Under Armour Inc.: Supply Chain Management Case Study Solution
Buyers Bargaining Power
Buyers have a moderate bargaining power. Since the industry has diversified range of sport products it’s easy for people to shift the product brand if the prices are deemed to be expensive to the customers. Large amount of money is spent on endorsements as it’s really important that how the customers see the brand. Armour therefore tries to maintain good quality with strategic prices alongside of signing big names of fashion and sports.
Suppliers Bargaining Power
Under Armour has a diverse base suppliers, thus the company has the ability to make different choices from the available options. The availability of apparel material such as fabric blends, cloth, rubber, and cotton is high.
Since the threat of suppliers bargaining power is less, which also reduces the cost of the raw material. As the suppliers are aware of the shift that can happen if their prices are too high from others.
Competitive Advantage
Armour has a goal to become a brand that can live up its promises of being an authentic. Armour had kept its priority over innovation in every product. Its apparel provides multiple advantages to the athlete, that includes being light cool and dry during the practice or performance. This has increased the loyalty of the customers on Armour.
Kevin Plank created a solution for all the in form of this product. He himself used to face the problem of sweat during the game, making him change the shirt in every quarter. This got the athletes excited since they never hoped for a solution to this. (Referral Candy, 2018)
Armour has also incorporated good strategies in their marketing plan. They have shown off their brand to the best of their abilities. Their in house marketing team has done a phenomenal job in marketing and advertising the product which have resulted in increased sales and growth.
Their sponsoring plans have great impact on the customers. They sponsor everything and everyone, starting from a single athlete to an entire team of athletes. This has increased the product awareness in the customers
Apart from this, Armour extensively spends on research and development process. They are aware that the substitute products are high, therefore they have maintained their priority to spend more on research, as to attract more customers in comparison to its competitors like Nike and Adidas.
Benchmarking Practices
Nike and Adidas has huge advantage in benchmarking. Nike has done a phenomenal job in building its brand. Their catchy slogan along with a simple logo has been their strong point. They have built their name amongst the customers. This make the customers less affected to the change in price and more receptive to company’s promotion. Nike also has introduced customization of products which differentiates the products of customers
Adidas on the other hand produces limited edition products which makes the customer feel special owing the product. It creates a hype amongst the customer to own the limited edition products.
Nike and Adidas have also sponsored big events like Olympics Games and FIFA world cup. Hence generating more audience for their products.
Supply Chain Opportunities
Supply Chain of the Under Armour Incorporation has a huge potential and can be improved to gain operational efficiency and reduce operational costs. It can be seen by the consolidated income statement and percentage of sales that the cost of goods sold and selling, general and administrative expenses are high percentages of sales i.e. 54.9% and 45.1% respectively. This shows that about half of the revenues are spent over manufacturing and other 45.1% of revenues are spent over distribution and other functions. #
On the basis of above analysis, the company should take certain steps related to its supply chain to gain operational efficiency and increase operating income. In this regard, various opportunities are discussed below. These performance of these opportunities can be measured in terms of declining operational costs and increasing revenues.
Increase Direct Sale Operations
The company conducts its direct sales operations through its online websites, brand and factory house stores. In the end of Dec 2018, the company has about 319 brand and factory house stores on lease in US, Canada, China, Chile and Mexico. However, the lease period is going to end soon and the company is reviewing to renew its lease.
Despite of presence of brand and factory house stores in various countries the company is highly dependent on the indirect sales as shown in the Exhibit A. About 60% of the net revenues of the company come from wholesale channels and 3% from lisenced sellers. Tehse indirect sellers share the company profits and increase the operational costs.
In order to reduce its reliance on indirect sellers to gain operational efficiency, the company should lease more brand and factory house stores in various other countries along with the renewal of current lease.It would lead to increased sales revenues with high rates than operational costs due to elimination of third parties. However, the new brand and factory stores may fail to generate substantial revenues and increase the overall lease cost of the company.
On the basis of certain assumptions, leasing more brand and factory stores would generate positive cash flows with a positive NPV of $1425637000. However, it would require time and efforts of the company to initiate and manage new stores in other countries.
International Market Expansion
The company can expand its supply chain in international markets by using supply chain partnerships. The company could merge its supply chain with Nike and Adidas, which have almost same product portfolio and have a far and wide geographical existence. (Soonhong Min, 2005)
A supply chain partnership would require low amount of additional costs, as the companies suggested for merging supply chains have already well developed supply chain networks. The merger would also enable the company to increase its supply chain network without implementing additional costs. The supply chain partnership would result in continuous flow of supplies in the company and would reduce shipment costs. It would also enable the company to target more customers using an extensive supply chain.
The overall valuation of Supply chain collaboration in the attached Spreadsheet, on the basis of assumed implications of the opportunity, shows an NPV of $ 259588000. Along with it, the implementation would not require huge amount of investment, therefore, it should be considered at prior basis.
Technological Advancement across Supply Chain
In modern world, technology is being utilized in almost every area of business. The company can implement various technological advancements in its supply chain to gain operational efficiency and competitive position in the market. There are number of problems that the company is facing in managing its supply chain like efficient management of inventory and production levels, operational schedules, transportation and shipment costs, fluctuating consumer demands etc.
Technological advancement in supply chain would be quite beneficial for the company in long run as the company has extensive geographical presence. The company can conduct technological advancement in its various areas of business to solve its problems related to supply chain management. It could introduce self-driving trucks like Uber to reduce shipment costs.
Costs and benefits related to technological advancement in Under Armour’s Supply Chain include the high implementation costs and initial investment. Although, technological advancement would lead the company to invest its productive resources technology and could require huge amount of implementation costs, but it would reduce the overall operational costs of the company.
The implication of technological advancement across the supply chain shows a very healthy NPV of $ 462063000. However, the implementation would require huge amount of investment which should be considered for exploiting the opportunity.
There are various risks attached to the technological advancement in supply chain. The new technology may be inefficient in reducing operational costs, as it would require new operators and training cost for running the new technology. However, overall the technological advancement would bring cash flows and result in declining operating expenses............
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