P RODUCT CHARACTERISTICS

2.2.1. Air conditioning products classification

In the case company Hisense GmbH, the CPFR lies in its new business unit of Air conditioning products (hereafter referred as “AC”). According to the classification based on The Customer Value hierarchy, the product is embedded with characteristics crossing five products levels.

Product against customer value hierarchy

Definition In the case company/AC

Products(from b2b perspective)

First level Core benefit The service or benefit the customer is really buying.

Cooling/heating solution to distribute.

Second Level

Basic Product The marketer has to-turn the core benefit into a basic product.

Equipment sold and installed in place with described specification.

Third Level Expected Product

A set of attributes and conditions buyers normally expect when they purchase this product.

Good performance of cooling/heating capacity, Intelligent function.

Forth Level Augmented product

The marketer prepares an augmented product that exceeds - expectations.

Better quality& services among brands. Highly reputed brand recognition.

Fifth Level Potential Differentiation arises on the basis of product augmentation.

Innovated solutions /additional value added services.

According to product classification, AC products belong to Durable goods, while combined with Services, i.e.

Every AC system should be sold together with its Services of installation and maintenance. Therefore, AC products normally require more personal selling, and service, command a higher margin, and require more seller guarantees; at meantime, it requires more quality control, supplier credibility, and adaptability.

Besides, AC products bear the features of Industrial goods, which are categorized by its production process and their relative costliness. There are three groups of industrial goods: materials and parts, capital items, and supplies and business services. AC products cross all 3 categories. From the position of AC distributors, they are trading AC equipment’s, components and parts; additionally, they are supplying the aftersales maintenance as services. From the perspective of AC end users, such as project owners, they are purchasing capital items since AC equipment is usually long-lasting goods that facilitate developing or managing the finished product. E.g. a hotel owner invests AC system into the construction, which facilitates

the function of the final products and service (hotel accommodation). Installations are major purchases.

They are usually bought directly from the producer, with the typical sale preceded by a long negotiation period. The producer’s sales force includes technical personnel. Producers have to be willing to design to specification and to supply post sale services. Advertising is much less important than personal selling.

Air conditioning products are durables combined with Services. The core benefit for the end user is to cool or heat certain ambient by the RCC (reversed calorie cycle) system of intermediate (Figure 2-4), which could be different types of refrigerants, or water. In other words, the end user bought the machine to carry the heat from indoor environment to the outdoor environment, or the other way around. From the perspective of B2B business format, AC producers provide an AC solution as “AC products” to the distributors, who in turn resell to households plus the services of installation. Installation services are equally important as product itself, because it guarantees the products’ delivery of core benefit.

Figure 2-4, Ac working principle Figure 2-5, Energy label

2.2.2. Impact of AC Product Characteristics on Supply Chains

Supply chains are typically considered to consist of many stages across several organizations starting from raw material sources through component production to manufacturing and further on via distribution operations to B-to-B customers and consumers. Dr. Bask analyzed what the product characteristics would have as impact on the structure and design of supply chains (Bask, 2013). Most enterprises formulate the specialized supply stages according to the features of the products or services they are producing or trading. In accordance, the entire SC structure is labeled with particular items, from purchasing, manufacturing, and distribution till logistics services.

As defined in previous subchapter, AC products embedded attributes, as industrial products and services, shaped the linking among each participant in the value chain, as well as their inter-relationship. To simply

put, there exist nature difference between supply channels of normal durables (E.g. Home appliance) and AC equipment.

For normal durables products/comedies, the supply channel is featured as horizontal movements, which means the goods are physically moved via any of the below 3 types of flows (figure 2-6). The essential requests from similar products characteristics are to “Create an effective physical distribution network”. Key factors allocate in (1) Material handling, (2) Warehousing, (3) Just-in-time production, (4) transportation,(5) automation.

Figure 2-6 Normal durables distribution flow Figures 2-7 Value Chain of the AC

Diversely, for AC products, the above value chain has been overwhelmed by the loop shaped value chain for its complexity and multiple decision making process. The supply chain members are expected to have powerful control power on relationship/information management. The cost of physical movement of AC units has comparatively little impact on the total value add-up to the project itself; on the contrary, the accuracy of information management would affect much on S&OP efficiency. The research will investigate in detail of each stage in the AC supply chain and disclose the main drivers behind the value chain.

2.3.4 Product Management

Product management is another key issue in the research business case due to the fact that AC products are built-in with high technology and longer product life cycle. Meanwhile Hisense takes major responsibility of product R&D, production, and cross boarder transaction; hence AC product management relates to forehead view in product development, legal regulations, cost control on manufacturing in accordance with market pricing, and selling points edits, etc. The research respects to the true value of product management, and what makes it so critical to company success.

In the AC industry, product management reflects top four issues as a cyclic model a. Legal, b. customer services, c. R&D, d. Engineering& Manufacturing. The rest issues are comparatively less important in the main stream of AC evolution (Figure 2-9). The reason is that AC products buyers and end-users are separate groups; therefore, there is a reciprocal information flow with the distribution channel. AC producers develop AC product for coming season, and ship out the products to local distributors’ network, where installers inspect the products from marketing, legal, and application perspective.

Figure 2-9 Stream of AC Product Evolution