RM0 (1,500,000) Stocks
- 150,000
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As mentioned in Figure 2.2, the decision tree started with three choices which are produce the products by our company, purchase the products from other companies and do nothing. In each choice, there are two situations which are high sales and low sales. We also allocate the respective probabilities for each branch which is 0.5. Next, we calculate the revenue, fixed cost and variable cost in order to determine the gain or loss for each branch. After that, we compute the expected monetary values (EMVs) for the two choices which are produce by own and buy from other firms. The EMV for the three choices have been put above the circle of each choice.
The EMV for produce the four main series of products by our company is compute and shown below which is –RM50, 000. This illustrates that if Pure Wellness wants to produce the supplement, Pure Wellness will suffer from a loss –RM50, 000. This loss may cause Pure Wellness cannot survive in the market if the loss remain constant or increase in the coming period. If Pure Wellness wants to produce the supplement, Pure Wellness may increase the selling prices for each package in sequence the sales will increase significantly. On the same time, Pure Wellness tries to reduce the cost of operation especially the variable cost that increases according to the output. Therefore, the loss can be minimized and Pure Wellness can survive in the health care market.
EMV (Produce by own) = (0.5) (RM400, 000) + (0.5) (-RM500, 000)
= -RM 50,000
Besides, the EMV for purchase the supplement from other companies is shown on the second branch which is RM75, 000. This revealed that if Pure Wellness purchases the supplement from other companies, Pure Wellness will gain a profit which is RM75, 000. This profit is increase the likelihood of Pure Wellness survives in the market that tends to serve the similar customers. Although profit did not guarantee Pure Wellness will always survive in the competitive market, the profit at least reduces the risk Pure Wellness has been kicking out from the health care market. The profit increase Pure Wellness’s survival rate in the market.
EMV (buy from other firms) = (0.5) (RM300, 000) + (0.5) (-RM150, 000)
= RM 75,000
Furthermore, the EMV of doing nothing is RM0 since no action is taken to increase the sales.
Finally, Pure Wellness decided to purchase from other companies since the second branch has the highest expected monetary value of RM 75,000. Pure Wellness is forgone the decision to produce the supplement because Pure Wellness will suffer a loss of –RM50, 000. Therefore, the best decision is Pure Wellness should purchase the four main series of products from other companies in order to gain a profit and survive in the market.
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2.0 FORECASTING
2.1 7 Steps in the Forecasting System
Firstly, our companies which name Pure Wellness Sdn. Bhd use the forecast to predict how well the sales conduct by our business. Forecast requires the sort of the mathematical model to the data collected by our companies. Using the data collected, the management team can take the suitable action by refer to the forecast result. Thus, the forecast play an important role in the decision making of Pure Wellness Sdn. Bhd.
Next, the four main series of the products that our companies produce are blood type series, functional series, beauty series and slimming series. Our companies will forecast the sales of these four types of product in order to make suitable arrangements to increase the sales of the company. Our companies decide to provide these four types of products, so we need to forecast the sales of product properly
.
Furthermore, the time horizon we choose are medium-range forecast and long-range forecast. Medium- range forecast used by our companies to forecast sales, and then we can make planning to the sales of our companies. Medium-range forecast spans from 3 months to 3 years. Long-range forecast which spans more than 3 years is used in the research and development of the products.
There are five quantitative models. Under time-series models, we have selected the moving averages and exponential smoothing methods to forecast our demands and sales in the coming time. Besides, we also use the linear regression method under the associative model to make our forecast.
Before make the forecast, we will gather the data needed to make our forecast. Our focus of market is Malaysia. The data collection methods that we are going to use include survey of consumers and collect the past historical data of the company to make the forecast of demands and sales.
After make the forecast, we will validate and implement the results. We need to make sure that the model, assumptions and data used by us to make the forecast are valid. Although forecast maybe seldom perfect, but it is vital for the company to predict future events and make the important decisions currently.
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2.2 Time-Series Forecasting
2.2.1 Moving Averages
Our company will assume that the market demands for our products will stay fairly steady over time. Therefore, the moving averages method will be used by our company to generate a forecast. By using the moving averages method, we will collect the historical actual data from the company’s internal data that show the actual demands of our products for the most recent periods. These data will be used by our company to forecast the sales of our products in the coming period.
- types of products sold by Pure Wellness:
- Blood type series: Blood Purify (1)
- Beauty series: Beauties 20 30 40 (2)
- Functional series: No Can (3)
-
Slimming series: Slim Max (4)
3-month Moving Averages:
Hence, the estimated sales of our products in the coming January is 833[(860+790+850)/3].
Based on the moving averages method, we have forecast the sales for our products in the coming January, it is 833 packages, which is higher than the actual demand at the past January.
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2.2.2. Exponential Smoothing
Besides using the moving averages method, we also use the exponential smoothing method to predict the sales in the coming periods. The concept of exponential smoothing include the latest estimate of demand is equal to the old estimate adjusted by a fraction of the difference between the last period’s actual demand and the old estimate.
The smoothing constant that we have chosen is α=0.1
New Forecast= Last period’s forecast + α (Last period’s actual demand- Last
period’s forecast)
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Moving Averages Method Exponential Smoothing Method
MAD = ∑│Deviations│ MAD = ∑│Deviations│
n n
= 305 = 773.38
12 9
= 33.89 = 64.45
Implementation
The 3 month moving averages method is more accurate since the MAD is lower compared to the exponential smoothing method. Therefore, our company will decides to use the 3 moving averages method to make our forecast in the future.
2.3 Associative Forecasting
Regression and Correlation Analysis
By using the regression and correlation analysis, we need to define several variables, which are independent variables and dependent variables. The dependent variable is our sales of products, while the product’s prices are our independent variable. Our company sold 4 types of products, the price of the products is considered to have the biggest influence on the sales of the products. Hence, we decide to select the price as our independent variable and the sales of the products as our dependent variable to carry out our regression and correlation analysis.
The table below shows the price of products and the sales of our products. Our task here is to determine whether there is a linear relationship between the price of the products and the sales.
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x = ∑x/n y = ∑y/n
= 3240/8 = 1850000/8
= 405 = 231250
b = 723,300,000-8(405)(231,250) a = 231250-(-686.51)(405)
1,350,000-8(405)² = 509286.55
= -686.51
The regression equation is y = 509286.55-686.51x
Conclusion
There is a strong negative relationship between the price of the products and the sales of the products. As the price become higher, the sales of the products will decrease.
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3.0 MANAGING QUALITY
3.1 Introduction
Managing quality is important in a company to justify and satisfies market needs. Managing quality is helpful in determining company strategies in product differentiation, cost and response. Nowadays, most of the companies try to identify techniques, methodologies and equipments to enable efficient quality management in both manufacture and service sector. There are wide varieties of techniques in managing quality. We have chosen several subtopics under the topic of Managing Quality, which are ethnics and quality management, international quality standards which are ISO 14000, benchmarking and Pareto charts in tools of TQM.
Nowadays, most people are aware of the importance of quality control of goods and services. For the company itself, improvement of quality can bring profitability and good reputation. For instance, Americans people tend to check online or seeking for relevant information about certain products which they are going to purchase. They will make comparison between different brands and identified the most satisfied quality of goods and services they demand. Recently, there is a trend on increasing emphasis on health and fitness. US government had launched the “Home Health Quality Improvement” national campaign and this has increased people intentions to lead a healthier lifestyle and consume healthier foods for their own goods. Thus, the production of health-care products should be maintained in good and standard quality to meet the increasing need of the consumers.
There some reason on the importance of managing quality control. Among them are good company reputation, decrease product liability and wise global implications. A good quality product will certainly rise up the company’s reputations in the market and business field. Consumers will give more trustworthiness in company operations system and will choose to purchase the products. Hence, the company manages to increase their profit. Managing quality is also crucial to monitor organization in producing their products that do not harm or bring any side effect to consumers. Especially for company that manufacture food or drinks, once people encounter illness or toxic, the company can suffer from huge expenses and losses to recover the problem occurred. In this technology advance global, the company needs to produce products that meet global quality in aspects of product’s design, cost association and global price estimation.
There are some organizations that play their role in improving quality of products. For example, International Organization of Standardization (ISO) is one of it. Nowadays, people not only purchase products for basic needs but they also care about the quality and level of satisfaction which they can gain from the goods and services they consume. ISO provide guidelines for company in managing their quality and if necessary they will certify the organization to improve their quality management.
Furthermore, U.S government had established the Malcolm Baldrige National Quality Award for quality achievement. This award can encourages more company in different industries to enhance their quality control during the manufacturing of the products.
Besides, we also have to determine the cost of quality, which are prevention cost, appraisal cost, internal failure and external costs. These four types of costs are important. They are associated with the quality. A good quality management needs to estimate these costs and manage it at a cost effective way. This is important to minimize the cost of the company operations and maximize the company profits.
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The part of managing quality I would like to emphasize here is ethnics and managing quality. Our company had chosen to emphasize on this field because nowadays ethnic is important in creating brand loyalty and to create good reputation among both consumer and business partners. It is necessary to operate a business in an appropriate manner to gain customers support and penetrate market. The further explanation will be mentioned after this.
3.1.1 Ethnics and Quality Management
Generally, it is important to produce healthy, safe and quality products and services to the customers. Besides provides the customer with health supplements which suitable with all blood types, we have to ensure the ingredients is benefit in improving people health condition. In addition, we have to ensure that it is safe and doesn’t cause any side-effect to people in long term and not just focus on short term results.
Our company uses the finest raw herbs available and thoroughly processes them to remove contaminants. We also have a quality control test on our products for each batch of products throughout the manufacturing process to ensure the safety of our products. In addition, our company is processing our products in environmental friendly way and delicate to our ecosystem. We need to use facilities that are environmental friendly, with purification and recycling systems to ensure that our manufacturing process do not harm the environment.
The ethnics in managing quality are important in a company to concern upon social responsibility in manufacturing and development of goods and services. It is a wise method to include a company viewpoint to embed them in an ethnical way to sell its products and not just concentrate on the company profit. Consumers will be more willing to support a company or a brand that operates and produces their products in an ethnic ways.
Moreover, a company needs to identify the possible ways to conduct their development of products and organization operations in ethnical ways. Ethnics in managing quality can be view as a social manner of a company. A manufacturer is obligated for any low quality products released on market. Every company needs to develop a core values that become guidelines for everyone include the CEO and other employees. They need to develop the values accept by society and work on it. For example, CEO of Microsoft- Bill gates had decided to donate half of the profit in managing Microsoft to the world charity society. This can drive his employees work on sociable means in their daily job and motivates employees who wise to contribute to the society charity.
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3.2 ISO 14000
Our company has implemented the ISO 14000 standards. The continuous internationalization quality can be related with the development of ISO 14000. ISO 14000 consists of five core elements which are environmental management, auditing, performance evaluation, labeling and life cycle assessment.
These new standards could have several advantages, one of them is creates good public images and help to decrease our company liability. Besides, it also can let us know a systematic approach to reduce pollution and increase the delicate towards ecosystem in our products manufacturing process. This standard also represents a management tool for our company to identify and control the impact of business activity towards environment.
Moreover, this standard enables our company to compliance with regulatory requirements and assists in observing opportunities for competitive. It is useful in implementing a systematic approach to set our objectives and targets in competing in market and differentiate ourselves from them.
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3.3 Total Quality Management
3.3.1 Benchmarking
Benchmarking is a one of the component that used by our company in the total quality management. Benchmarking including choosing a standard of performance, products, services, costs or practices that represents the ideal performance. In short, benchmarking is the identification of best ways to improve the quality of operations process. There are several types of benchmarking which are commonly used which include external and internal benchmarking and industry-focused benchmarking.
External benchmarking is a process involved in helping our company to search for opportunities outside a company which are helpful in business operations. External benchmarking helps to observe opportunities of learning from those who are on leading level, although not every practice in the company can be transferred to us. This is due to the differentiation that each company is trying to create in the view of customers. This is a method that is imitable and precious, thus they will not easily transfer their company practice. External benchmarking may use up more time and resource to compare the data and information. Examples of external benchmarking are other good practices which found in other organizations.
Our company use internal benchmarking to organizing a company divisions or business units. It seeks partners within organization, for example different business units will locate in different location. Perhaps the most beneficial advantage gained by our company is internal benchmarking can easily carry out access of internal data and information, this can save times. Besides, through internal benchmarking, fewer resources are needed because standardized data is already available.
Industry Benchmarking has applied by our company to identifying different competitors in our business field and strategized suitable plan to compete with them. Various services have evolved to aid companies in the process of seeking benchmarking information. Industry benchmarking can contribute in introducing approaches that give better organizations operations; we can also develop a plan of improvement on the company in various aspects. New ways of working and innovative solutions can be identified through industry benchmarking to differentiate our company and then operates more efficient compare to other companies.
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Benchmarking Framework
T
(Source: http//www.ptm.org.my/mieeip/pdf/e-benchmarking.pdf)
The above chart is a framework showing on efficient way for learning from those companies which are doing things well. Benchmarking has been recognized as a key tool for effective and efficient to improve a company business operations and recognition on the field that needed improvement.
Reason focus on Benchmarking
The reason our company chooses to focus on benchmarking is we can plan and keep up with current changes in our company performance in our operations. Besides, we will be more able to improve our products quality and productivity in both labor and human capital. Benchmarking can also have a beneficial effect on enhancing continuous improvement because through benchmarking analysis we can raise company management department awareness about performance and greater recognition of our strengths and weaknesses in different areas. This is important for our company because we can identify our strengths to overcome our weaknesses to enable better performance in future operations and management.
Besides, through benchmarking we can abstract others companies ability that performs well and operates over the standards benchmarking. By learning from them, we can operates more systematic and in cost-effective ways. We can observe if the new planning has been implementing by other company before and see if it is efficient in improving future operation. Moreover, benchmarking can assist in better involvement and motivation of their staff in program changes and raise people willingness to share their opinions to solve the problems, suggestions of proper way that is needed to accommodate changes and increasing interactions within and between organizations.
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Pareto Analysis
3.4 Questionnaire: Health Based Product
1. Gender: Male Female
2. Do you consume health-based products now?
Yes No
3. Do you know any types of health-based products before? (Please proceed to
question 7 if your answers is no.)
Yes No
4. Please list down the brand of the health based product that you have used before.
_______________________________________________
5. How do you recognize the products that you are consuming now at the beginning?
Family and Friends Advertisements
Others_________
6. Do you think that the product that you consume is useful in improving your health?
(Please proceed to question 8.)
Yes No
7. Why do you do not consider of using health based product?
Not Necessary Lack Confident
Expensive Others______________
8. In your opinion, is health based product important?
Yes No
9. If there are new products in market, would you willing to try?
Yes No
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3.4.1 Result from Surveys about Health-Based Products
3.4.2 Tools of TQM (Pareto Charts)
Percentage of People Consuming Health-Based Products
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Percentage of People That Do Not Heard About Health-Based Products
From what source the consumers know about the health-based products?
Is the Health-Based Products Can Improved Their Health Conditions?
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Reasons of People Do Not Consume Health-Based Product
Percentage of People That Notice the Importance of Health-Based Products
People Willingness to Try the New Product in Market
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3.4.3 Pareto Analysis
From this survey, we allocated 100 people as our sample size in conducting our research about health-based product. There are 68 female and 32 male in our sample. There are about 50% of people who are consuming health-based product currently. The number of people will do not consume health-based are equal to people who consume health-based products. Most of these people consume due to the influence of their family members.
There is 33% of our overall sample people do not heard about any health-based brand before. The main reason is people are not interested in health-based brand. Most people know the product they consuming now through their family members, which consists of 56% from 50 people who are consuming health-care products and only one people get to know about their consume product through internet. There are 78% of people think health based products can improved their health although there are almost half of them do not consume health-based products.
The main reason people do not consume health-based products is they think it is not necessary, the routine food intake is sufficient. This category consists of 58% of total 50 people that do not consume health-based product. There 36% of people think that the health-based products are too expensive. Other reason include they are not interested in consuming health-based products.
There are 68% of people realized the important of health-based products in maintaining their daily health although some of them do not consume those supplement. The percentage of people willing to try new products in market is 60% from our total surveys. These include consumer that do not take health-based supplement, they are still willing to try the new products in market.
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4.0 LOCATION STRATEGIES
4.1 The Strategic Importance of Location
Pure Wellness Sdn Bhd is a subsidiary of INS Bioscience, besides selling different types of health supplements, it also developing and produces new, innovative and effective herbal health supplements in cooperation with other manufacturing plant.
Pure Wellness now has a company located at Puchong, Kuala Lumpur. The company has a mission which is to open 60 branches all around Malaysia in the coming year. The branches will operate as a business to sell all the health supplements of Pure Wellness. Besides, it will also sell other brand’s health-care products. Through all the branches, Pure Wellness Sdn Bhd wishes to carry out an important message about the importance of health and fitness nowadays.
To achieve this mission, Pure Wellness need to make an important strategic decision, that is where to open all the branches. This is a vital decision, different locations will cost different amount of fixed cost and variable cost. The selection of location will affect the sales and profit of the company. In this case to expand the business by open 60 branches, Pure Wellness need to selects the location which can maximize the revenue and profit for the company.
Pure Wellness has the plan to expand the business by open 60 branches in the future. It is because the trend on increased emphasis on health and fitness nowadays. The pursuit of a healthier lifestyle gives a potential market opportunity to Pure Wellness to expand the business. Therefore, Pure Wellness needs to make the location decisions to set up the 60 branches to meet the increasing demands.
Our location option in this case is adding other new branches while maintaining the current company. To make the location decisions; our strategy is to maximizing the revenue. We will identify the factors which will affect the location decisions and focus on maximizing revenue when we make the location decisions.
4.2 Factors that Affect Location Decisions
The first step to make the location decisions is choosing a country in which to operate. Pure Wellness is a Malaysia based company; the main market of Pure Wellness is Malaysia. Malaysia is a potential market with different consumers from different background. Therefore, Malaysia is a country which is best to expand the business.
Next, Pure Wellness will select a state to execute the plan. Among all the states in Malaysia, Penang is a potential region to set up the first and main branch. Penang is a crowded region with high population. Penang is also a developed region with many customers from moderate and high income categories which have more purchasing power. In the beginning of execution of the plan, we will need a location which can minimize our risks and maximize our revenue. Therefore, Penang is considered as a suitable region where we can achieve all these strategies.
The final step in location decisions is choosing a specific site within that particular region. The factors which will affect Pure Wellness in selection of that particular site include the infrastructure system, proximity to customers and the site size and cost.
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Pure Wellness: Critical Success Factors in Making the Location Decisions
- Stability of economics environment
- Government and legal rules
- Availability of labor talent needed and its costs
- Taxes and incentives
- Cultural and economic issues
- Proximity to customers and market
- Proximity to the manufacturing plant
- Attractiveness of region
- Labor availability, attitudes and its costs
- Cost and availability of utilities
- Infrastructure system
- Site size and cost
- Proximity to customers
- Existence of competitors
4.3 Location Costs
One of the main factors which will affect the location decisions is the location costs. To make the location decisions, Pure Wellness has chosen three locations as a consideration to set up the first and main branch. The three locations are Queensbay Mall, Gurney Plaza and E-gate. We have made the estimation of tangible costs, which include fixed cost and variable cost.
The table below shows the estimated fixed cost and variable costs of different location alternatives:
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From the table, opening new branch in E-gate is most costly. The total estimated cost to operate a business in E-gate is the highest, which is RM 240000. Therefore, to minimize the costs, Pure Wellness should choose Queensbay Mall to set up the first branch as the total cost is the lowest among all the location alternatives.
4.4 Problems
Pure Wellness is considered to open its 60 branches all around Malaysia in the coming year. The first state chosen by Pure Wellness to open its branches is Penang. Pure Wellness has a plan to open 5 branches in Penang. Now, Pure Wellness is considering to open its first and main branch in Queensbay Mall, Gurney Plaza and E-gate, Penang. We have selected the factor- rating method to identify the best location to open the first and main branch.
Location 1: Queensbay Mall
Location 2: Gurney Plaza
Location 3: E-gate
To carry out our factor-rating method, we have decided several relevant factors as our Critical Success Factors. The first factor is labor availability and attitudes. Pure Wellness plans to open many branches in the future, the company will need much labor talent which good in communication to promote the company’s products and help the customers. Besides, the worker’s attitudes also are critical as the company aim to have employees that will pay full cooperation and effort in their work.
The second factor is convenience of the location. Convenience of the location can be measured from many aspects, which include facilities, infrastructure, security and the ease of parking. This factor is important because it affect the willingness of the customers to make their consumption at that particular location. Certainly, customers will prefer to consume at the store which can bring a lot of convenience to them. Open a branch at a convenient location can increase the sales and profit of the company.
The third factor is size of the shop and costs. Pure Wellness needs a suitable location which has enough space to display all the health care products from different brands. However, due to the consideration of the budget, the costs needed to renovate and the annual lease costs are also of the concern.
The forth factor is purchasing power of the customers. Customers with moderate and high income will have more purchasing power. Select the location with many customers from this category of moderate and high income will increase the sales. The fifth factor is proximity to customers. Pure Wellness wishes to selects a location which is near to the office and housing area. Therefore, many types of consumers, such as the white-collar workers, housewives and young adults will always make their consumption at there.
The last factor is existence of competitors. Pure Wellness needs to be aware of the competitors, so that it can maintain its sales and profit from time to time. After determine all the critical success factors, we will make the ratings to identify the best location.
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Solution:
Table below shows the evaluation of alternative locations by computing the weights and scores:
*All locations are rated on a 1 to 10 basis, with 10 as the highest score and 1 as the lowest
Decision:
Based on the table above, Queensbay Mall obtains the highest scores, which are 120. Therefore, Queensbay mall is the most suitable location to open our main and first branch.
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5.0 Conclusion
In sum, we have used several topics such as forecasting, design of goods, managing quality and location strategies to conduct our assignment. Besides, we have identifying several relevant elements of our company, Pure Wellness in various areas. This had created good references for the management department and facilitated company’s decision making in further investment and cost management.
As the trend on increased emphasis on health nowadays, healthy food supplements play an important role in maintaining people health. There are an increasing number of different range consumers which raise their consumption of health-based products. Thus, we have estimated that the demand of consumers will increase in future by using a deep analysis. Through the forecasting, we have decided that the moving average method is the most appropriate tool to forecast the customers’ demand for our products in future. This enables us to have a better illusion of the future market trend and make necessary adjustment to strengthen our company market position.
Pure Wellness needs to decide whether to manufacture the products by our own or to purchase from other firms. Therefore, we have use the decision tree method to undergone a cost and revenue analysis. Finally, we have concluded that if the company obtains high sales, it is at the beneficial position of enjoying high revenues to make the decision to purchase from other firms. Although our product’s cost is higher when we buy products from other firms, but the high sales obtained had overcome the total cost require and increase our annual profits. This method has guided our company to make such important and appropriate decision.
Through our research, we have known that there is a huge number of young generations were interested in health-based products but their main problems are financial budget and minor necessity. Thus, more health awareness needs to be raised among the youths and more low price products should be offered in their market. Besides, our company also concern on managing quality and make sure that our product’s manufacturing processes are environment delighting. Next, we need to justify the ideal standardizations of our company in order to have a better improvement in products, services, costs and investments. Through benchmarking, we able to have a closer approach in managing our company opportunity and the wise action needs to be implemented to carry out more efficient company operations.
In the topic of location strategies, Pure Wellness needs to identify the most suitable location to open the branches. Our company had decided to set up our main branches in a crowded urban area which is Penang. This is due to concentration of people in this hustle and bustle island as many people choose to make their investment and build up their career in Penang. Therefore, there will be more opportunities to increase our exposure to consumers and boost our products sales if we set up our branches in Penang.
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