Supply Chain and Competitive Advantage

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

Supply Chains

Supply Chains (cont.) Supply 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

Supply Chains (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

Supply Chain Problems and Solutions Typical problems along the supply chain Slow and prone to errors because of the length of the chain involving many internal and external partners Large inventories without the ability to meet demand Insufficient logistics infrastructure Poor quality

Supply Chain Problems (cont.) Bullwhip effect: Erratic shifts in orders up and down supply chains Creates production and inventory problems Stockpiling can lead to large inventories Effect is handled by information sharing—collaborative commerce

Supply Chain Problems (cont.) Need for information sharing along the supply chain including issues on: product pricing inventory shipping status credit and financial information technology news

Supply Chain Problems (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

Supply Chain Problems (cont.) Major solutions provided by an EC approach and technologies Order taking Order fulfillment Electronic payments Inventories can be minimized Collaborative commerce

Porter’s value chain model Primary Activities: Inbound Logistics Operations (Production) Outbound Logistics Marketing and Sales Service

Porter’s value chain model Support Activities: Procurement Technology Development Human Resources Management Firm Infrastructure

Linked value chains Inbound Logistics —from Suppliers Outbound Logistics —from Customers

Porter’s value system Overall organisational competitive advantage: (Inter-organisational value chain) Porter’s value system Overall organisational competitive advantage: efficiency of the company quality of its products plus efficiency and quality of suppliers efficiency of wholesalers (Channel) efficiency of retailers

Competitive advantage Three basic strategies: Cost leadership: Prices lower than the competition. Differentiation: Products with some quality that makes them more attractive than the competition. Focus: Concentration on a single aspect of the market (a niche). (Porter, 1980)

IT and competitive advantage Information and communications technologies (ICTs) can: Cost leadership: Reduce administrative cost (including the logistics supply chain) Differentiation: quality of service responsiveness to customer requirements. Focus: Target information on the selected segment. Gather customer data from that segment. Quick response and just-in-time can: Evolve new products and services. Facilitate customisation.

Porter’s model of competitive rivalry

Porter’s model of competitive rivalry The model helps a firm identify threats to its competitive position and to lay plans, that may include IT and e-Commerce, to protect or enhance that position. The five forces identified by the model are: Competitive rivalry among existing players. Threat of potential new entrants to the sector. Threat of a substitute product or service. The bargaining power of the buyers. The bargaining power of the suppliers.

Porter’s model – new entrants The ease with which a company can enter a given trade sector. Barrier to entry include the need for: Capital Knowledge Skills The need for IT investment can be a barrier to entry. Internet e-Commerce can facilitate entry, e.g.: Internet bookshops Internet banks

Porter’s model – substitution A new product or service that becomes available and supplies the same function as the existing product: Substitution of natural fibres by synthetic fibres Replacement of glass bottles by a plastic alternative Replacement of the typewriter by the word processor e-Commerce substitution: Online banking Down-loadable music

Porter’s model – bargaining power of buyers Buyers have bargaining power where: There are a number of competitors. There is a surplus of supply. Defences include: Low production cost. Product branding. Efficient service (ICTs facilitated). Value added services (ICTs facilitated). e-Commerce defences: Reshaped supply chain (dis-intermediarisation).

Porter’s model – bargaining power of suppliers Suppliers have bargaining power where: There are few or no competitors. There is a shortage of supply. (The mirror image of the buyer’s position)

Porter’s model – existing players The competition between existing players is won on the basis of the generic competitive advantage of price, differentiation or focus. The use of e‑Commerce can: Reduce the administrative costs of trading. Increase the logistic efficiency of the supply chain. Meet any requirements to trade electronically. Differentiate the product or service. Cut out intermediaries in the supply chain. Provide a new marketing channel.

First mover advantage The first organisation to implement a new type of ICT system can gain the price advantage or differentiation while competitors are still operating with traditional methods and systems. e-Commerce first movers include: amazon.com eBay First mover take a big risk: New business models. New (expensive) technologies Second/late movers copy proven ideas and technological applications. 

First mover advantage To gain competitive advantage using IS and IT usually needs an element of surprise; the system needs to be out in the market place before competitors make a start in copying the idea. Sustaining that competitive advantage requires either: Converting the technical advantage into brand advantage. Sustaining the technical lead by continuous product and service development. The development of many e-Commerce systems, cannot be entirely private – customers had to become involved and competitors can copy.

Competitive advantage using e-commerce Force System Competitive advantage New entrants/ substitution Internet e-commerce Reduced entry costs New sales channel New service opportunities Suppliers (& trade buyers) e-commerce logistics (EDI/IeC) Cost reductions Quick response Lockin Buyers Internet e-commerce dis-intermediarisation Customer Information Competitive rivalry E-commerce Cost leadership Differentiation Focus