Optimizing Supply Chain for Global Success: A Study of XIAOMI

1. Introduction

The current article provides a study on operations system of “XIAOMI” Company and it’s focused to “Process Strategy”, “Quality and Performance” and “Supply Chain analysis” of the chosen company. Before analyzing the company’s operation system, the framework of the Operations Management course was scrutinized in order to understand all THREE LEVELS in depth, which are: Design, Core sections, and Process.

Operations management plays an essential role in every organization in order to maximize its efficiency and meet customers’ needs effectively. Conducted study and analysis of “XIAOMI” proves how the given THREE LEVEL inure success and to what the company should make focus to maintain its sustainability.

The last 10 years have been an era of prerogative bliss for the global smartphone industry. The smartphone that was earlier considered a quote of luxury has now been transformed into a physiological day-to-day need. This is because of people's changing mentality backed with a certain level of purchasing power where they desire for a compact, more subtle device which is handy, reliable, backs less weight, and is mobile. And accordingly, global tech companies arrived giving such devices a smarter and more stylish appearance. Likewise, the advent of “XIAOMI”, headquartered in Beijing was recorded. They are a company that at a global level not only designs and develops but also sells smartphones, laptops, mobile-based apps, and other consumer-related electronics.

2. Literature review

Operations management is a business administration that creates the highest level of productivity within the company. Operations management is based on operating systems management.

A process strategy is an organization’s approach to transforming resources into goods and services. The objective of a process strategy is to build a production process that meets customer requirements and product specifications within cost and other managerial constraints. The process selected will have a long-term effect on the efficiency and flexibility of production as well as on cost and quality of the goods produced. Therefore the limitations of a process strategy are at the time of the process decision.

Capacity is the ability to receive, contain, or deliver its products. Capacity planning is the advanced development of a method or approaches to ensure an organization can receive, contain, or deliver its products. Businesses cannot afford to guess when it comes to the volume or types of services, skills, or people they provide, projects they manage, or people organizations they serve. Planning mistakes are costly, which is why capacity planning must consider input requirements, conversion processes, and output.

Capacity planning includes categories that help businesses based on the timelines they have established:

• Short-term capacity: Usually, this is daily or weekly periods, but it can include quarterly periods. Short-term capacity does not look at trends and cycles but considers customer demand and seasonal variations.
• Medium-term capacity: This is a one-to-three-year period. Medium-term capacity combines seasonal variation with historical trends to forecast demand.
• Long-term capacity: This is the maximum period, which varies depending on the type of service. Long-term capacity requires forecasting; the forecasts are converted into established capacity requirements.

A supply chain is a network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. The supply chain also represents the steps it takes to get the product or service from its original state to the customer.

Companies develop supply chains so they can reduce their costs and remain competitive in the business landscape. Supply chain management is a crucial process because an optimized supply chain results in lower costs and a faster production cycle.

3. Background of XIAOMI

When XIAOMI entered the highly competitive smartphone market in 2010, it had yet to launch its own mobile device. The company only offered a free Android OS. But less than seven years later, XIAOMI became one of the largest smartphone manufacturers and reached the level of revenue of $ 15 billion. With an accelerating growth rate, by 2020 XIAOMI has become the world's largest manufacturer in the consumer Internet of Things (IoT) market with revenues of over $ 37 billion and sales of more than 210 million IoT devices (excluding smartphones and laptops) in more than 90 countries.

For any global brand, the strategy varies from country to country. Either the companies can carry on with the conventional marketing mix or they can adjust and customize the present marketing mix as per the needs of the market of that country. To exceed customers' expectations it is very much important to identify the customer's needs and design and develop the products accordingly. Companies when trying to expand their market rely on the forces which influence either the adaptation or standardization strategy to improve the company's performance. So, accordingly, it needs a perfect strategy to enter into a competitive market like India. Either the company needs to alter or metamorphose its present marketing strategies to gain a competitive advantage in the foreign market or it needs to mutate its energies and strategies all together to serve over a longer period. XIAOMI adopted such methods of alterations and reconstructions and developed certain standardized strategies to attract more customers. Such strategies in general require less investment than the adaption strategies. They also made use of several strategies to inform the customers and to increase the awareness level amongst them regarding the several benefits and the bundled offers that they are offering. One such is Guerrilla marketing, a potent effective yet Low-cost marketing strategy. It also used social media platforms like Facebook and Twitter largely to effectively market their products and attain the maximum possible customer base.

4. Process Strategy of XIAOMI

4.1 Development with customers

XIAOMI entered its first (Chinese) market by offering a free smartphone operating system (called MIUI). At that time, several powerful domestics (Huawei, Lenovo, etc.) and foreign (Apple, Samsung, etc.) struggled from budget to premium for each segment of the market.

XIAOMI has decided to focus on smartphone users who are well-versed in the technology, rather than competing directly. The company offered them free software and set up a full-fledged online community where they could communicate and know which features they liked or didn’t like.

XIAOMI would release a new version of the OS every Friday afternoon, just as geek customers were leaving work over the weekend. The company’s developers responded promptly to users ’recommendations and often sought solutions in correspondence with them. Through this collaborative development, XIAOMI seeks to provide XIAOMI phones without advertising traditional advertising money to ensure the growth and popularity of the brand and consumer segment.

With the release of the first phone in August 2011, XIAOMI established itself as a provider of 'quality technology at an affordable price.' The company sold its products directly to customers through its website with a margin of no less than 5% in the industry. Thanks to direct communication with consumers who are familiar with the technology, XIAOMI has managed to get rid of intermediaries - examples of wholesale and retail stores that add their own price at every stage. Direct sales provided a significant cost advantage (the price and feature ratio of the company’s phone was the best on the market) and XIAOMI’S customer reach speed.

4.2 Joint development of production facilities

Having established a foothold in major cities, XIAOMI began to expand its business in the periphery. There, many traditionally preferred to buy products in stores. To work with a new customer segment, XIAOMI has built an offline retail infrastructure, opening hundreds of stores in the largest central and small local cities. Unlike other smartphone manufacturers, which opened on the 'telecom street' (where the main stores of the companies in the sector are concentrated), XIAOMI chose places like high-traffic malls for its outlets, where the target audience often came to shop. The company began offering sub-brands (the budget line of Redmi, as well as Mi Mix for more advanced users), while always striving to ensure that, in terms of cost-performance ratio, each new phone outperformed competitors' products.

Thus, at the first stage, XIAOMI rapidly built up a large customer base in the smartphone market in the segments of prepared buyers looking for the most convenient products at a reasonable price, and formed an infrastructure for online and offline sales, always withstanding minimal markups for its devices. To improve profitability, XIAOMI ramped up its offering of more lucrative after-sales services (music, video, and game commissions).

5. Capacity planning

The company launched its MIUi along with its first firmware release on August 16th, 2010, and gradually gained immense popularity amongst the global folks with their E, M, Redmi, and Note series line ups. And gradually over a while, it was the year 2014 when they first registered a worldwide sale of 60 million smartphones and with this golden milestone, this fat boy entered the Indian market with all new vigor and enthusiasm. They, for the very first time, tried a unique strategy that was altogether new in the Indian smartphone industry. This was called 'Hunger Marketing' where a manufacturer seems to intentionally restrict the availability of its product to attain the occurrence of surplus demand. This in turn recorded a massive behavioral change amongst the consumers and this very thing was grabbed by XIAOMI. In today's world, we call this to be a 'flash sale' but way back in 2014 this was an unfamiliar and unknown concept for the Indian customer base and as a result, this recorded a massive positive response. XIAOMI initially started selling its products through the online shopping portal Flipkart. But later on, they changed their distribution strategy and on 7th April 2015, they partnered with Snap deal and Amazon to bolster their online retail base countrywide. Lately, they introduce their MISTORE app and website so as to segregate and diversify their products. They partnered with Foxconn and began their first production facility in Andhra Pradesh. And with such effective baby steps in 2014, they were able to capture a 1.5 percent market share by the year's end. India altogether is a very potential and competitive smartphone market yet it lacks a rooted penetration level for roughly 200 million people who use smartphones out of 1.2 billion people. This situation is improving day by day and more and more people are entrusting themselves into the smartphone realm. This in turn creates a golden opportunity for the Global players to come to the fore and cater to customer needs accordingly. XIAOMI is just one of them and it categorically saw an increase of 3 percent by the year 2015 against strong brands like Samsung and Lenovo along with indigenous brands like Lava and Micromax. This, in turn, resulted in an active settlement of the manufacturing base in India, and now more than 85 percent of the phones are produced and procured in India itself thus reducing the operational costs of the company at a massive level.

6. Supply chain analysis

XIAOMI value chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the mobile internet company.

The figure below illustrates the essence of XIAOMI value chain analysis.

6.1 XIAOMI Inbound logistics

XIAOMI inbound logistics involves the delivery and storage activities of raw materials by the mobile internet company. Strategic relationships with Taiwan-based manufacturers of various components is one of the main sources of value for XIAOMI inbound logistics. Specifically, XIAOMI partners with Inventec and Hon Hai for assembly, Wintek and TPK for screen technology and Unicorn for PCB (printed circuit boards).

Moreover, Taiwan Semiconductor Manufacturing Corporation (TSMC) is the main processor supplier for the company. XIAOMI also procures various electronic components from nearby countries. For example, MOS and batteries are mainly imported from Thailand.

6.2 XIAOMI operations

Operations activities within XIAOMI value chain analysis refer to the processes of transforming raw materials into ready products. The mobile internet company has established its presence in 70 countries and regions and it is among the top 5 in 16 markets. XIAOMI manufactures locally more than 75% of the smartphones it sells in India.

The location of manufacturing units in China and India is one of the main sources of value in XIAOMI operations. This is because the costs of human resources in these developing countries are cheap. Along with the proximity of manufacturing units to the sources of raw materials, cost-effective human resources play an instrumental role in sustaining cost advantage and competitive edge of the business. Moreover, XIAOMI sophisticates its manufacturing processes in a systematic manner using advanced technologies and benefiting from technological innovations.

6.3 XIAOMI Outbound Logistics

Initially, XIAOMI's outbound logistics practices were limited to the shipment of products directly to end-users via couriers. At that time online sales channels were used to keep costs and maintain its cost leadership position in the global marketplace. As a result of increased demand for products of XIAOMI in the market, company-operated stores were opened by electronics and software companies. The first offline retail store was opened in 2016, February and XIAOMI owned more than 155 stores by the end of the 2017 year. Nowadays customers of this company can purchase not only water purifier smartphones but also laptops, vacuum cleaners, and other wide range of products in Mi Home stores.

6.4 XIAOMI Marketing and Sales

XIAOMI's marketing and sales practices are based on its cost leadership business strategy. As discussed above, the mobile internet company was initially selling its products using only online sales channels and later adopted traditional offline sales channels as well. The company uses a hunger marketing strategy and flash sales frequently, making only a limited number of products available online for a short duration of time.

XIAOMI has set a Guinness World Record for selling the most number of phones ever in a single day — 2.12 million units. In India, “to increase its offline sales, XIAOMI is opening direct stores called Mi Home, and partnering with big retail chains like Croma, Univercell, Poorvika, and Sangeetha”.

6.5 XIAOMI Service

XIAOMI's post-sale service was often criticized as poor. This problem was rooted on the company’s cost leadership business strategy because the mobile internet company was looking for opportunities to save costs everywhere includin2g in customer services and post-sale services.

However, due to intensifying competition in the home market and abroad, XIAOMI had no choice but to pay greater attention to the customer service aspect of the business. For example, nowadays in India “95 percent of all repair jobs at authorized service centers are processed within a day, with 86 percent processed within four hours of the customer handing over the device to the service center.”

7. Conclusion

XIAOMI’S finely-tuned supply chain is the cornerstone upon which Lei Jun will continue building his mobile device empire. The company’s ability to make luxury-quality smartphones widely available in up-and-coming economies has helped it become the world’s highest-valued smartphone startup. By ramping up its supply chain in recent years the company has been able to make more phones available in a shorter time and offer more attributes for a growing global consumer base. It remains to be seen whether these changes will truly meet consumer expectations as XIAOMI breaks into a new level.