Daikin Industries Harvard Case Solution & Analysis

Description of the Problem 

The president of Daikin Industries was concerned about the large inventories kept in stock in anticipation of large summer sales, but the sales were unlikely to occur due to unseasonable cold conditions throughout the country. The president was not only concerned for the current year sales, buthe was also taking the futureinto account and was suspectingdifficulty about survival of the company. The market was stagnant, and building share on product differentiation was very difficult and decreased profits were not acceptable. The president believed that they should either consolidate their product variants or shift operations to some other country to gain low manufacturing cost advantage. Another option to be considered was to give up the business.

Relevant Issues 

Managing the supply chain was a major concern as the demand fluctuations werehuge and unpredictable. The demands were mainly dependent on the season, and it was difficult to predict whether the season will favor in the company’s profits or not. Also, product designs changed every year, so it was necessary to avoid the collision between present year's productions with next. Extent of fluctuating demand and seasonal variations were hard to manage.

In the domestic market, distribution was done through 21 sellingcompanies which were also providing the factory with sales expected forecast and requirement of the retailers, based on their experience and communication with them. But most of these companies were not in favor of keeping the stock as they were afraid of stock-outs, which was the main reason for the factory to keep extra inventory to meet the orders.

Retailers maintained their own warehouses and they only stock what was expected to sell with a safety profit margin as they did not have much space to store. Shipments arrived at the start of the weekend, but carrying everything was a difficult option as Daikin had 600 variants, but retailers only sell frequently demanded items.

The shipment of the items was carried out only on weekends; and were not welcomed during the week, resulting in declining sales as the items were in demand from the retailer’s end, and they were not accepting other dates because they have to consider the fluctuating public demands.  As the company was unable to commit to deliver,at the requested time, which forced the company in keeping large inventories to meet high seasonal demands only.

SWOT Analysis

1.      Strengths

Sustainable development is the biggest strength of the company, and the company’s main focus layin developing sustainable products. A huge variety in the product line is also considered as the strength of Daikin; over 600 different products along with their variants. The Daikin uses 100 components in assembling every product, out of which 80 are similar in every product. The human resource is one of their biggest strength which makes them one of the largest air conditioning service providers in japan and around the globe. A well-managed and highly trained research and development department and relationships with the suppliers is also their key strengths.

2.      Weakness

Daikin is at its nascent stage and relatively weak to compete with big names in the industry, aligned with the air conditioning business which is deeply effectingits other business divisions as they do not get the required attention, does not have considerable presence in other countries outside Japan unlike its competitors and High-cost sales structure and high sale ratios are among the considerable weakness of Daikin. The return on equity as compared to their competitors is very low, furthermore, their inventory turnover ratio is very low which poses a threat to the survival of the company.

3.      Opportunities

Daikin can always utilize the opportunity of expanding operations globally through acquisitions and mergers. Daikin is currently at the market penetration stage, according to Ansoff’s model. Using market development strategy to enter new markets, and search new potential buyers for their products is an opportunity. This strategy will help the company grow in the future, especially the growing demand of air-conditioners in china and European markets where they can enter forming strategic alliances. By recognizing the increasing demand for air conditions around the globe and taking leverage of their energy efficient technologies Daikin can expand globally, as the world is demanding energy efficient. Innovation and improvement in production will also favor the Daikin in international expansion and will help in serving globally.

4.      Threats

Daikin is facing a strong competition from other players in the regional market as well as around the globe because it is new in the market, and the market has many mature players with a decent market share/reputation. The threat to their existing customer mainly comes from the cheaper and affordable competing brands, as the market is very rigorous, and price plays a vital role in grabbing customers. Fluctuation in the global currency rates is also a threat as it puts a barrier in deciding the right price globally...............

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President of Daikin Industries Residential Air Conditioning Shiga Plant facing the prospect of unseasonably cold summer in the period when the plant Shiga was a large amount of their products in inventory in anticipation of strong sales in the summer. The president was concerned not only about to lose this year, but the long-term survival of the plant. Unprofitability is unacceptable and Daikin has been caught in a stagnant market, where it was more difficult to build a stake in the product differentiation. Shiga plant had to use large reserves to cope with the uncertainty of demand and the long and cumbersome supply chain. The president must decide whether to reduce the number of models to build more low-cost plant outside of Japan, or go out of business. He also needs to determine whether there are any other options. "Hide
by Chris J. Piper, Tetsu Imigi Source: Richard Ivey School of Business Foundation 11 pages. Publication Date: September 2, 2004. Prod. #: 904D18-PDF-ENG

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