Thanks for the comments, Brandon. To get to your first two questions, what’s unique about PM is the long-standing relationships it has with clients, the integration into the design and development stage, and the long track record of safety and investment it has put in. As such, there are few scale global players like PM, while Donner was but one of many like companies. PM has been able to mass produce millions of parts over 50 years with an enviable track record of quality and success, leaving it in a league of its own.
On your last question, given the longevity of PM’s franchise, it has developed strong expertise in manufacturing using a variety of materials, ranging from metals to high-grade resins; in addition to materials expertise, PM has built an expertise in structural engineering to create innovate modes of drug delivery. The prototyping and DFM services, along with the technical and engineering staff, continue to be heavily invested in, resulting in industry-leading services to clients that help them innovate and get to market faster. Another answer to this question lies in how PM’s specialization in manufacturing helps OEMs focus more of their time on innovation, particularly on drugs; thus, PM and companies like it serve an important purpose in society at large.
This was an excellent post which laid out the benefits of their operating model very clearly.
Going from 5% market share to ~40% share is no joke, and there is no doubt that some of these operational decisions have led to market dominance. Specifically, the low cost structure–assisted by the homogeneity of the fleet, sale-lease back agreement, and high utilization of aircraft–have allowed IndiGo to survive and thrive amidst competitor airlines such as Kingfisher going out of business. It is impressive how such simple operational choices, such as having ready-to-eat packaged foods and enlisting customers to help clean up, can add up to deliver the cost savings needed to run a profitable airline.
Additionally, it is impressive that the company capitalized on a growing middle class in India by shaping its own customer promise of timely and affordable flights, bucking the dominant trend in the airline industry. While that choice seems obvious now, the fact that none of the incumbent airlines were thinking this far ahead shows the level of strategic thinking that IndiGo employed.
Thanks for the educational post on an interesting business model.
If you skip across the Atlantic and head to the American grocery retail space, there’s quite an analogous business called Save-A-Lot. It similarly has a very limited SKU setup as well as strategic site placement which enjoyed substantial growth during 2008-2009. It has certainly been eyed by private equity firms, similar to B&M.
The limiting of SKU count makes a lot of sense in these businesses, given the amount of supply chain complexity it reduces (as well as requiring less square footage of shelf space and thus less capital investment). This harks back to the benefits of reduced SKUs in our Benihana case. In consumer facing businesses as well, I am sure that this reduces complications to the customer as well, allowing them to get in and out faster. Critical to the ability for limited SKU businesses to win and retain customers is having the right SKUs that people want, versus the shotgun approach that the big box grocery outlets rely on. I am sure, given B&M’s growth, that their procurement department is very in-touch with the consumer.
Another aspect which resonated with me is the site locations of B&M. Not only did they get in at the right time (eg, during the recession), but their locations allow for high customer traffic. It appears as if the strategic location of the sites allows them to keep other parts of their operating model (such as marketing spend) low, given that the convenience and visibility of their locations to the consumer drives in foot traffic naturally.
This was a very interesting and informative post — thank you!
First, I very much enjoyed learning how Red Bull originated. There was a clear customer problem that the founder himself faced which was solved via a cross-cultural experience.
Second, the asset lite model of Red Bull strikes me as part of a larger trend in global business. Developed markets remain very attractive profit pools given the levels of widespread discretionary income for products like Red Bull, and emerging markets, as they build manufacturing capacity, will be attractive places from a cost perspective. Even outside of the consumer products industry, the general global trend is towards increased outsourced manufacturing, as I’ve studied as part of my job before business school. Though initially seeming disjointed that owning extreme sports events is the core operating model of Red Bull, I now understand how their operating model is key to maintaining the customer value promise of an edgy drink to the consumer.