Industry and competitive

analysis
VALUE CHAINS
Supply chains and value chains are
synonymous

A value chain is:-

A linear map of the way in which value is
added by means of a Supply Chain
Management process from raw materials to
finished delivered product (including
services after delivery).
The main goals are:-
To measure the value attributes and
appreciate how various functions or
activities within Supply Chain adds value

To identify value attributes in services and
products

To understand the customer requirements
and communicate them to suppliers

Important value chain models have
been developed by Porter and Hines
Porters Value Chain Model
Prof. Porter states that activities of a
business can be classified into five primary
and four support activities

Each of these activities potentially
contributes to competitive advantage
Operations
- Includes transforming of inputs to outputs as
the final product (s)

- In a manufacturing entity these would
include

- Production

- Assembly

- Quality control

- Packaging
- In a service industry these include all
activities involved in providing the service,
such as

- Advice

- Correspondence

- Preparation of documents by a legal firm

- Arms length transaction in the banking hall
etc
Outbound Logistics

Involves moving the output from operations
to the end user

Including finished goods warehousing

Order processing

Order picking
Packing
Shipping
Transport
Maintenance of a dealer or distribution
network
Marketing and Sales

These are activities involved in informing
potential customers about the product,
Persuading them to buy
Enabling them to do so
Including advertising,

Promotion
Market research

Dealer/distributor support

Service Activities
Involves provision of services to buyers
offered as part of the purchase agreement,
Including installation
Training
Spare parts, delivery
Commissioning
Maintenance and repair
Technical assistance
Buyers enquiries
Complaints

The four support activities for the above
primary activities are:-

Firm Infrastructure
Includes
- General Management/Administration

- Assets
- Safety
- Security
- Management Information systems
- Formation of Strategic Alliances

Human Resource Management


- Recruitment
- Hiring
- Training
- Developing
- Compensation
- Motivation
- Teamwork
Technology Development

Activities related to
- Product design
- Improvement of product processes
- Resource utilization
- Research and development
- Process design improvement
- Computer software
- Computer- aided design and engineering

- Development of computerized support
systems
Procurement
All activities involved in acquiring
resources inputs to the primary activities
Including the purchase of fuel
Energy
Raw materials
Components
Sub-assemblies
Merchandise
Consumable items from external vendors

The word margin on the right side indicates
that the enterprise obtains a profit margin that is
more than the cost of each of the individual
activities or subsystems that comprise the value
chain.

Viewed differently, the customer is readier to
pay more for a product or service than the
total cost of all the value chain activities or
subsystems.

In all these activities both primary and
secondary, linkages of the systems and
subsystems is critical to deliver goods and
services to the customer

Generic competitive strategies of
Michael Porter

Customer Focus
Differentiation
Lowest cost producer
1. Competitive Forces Model (Fit model)
Central tenet of this approach is the need to
align (fit) the organization to its environment a
key aspect of which is the industry in which it
operates.
Industry structure strongly influences the
competitive rules of the game as well as the
range of strategies open to the organization.
This model has greatly influenced the thinking in
strategy practice within organizations.

It stems from the positioning school of
thought of the early 1980s expounded by the
SCP (Structure-Character-Performance)
model.
Michael Porters Five Forces framework
argue that there are five forces that determine
the attractiveness (profit potential) of an
industry:
Entry barriers
Threat of substitutes
Bargaining power of buyers
Bargaining power of suppliers
Rivalry amongst the firms

Porter further argues that a firms ability to
profit depends on its ability to influence the
competitive forces in the industry
(depending on the five forces).
SUPPLY CHAINS
Definitions
There are many definitions of the term
Supply Chain, of which the following is
typical:

A Supply Chain is that network of
organization that are involved , through
upstream and downstream linkages, in the
different process and activities that produce
value in the form of products and services in
the hands of the ultimate customer or
consumer.
SCM as Management Philosophy
Mentzer et al. suggest that , as a management
philosophy, SCM has the following three
characteristics :
A system approach to viewing chain as a whole
and managing the total flow of goods inventory
from the supplier to the ultimate consumers
A strategic orientation towards cooperative
efforts to synchronies and converge intra-firm
and inter firm operational and strategic
capabilities into a unified whole
A customer focus to create unique and
individualized sources of customer value,
leading to customer satisfaction.


SCM as a set of activities to implement a
management philosophy
The seven activities listed below as essential
to the implementation of a management
philosophy are:

Integrated behaviour

Mutual shared information

Mutually shared risks and rewards

Cooperation

the same goal and same focus on
serving customers
Integration of processes
Partners to build and maintain long-term
relationships
These activities are implied in the
following list of SCM objectives:
The integration of both internal and
external competencies
The building of alliances, relationships and
trust throughout the supply system
The reduction of costs and improvement
of profit margins

The maximization of return on assets (net
income after expenses/interests)

The facilitation of innovation and
synchronization of supply chain processes

The optimization of the delivery of
products, services, information and
finance both upstream and downstream
and across internal and external
boundaries.