies strive to form in the minds of consumers the idea of greater value and usefulness of the goods they offer.
For the purposes of this method, it is necessary to have information about the opinion of consumers about different competing goods, on what properties they determine their value and their price.
Pricing based on real current competitive prices
This method means that the company develops its prices taking into account the prices of competing companies and goods, and its own costs and demand are in this case secondary factors.
Information provision is the most important point in competition-oriented pricing.
Other factors influencing pricing are the type of product, image, desired profit, suppliers, economic conditions and regulations.
The dynamics of costs in the short term is directly related to market prices of production resources. It also depends on the productivity of the technology used. For each level of production, the efficiency of the factors, expressed through the total average and marginal product created by them, is different and is influenced by the law of diminishing returns. Accordingly, the costs will be different, both for the whole production and for each unit of it.
The costs are general, average and marginal. The total costs / TC / for the production of the production consist of fixed and variable costs. Fixed overheads (TFCs) include those related to the use of fixed production factors. They are characterized by the fact that their size does not depend on the quantity of production. Total costs also have a variable part. Variable costs are those that vary depending on the volume of production. Reference: Product deployment and tasks in production processes, mpmu.org
If the total costs are divided by the quantity of production (Q), the average costs / ATC / per unit of production are obtained:
ATC = TC / QT
In the cost analysis, the category of marginal cost (MC) is important. They represent the additional costs necessary to increase production per unit of output. They can be defined as the ratio between the increase in total costs to the increase in the quantity of production.
Marginal costs are a quantity that a company can control most directly. They show the costs that the company has to make for the production of the last unit of production and at the same time the costs that can be “saved” in case of reducing the volume of production with this last unit.
Functional analysis expresses the content of such properties of the product, which ensure both their purpose and their functional features. This decomposition builds the first and basic level in the hierarchy of product properties. These include aesthetic, anthropometric, technical and other properties.
The characteristic features are a competitive tool for distinguishing the company product. One of the most effective ways of competitiveness is the introduction of qualitatively new product features.
Quality of operation
Quality of performance refers to the level at which the main characteristics of the product function. Reference: Quality Management in Project Management and Agile practices, Scrum Time (ISSN 2652-5445) Most products can differ in 4 levels of performance: low, medium, high and excellent. The following can be mentioned here:
Conformity is the degree to which the model and functional characteristics of a product approach the target standard. It shows whether the manufactured products are made in the same way and whether they are in accordance with their specifics.
Durability is a measure of the expected life of a product. Buyers tend to pay more for more durable products.
Reliability is a measure of the probability that a product will not break down or fail to function normally for a specified period of time. Buyers pay a surcharge for greater reliability.
This is a measure of the ease with which a product that does not work well or has broken down can be repaired.
The style shows how the product looks and how attractive it is to the buyer. When talking about the distinctive style of a product, its packaging should be taken into account as a stylistic device, especially for food, cosmetics and others. The packaging is the first thing the buyer encounters and it can set him “for” or “against” the purchase.
Design: the integrating force
All the above qualities are design parameters. They only explain how difficult the design task is with all the compromises that can be made.
Product benefits and consumer utility
Consumer utility analysis
The study of consumer benefits in the purchase are mainly related to the perception of the offered product in the following three sections: sociological, psychological and anthropological research, which includes certain methods and expected results. Each company successfully conducts its business for each product, if it takes into account the respective actual or future benefits for the consumer. Consumer benefit when purchasing a product is defined as the difference between consumer value and purchase costs.
In determining the consumer value and purchase costs included in the assessment of consumer benefit, marketing analysis and evaluation of the following three factors are required:
- Economic benefit;
- Benefit from the perception of the product;
- Emotional benefit;
Availability and presence of products
The achievement is related to the supply at any time of products of the appropriate category in packaging suitable for the respective commercial site. The company’s products are present in all existing retail outlets, while building sustainable and partner professional relationships with customers.
To this end, the company requires the maintenance of a merchandising standard at each of its facilities; providing sufficient and timely advertising materials and equipment in retail outlets; maintaining optimal levels of stock availability in retail outlets, etc.
Affordability is expressed in offering all categories of products at an appropriate price that is consistent with the types of consumers for whom they are intended, in the form and size of packaging, consistent with the purchasing power of the consumer in different types of sites. For the price the consumer pays, he receives a high-value product – the most famous brands of world quality with unique and fresh taste, produced with the most modern technologies, consistent with a healthy lifestyle and environmental protection. The company’s products become more accessible to consumers thanks to promotional programs.
Ensuring product availability is related to optimizing production and distribution costs; use of a minimum amount of energy and water for the production of a unit of production; ensuring a high degree of usability of equipment and machinery; minimum quantities of losses of raw materials during production; optimizing the levels of stocks in production centers and landfills; minimizing empty truck runs; ensuring compliance with the recommended prices in retail outlets.
Product production and the impact of various factors
With regard to production, the analysis and consideration of the complex impact of the following factors:
The marketing / sales relationship – the constant connection between marketing activities (promotion and advertising, public relations and sales promotion) and the size of sales is at the core of the company’s marketing strategy and policy;
Fast supply – it minimizes possible losses from interruptions in sales at retail outlets and ensures high efficiency of distribution. This does not only mean the fast transportation of the product, but the whole process from ordering, order processing to delivery;
Transport companies – the presence of companies that meet the standards and requirements of the project regarding the storage and transport of products in order to preserve their quality and integrity of packaging;
The quality system in the project special program applied in each element and phase of product creation. Each unit has the ability and obligation to maintain the highest quality standards of products, processes and relationships.
The quality system requires in-depth self-analysis of the processes in all business units, which allows to increase the quality everywhere.
For example, control laboratories perform precise analysis of ingredients shipped by suppliers to ensure and improve the quality of the final product.
Production processes are also subject to continuous monitoring – the finished components used for the production of products are checked.
Distribution management functions
Product distribution management functions are performed by the Distribution Department, accepted by the project project manager, program manager and product director, although decision-making on important issues such as changes in the system of work, construction of new depots, purchase of vehicles are taken from higher management levels as proposed by the department. The project sponsor can even intervene personally in such strategic decisions. Reference: Change management plan in Project Management practices, World Forge Magazine (ISSN 1933-8848)
For the efficient and effective management of the physical distribution, the concept of total costs is used, the aim of which is to minimize the distribution costs at a given level of service. The total distribution costs are the sum of transport costs, warehousing costs, order processing costs and information costs, minimum batch costs, inventory maintenance costs, but they have different trends. For example, as the number of warehouses in the system increases, transport costs decrease, but the costs for warehousing and order processing increase.
Planning the operation of a physical distribution system is a complex task that requires the integration of all system components. The assessment of the alternative configurations of the distribution channels, which satisfy the needs of a certain level of service with minimal costs, is the basis of the strategic planning of the physical distribution. Changes in demand, the level of service, product characteristics, distribution costs and pricing policy signal a reassessment of the strategy.
Physical distribution planning is a complex task that requires the integration of all system components. Planning includes an assessment of the alternative configurations of the physical distribution systems that meet the needs of a certain level of service at minimal cost for the whole system. Planning begins with specifying the objectives and strategies for the level of service, which in turn are the basis for defining strategies and programs for stockpiling, warehousing, transportation and order processing, as well as related investments in stocks, warehousing and transport facilities, management information systems. The next step is to define the systems and procedures related to physical distribution, which are based on the ongoing physical and information flows. Finally, the organizational strategies in terms of human resources needed to implement the physical distribution system are being developed.
The design of distribution channels and the development of a comprehensive plan for their operation are important elements of the distribution strategy and policy. The main points in the design of each channel are related to the market coverage, where the focus is not only on the number of suppliers and distributors, but also on the number of intermediaries with whom they cooperate.
The need to design a distribution channel arises in two cases: when changes are required in an already functioning distribution channel in order to expand its capacity, increase its capacity, improve management and increase the efficiency of its activities; and when a completely new channel is built. When designing distribution channels, the company’s goals are:
- Minimization of distribution costs, as low distribution costs lead to a minimal increase in the price of delivered products;
- Reduction of the order execution cycle, ie. the time from the receipt of the order to its satisfaction;
- Increasing the reliability of deliveries – as a result of the rational distribution and coordinated implementation of the functions of forming and maintaining stocks, transportation, order processing, communication, etc.
The market economy uncompromisingly requires new knowledge and competence. Strong competition requires us to monitor the level of competitors’ prices, differences in quality characteristics, sales channels, to look for new niches in the market.
An obligatory condition for the existence and prosperity of the companies in the conditions of market economy is the provision of quality production on the basis of the target markets. This requires individuals and groups of people to receive the goods and products they need, and companies position themselves in the market, realizing the results of their activities. But it is not enough just to provide customers with diverse products, as they must be available in adequate quantities and quality, but affordable, convenient for shopping places and times, as well as at reasonable prices.
Sales performance in this sense is a system of interconnected and interdependent activities that ensure the planning, implementation and control of material flows of raw materials and finished products from producer markets to consumer markets in order to meet specific needs and achieve benefits for participants in these activities. It is carried out by such inherent activities as: purchase of raw materials, finished products, stockpiling, transport, warehousing, customer service, communication and information services, system control. Each of the activities is related to the others and has a certain impact on them.
This outlines the path that goods take from producers to consumers. They involve a different number of intermediaries (channel members). Each of them has certain functions and responsibilities, and the activity of each participant depends on the activity of the other participants in the channel. The main participants in the distribution channels are: the producers, who through their warehouses for finished products deliver the goods for movement to the intermediate and end users; wholesalers and retailers who mediate between producers and perform their inherent functions.