Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 29

Strategy; Discounting, Differentiating, and Contract Manufacturing Contract manufacturing refers to a process in which one company, the contract manufacturer, produces the same or very similar products for other manufacturers or retailers. As an example, headquartered in Singapore, Flextronics is a large electronics manufacturing services company providing design, engineering, and manufacturing services to automotive, computing, consumer digital, industrial, and health care product companies. Microsoft is one of Flextronics’ customers, among many others. Another example is High Tech Company (HTC), a Taiwan-based company that manufacturers cell phones and other products for the consumer electronics industry. Acer is another Taiwan-based computer manufacturer, the fourth largest in the world, but not a well-known brand. To change that image, Acer purchased Gateway Computer in October 2007 and is shedding its contract manufacturing business. Both HTC and Acer are now embarked on a strategy to gain brand recognition and to move away from the contract manufacturing business.

In a related instance, Menu Food, Inc of Ontario, Canada, a contract manufacturer, produces pet food for Procter and Gamble (Iams brand), Colgate-Palmolive (Science Diet brand), and Wal-Mart (the O’Roy brand). While Menu Food says it has 1,300 recipes, it may be hard to distinguish one product from another except for the branding due to advertising and promotion by the manufacturers and retailers who purchase the product from Menu and for differing prices.

In a final example, fashion products and fashion apparel by such well-known designers as Martha Stewart, Isaac Mizrahi, and Vera Wang are appearing in discount retail stores. Vera Wang has developed a line of clothing for Kohl’s, Martha Stewart for K-Mart, and (until recently) Mizrahi for Target.

Required For each of these cases of contract manufacturing, consider the strategic and competitive implications of the buyer-seller arrangement.

1. For the Taiwan-based companies HTC and Acer

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2. For Menu Food

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3. For Vera Wang and Martha Stewart

Step 1 of 4

Strategy:

The Strategy is a plan created by the employee of the organization to attain the company's target. The plan is, in general, an organization’s approach to achieve long-term and short-term objectives. Setting priorities and objectives is usually included, determining the operation to achieve the targets. The plan also helps the firm accomplish its target by using fewer resources.