Supply Chain and Competitive Advantage

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The production of goods and services is the result of the The production of goods and services is the result of the efforts of many organisations – a complex web of efforts of many organisations – a complex web of contracts and co-operation known as the supply chain or contracts and co-operation known as the supply chain or the value system.the value system.

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Supply ChainsSupply Chains

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Supply Chains Supply Chains (cont.)(cont.)

Supply chain partsSupply chain parts Upstream supply chain

activities of a manufacturing company with its suppliers

Internal supply chain in-house processes for transforming the inputs from

the suppliers into the outputs Downstream supply chain

activities involved in delivering the products to the final customers

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Supply Chains Supply Chains (cont.)(cont.)

The success of an supply chain depends on: The ability of all supply chain partners to

view partner collaboration as a strategic asset

Information visibility along the entire supply chain

Speed, cost, quality, and customer service Integrating the supply chain segments more

tightly

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Supply Chain Problems Supply Chain Problems and Solutionsand Solutions

Typical problems along the supply Typical problems along the supply chainchain Slow and prone to errors because of the Slow and prone to errors because of the

length of the chain involving many length of the chain involving many internal and external partnersinternal and external partners

Large inventories without the ability to Large inventories without the ability to meet demandmeet demand

Insufficient logistics infrastructureInsufficient logistics infrastructure Poor quality Poor quality

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Supply Chain Problems Supply Chain Problems (cont.)(cont.)

Bullwhip effect:Bullwhip effect: Erratic shifts in Erratic shifts in orders up and down supply chainsorders up and down supply chains Creates Creates production and inventory

problems Stockpiling can lead to large inventories

Effect is handled by information sharing—collaborative commerce

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Supply Chain Problems Supply Chain Problems (cont.)(cont.)

Need for information sharing along Need for information sharing along the supply chain including issues on:the supply chain including issues on: product pricing inventory shipping status credit and financial information technology news

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Supply Chain Problems Supply Chain Problems (cont.)(cont.)

Information systems are the links that enable communication and collaboration along the supply chain

Information and information technology are one of the keys to the success, and even the survival in today’s economy

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Supply Chain Problems Supply Chain Problems (cont.)(cont.)

Major solutions provided by an EC approach and technologies Order taking Order fulfillment Electronic payments Inventories can be minimized Collaborative commerce

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Porter’s value chain modelPorter’s value chain model

Primary Activities:Primary Activities: Inbound LogisticsInbound Logistics Operations (Production)Operations (Production) Outbound LogisticsOutbound Logistics Marketing and SalesMarketing and Sales ServiceService

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Procurement

Human Resource Management

Technology Development

Firm Infrastructure support activities

Margin

primary activities

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Porter’s value chain modelPorter’s value chain model

Support Activities:Support Activities: ProcurementProcurement Technology DevelopmentTechnology Development Human Resources ManagementHuman Resources Management Firm InfrastructureFirm Infrastructure

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Procurement

Human Resource Management

Technology Development

Firm Infrastructure support activities

Margin

primary activities

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Linked value chainsLinked value chains

Inbound LogisticsInbound Logistics ——from Suppliersfrom Suppliers

Outbound LogisticsOutbound Logistics ——from Customersfrom Customers

Outbound Logistics

Inbound Logistics

Inbound Logistics

Operations

Outbound Logistics

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Porter’s value systemPorter’s value system

Overall organisational competitive advantage:Overall organisational competitive advantage: efficiency of the companyefficiency of the company quality of its productsquality of its products

plusplus efficiency and quality of suppliersefficiency and quality of suppliers efficiency of wholesalers (Channel)efficiency of wholesalers (Channel) efficiency of retailersefficiency of retailers

(Inter-organisational value chain)

Firm

Value Chains

Supplier

Value Chains

Channel

Value Chains

Buyers Value

Chains

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Competitive advantageCompetitive advantage

Three basic strategies:Three basic strategies: Cost leadership:Cost leadership:

Prices lower than the competition.Prices lower than the competition.

Differentiation:Differentiation:Products with some quality that makes them more Products with some quality that makes them more attractive than the competition.attractive than the competition.

Focus:Focus:Concentration on a single aspect of the market (a niche).Concentration on a single aspect of the market (a niche).

(Porter, 1980)(Porter, 1980)

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IT and competitive IT and competitive advantageadvantage

Information and communications technologies (ICTs) can:Information and communications technologies (ICTs) can: Cost leadership:Cost leadership:

Reduce administrative costReduce administrative cost(including the logistics supply chain)(including the logistics supply chain)

Differentiation:Differentiation: quality of servicequality of service responsiveness to customer requirements.responsiveness to customer requirements.

Focus:Focus: Target information on the selected segment.Target information on the selected segment. Gather customer data from that segment.Gather customer data from that segment.

Quick response and just-in-time can:Quick response and just-in-time can: Evolve new products and services.Evolve new products and services. Facilitate customisation.Facilitate customisation.

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Porter’s model of competitive Porter’s model of competitive rivalryrivalry

Competitive

Rivalry

Entrants

Supplier

Buyers

Substitution

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Porter’s model of competitive Porter’s model of competitive rivalryrivalry

The model helps a firm identify threats to its The model helps a firm identify threats to its competitive position and to lay plans, that may competitive position and to lay plans, that may include IT and e-Commerce, to protect or include IT and e-Commerce, to protect or enhance that position.enhance that position.

The five forces identified by the model are:The five forces identified by the model are: Competitive rivalry among existing players.Competitive rivalry among existing players. Threat of potential new entrants to the sector.Threat of potential new entrants to the sector. Threat of a substitute product or service.Threat of a substitute product or service. The bargaining power of the buyers.The bargaining power of the buyers. The bargaining power of the suppliers.The bargaining power of the suppliers.

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Porter’s model – new Porter’s model – new entrantsentrants The ease with which a company can enter a The ease with which a company can enter a

given trade sector.given trade sector.

Barrier to entry include the need for:Barrier to entry include the need for: CapitalCapital KnowledgeKnowledge SkillsSkills

The need for IT investment can be a barrier The need for IT investment can be a barrier to entry.to entry.

Internet e-Commerce can facilitate entry, Internet e-Commerce can facilitate entry, e.g.:e.g.: Internet bookshopsInternet bookshops Internet banksInternet banks

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Porter’s model – substitutionPorter’s model – substitution

A new product or service that becomes available and A new product or service that becomes available and supplies the same function as the existing product:supplies the same function as the existing product: Substitution of natural fibres by synthetic fibresSubstitution of natural fibres by synthetic fibres Replacement of glass bottles by a plastic alternativeReplacement of glass bottles by a plastic alternative Replacement of the typewriter by the word Replacement of the typewriter by the word

processorprocessor

e-Commerce substitution:e-Commerce substitution: Online bankingOnline banking Down-loadable musicDown-loadable music

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Porter’s model – bargaining power of Porter’s model – bargaining power of buyersbuyers

Buyers have bargaining power where:Buyers have bargaining power where: There are a number of competitors.There are a number of competitors. There is a surplus of supply.There is a surplus of supply.

Defences include:Defences include: Low production cost.Low production cost. Product branding.Product branding. Efficient service (ICTs facilitated).Efficient service (ICTs facilitated). Value added services (ICTs facilitated).Value added services (ICTs facilitated).

e-Commerce defences:e-Commerce defences: Reshaped supply chain (dis-intermediarisation).Reshaped supply chain (dis-intermediarisation).

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Porter’s model – bargaining power of Porter’s model – bargaining power of supplierssuppliers

Suppliers have bargaining power Suppliers have bargaining power where:where: There are few or no competitors.There are few or no competitors. There is a shortage of supply.There is a shortage of supply.

(The mirror image of the buyer’s (The mirror image of the buyer’s position)position)

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Porter’s model – existing Porter’s model – existing playersplayers

The competition between existing players is won The competition between existing players is won on the basis of the generic competitive on the basis of the generic competitive advantage of price, differentiation or focus.advantage of price, differentiation or focus.

The use of e‑Commerce can:The use of e‑Commerce can: Reduce the administrative costs of trading.Reduce the administrative costs of trading. Increase the logistic efficiency of the supply Increase the logistic efficiency of the supply

chain.chain. Meet any requirements to trade electronically.Meet any requirements to trade electronically. Differentiate the product or service.Differentiate the product or service. Cut out intermediaries in the supply chain.Cut out intermediaries in the supply chain. Provide a new marketing channel.Provide a new marketing channel.

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First mover advantageFirst mover advantage The first organisation to implement a new type of ICT The first organisation to implement a new type of ICT

system can gain the price advantage or differentiation system can gain the price advantage or differentiation while competitors are still operating with traditional while competitors are still operating with traditional methods and systems.methods and systems.

e-Commerce first movers include:e-Commerce first movers include: amazon.comamazon.com eBayeBay

First mover take a big risk:First mover take a big risk: New business models.New business models. New (expensive) technologiesNew (expensive) technologies

Second/late movers copy proven ideas and Second/late movers copy proven ideas and technological applications. technological applications. 

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First mover advantageFirst mover advantage To gain competitive advantage using IS and IT To gain competitive advantage using IS and IT

usually needs an element of surprise; the system usually needs an element of surprise; the system needs to be out in the market place before needs to be out in the market place before competitors make a start in copying the idea.competitors make a start in copying the idea.

Sustaining that competitive advantage requires Sustaining that competitive advantage requires either:either: Converting the technical advantage into brand Converting the technical advantage into brand

advantage.advantage. Sustaining the technical lead by continuous Sustaining the technical lead by continuous

product and service development.product and service development.

The development of many e-Commerce systems, The development of many e-Commerce systems, cannot be entirely private – customers had to cannot be entirely private – customers had to become involved and competitors can copy.become involved and competitors can copy.

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Competitive advantage using e-Competitive advantage using e-commercecommerce

ForceForce SystemSystem Competitive Competitive advantageadvantage

New entrants/New entrants/substitutionsubstitution

Internet Internet e-commercee-commerce

Reduced entry costsReduced entry costs New sales channelNew sales channel New service New service opportunitiesopportunities

Suppliers Suppliers (& trade buyers)(& trade buyers)

e-commerce e-commerce logistics logistics (EDI/IeC)(EDI/IeC)

Cost reductionsCost reductions Quick responseQuick response LockinLockin

BuyersBuyers Internet e-Internet e-commercecommerce

New sales channelNew sales channel dis-dis-intermediarisationintermediarisation Customer Customer InformationInformation

Competitive rivalryCompetitive rivalry E-commerceE-commerce Cost leadershipCost leadership DifferentiationDifferentiation FocusFocus