SomPack If You Cant Beat Them Join Them Case Solution

2. Situational Analysis

The current situation for Sompack is dismal as market trends have changed, including changes in customer preferences. The clientele for Sompack is business customers who have sophisticated demands and high bargaining powers. Sompack is a traditional family-run business; however, the company now realizes the importance of hiring more competent, skilled, and educated people to take the company ahead in the 21st century. While Sompack tried to compete on price, they still could not reach half the potential of Chinese suppliers in terms of prices. This is because the cost structures in countries such as China are tremendously low. These include not just the labor costs but also those of raw materials, government incentives in the form of subsidies, and lower energy costs. Hence, in many ways, high-quality suppliers have been outplayed by suppliers from countries such as China.

Sompack has already devised some strategies to deal with its current problems. However, much success has not been achieved. For example, the company bought an enterprise resource planning (ERP) software system to smoothen the company flow of accounting and finance. However, the system has caused more trouble for the company as figures and inventory details are many times erroneous. Secondly, the company chose a cheaper source of raw material for one of its moulds. However, the quality turned out to be much below the company’s expectations.

While the company wants to lower down its costs to stay competitive in the industry, it does not want to lose European customers who give more value to the quality rather than cost. However, the problem arises if Chinese manufacturers produce molds at a relatively fine quality with tremendous cost differentials. The company may try some options to cut down its costs. However, it needs to draw a line between compromising quality and providing price differentials. The preferences of the market segments also need to be kept in mind.

3. Possible Alternatives

It is suggested that the company follows one of these three alternatives to handle its current problems: switch to cheaper machines, conduct selective outsourcing or use cheaper materials for other than cosmetics moulds. While the three suggested alternatives may be linked together in a bigger picture for the company, each decision in itself is very comprehensive. But firstly, the company has to decide which customer segments it wants to target, in the long run. That will determine the correct balance of quality and price priorities.

If we consider the first alternative, it will be in the interest of customers who place more value on price differentials. To adopt such a policy, the company may import cheaper machines from China. Market testing and survey with the business customers will provide details of their preferences. The company will also have to identify cheaper sources of importing machinery used for assembly. With the company’s current equipment, the automated assembly was close to impossible.

Secondly, as several manufacturers have moved to cheaper sources of outsourcing, Sompack may also outsource some of the functions to countries with fewer government regulations, increased tax benefits, and cheap labor force.