Question

Since the 1960s, LKK Technologies Inc. has established a reputation for producing prestige audio products and aims to set the standard for performance, reliability and service. The company’s first product, namely the LKK Record Player, is a high quality vinyl record player built into a wooden cabinet made of the finest quality jarrah.

In the late 1980s, LKK started producing CD players, which was in demand at that time. In order to maintain a strong commitment to keeping with its brand image, LKK ensured that the new product also met the highest standards of quality in the audio industry. MP3 players emerged in the early 2000s, which resulted in another new line of products. It was followed in more recent years by the LKK USB Turntable, which can be plugged into a computer to convert music from vinyl records into digital format so that it can be played on portable music players. The USB Turntable was introduced as a result of the Vinyl Revival.

Sebastian Burwood, the company’s Chief Financial Officer, had become concerned about the performance of some of the products in recent years. As shown in the following product line sales report (See Table 1 below), even though total sales were still growing at an acceptable rate of approximately 10%, the sales mix was changing significantly. The concern was particularly strong for the Record Player because of the sharp decline in sales and the high costs of producing that line. Due to the high level of craftsmanship required for the Record Player, it has always had higher than average costs for labour and materials. Furthermore, attracting and retaining the highly skilled workers necessary for this product line was becoming more and more difficult. In 2015, the workers in the LKK Record Player line were older, more experienced and very loyal employees who were paid well because of their skill and seniority. These workers displayed the highest level of craftsmanship in the company and, some would argue, in the entire industry. However, not many of the newer employees seemed eager to learn the skills required for the manufacture of this product line.

Moreover, the company’s ability to meet customer demands was constrained by the limited manufacturing capacity. A sharper than expected increase in sales for the USB Turntable had resulted in delays in production and a backlog of orders. At the same time, plant managers had been scrambling to find the plant capacity to meet the demand. Some plant supervisors had suggested shutting down the Record Player line to increase capacity for the production of the USB Turntable line. However, eliminating the Record Player line would make obsolete about $287,000 worth of raw materials inventory that can only be used in the manufacture of the Record Player.

Kelly Walters, the firm’s sales manager, reported that sales of the Record Player were more and more difficult to find and that demand for the new styles was increasing as portability was now a criterion for music enjoyment. She also noted that there were significant sales differences based on the areas. The USB Turntable was popular in South Australia and West Australia, and the CD players and MP3 players were popular nationally. The Record Player tended to have strong support only in the Northeast states. In some sales districts in these states, Record Players represent a relatively high proportion of total sales.

Mitchell Barrett, the firm’s CEO, is aware of these concerns and has decided to set up a task force to consider the firm’s production options and strategy with regards to these problems.

  

Table 1: Product Line Sales Report

Record Player CD Player MP3 Player USB Turntable

2016 20% 33% 45% 2%

2017 16% 40% 40% 4%

2018 14% 40% 40% 6%

2019 9% 40% 40% 11%

    

  

Required:

1. How would you describe LKK’s competitive strategy? Briefly explain.

2. Develop a SWOT analysis for LKK Technologies Inc. The analysis should include two items in each category: Strengths, Weaknesses, Opportunities, and Threats.

3. On the basis of your answer to requirements (1) and (2), what recommendation would you make to the task force?

   (Total marks for Question One: 10)

Answer 1

Solution 1 & 2] To start with, one needs to understand the nature of the company, its products & the specialties.

In our case the company LKK Technologies is an audio product manufacturing organization. And its product range varies from 'Classic Record Players' to 'Modern USB turntables'. The company started its operations by producing prestigious record player which was the made with the finest quality of jarrah wood.

But presently according to the case &  figures mentioned above, we see that company is facing issues in many segments of its business & it needs a competitive strategy to proceed with. (Here we are talking about the need of competitive strategy to improve inventory management, personnel management, sales, marketing, meeting consumer demand & sustain the business)

To do that first we need to conduct a SWOT analysis of the company i.e. to study the Strengths, Weaknesses, Opportunities, and Threats of the organization.

Strengths:

• Information; The information of sales & trend in the demand as mentioned by Mrs. Kelly the sales manager of the firm. With this information the proper planning can be done in optimal allocation of resources. For Example: Portable Music Device is the new trend, therefore more emphasis can be given to the production of portable devices such as MP3 Players or the USD Turntables.
• Having skilled set of craftsmen & loyal employees are an asset to the firm even if they are old and are incurring higher costs. It is so because they have skills, wisdom & knowledge that can turned into the firm's strongest assets.
• Companies adaptability to the trends is again a strength because as an when the demand in the market shifts, company is able to adjust to it without any rigidity from the management.

Weaknesses:

• Poor Inventory & Personnel Management: currently though the situation is moderate for the company but it would be difficult if it does not improvise itself in terms of management of it's inventory & people. We can see that there is huge inventory for  Record Players whereas it cannot meet the demand for portable devices.
• Limited Plant Capacity: The resources are limited & the production is not at par with the rise in demand.
• Less Motivated & Skilled newer employees.

Opportunities:

• Study of Targeted Demands ensures proper inventory management & production. Marketing & sales could be efficiently managed.
• Use of remaining inventory of the dying business and launching the series of limited edition product for Record Players.

Threats:

• Dying record player business.
• Poor Resource Management - Less Motivated Workers, Plant Capacity Issues & Inefficient Managers & Supervisors.

With the above SWOT analysis we can determine the following strategies:

1. Emphasizing more on the production and sales of MP3 & CD Players as they account for larger growth.

2. The skilled craftsmen can be either diverted to the newer portable products or can be asked to guide new joiners in training them.

3. Targeted sales: i.e. We now know that from which region on the world we are getting demands from, thus we can allocate marketing & sales team to work on specific products demanded by specific targeted consumers.

4. As mentioned earlier that demand for Record Players has fallen significantly & is out of trend but it has very niche demand therefore the remaining inventory can be used in making limited edition record players that can attract certain individuals who are fond of them.

5. Planning & Capacity Knowledge - It means that managers and supervisors must be aware of the exact capacity of their plants that they manage. It will helb the firm to take necessary investment decision to expand their business.

Solution 3] Suggestions to the task force:

A. Planning: Study & Proper plan of action has to be carved out because the firm is facing challenges in multiple areas of its business.

B. Accountability & Implementation: Accounting for all the areas of improvement is a must; so it can vary from the performances of employees to managers, waste reduction/management, capacity utilization etc. And implementing certain scientific methods to attain targeted sales, marketing surveys, sales & inventory data analysis etc.

C. Follow Up: There must be a follow up of all the new changes made from time to time; regular inspections/audits to see if things are in place or not.