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
 Porter’s 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 Porter’s 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 firm’s 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.