Value Chains And Alliance Networks

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Value Chains And Alliance Networks

  1. 1. Value Chains and Alliance Networks Jordan D. Lewis
  2. 2. Introduction <ul><li>M&S </li></ul><ul><ul><li>Quality, cost, value, fast response to changing market demands </li></ul></ul><ul><ul><ul><li>Depends on performance of </li></ul></ul></ul><ul><ul><ul><ul><li>Garmet makers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Fabric producers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Fiber sources (e.g., Du Pont) </li></ul></ul></ul></ul><ul><li>Suppliers account for 50% of costs </li></ul><ul><ul><li>Suppliers of suppliers rfepresent 50% of those costs </li></ul></ul><ul><li>Effective management of supplier relations gives a competitive edge </li></ul><ul><li>Chrysler </li></ul><ul><ul><li>Every supplier will see itself as a partner of its customer </li></ul></ul><ul><ul><ul><li>And its customer’s customer </li></ul></ul></ul>
  3. 3. Value chain management <ul><li>Every firm may belong to more than one value chain </li></ul><ul><ul><li>Suppliers of Motorola, Chrysler, Marks & Spencer serve those firms’ rivals through seperate value chains </li></ul></ul><ul><ul><li>In effect, value chains of rivals compete </li></ul></ul><ul><ul><li>Value chain management becoming central to a company’s business advantage </li></ul></ul>
  4. 4. Choosing value chains <ul><li>Performance of a value chain depends on: </li></ul><ul><ul><li>Appeal of a customer for a supplier compared to others </li></ul></ul><ul><ul><ul><li>Purchasing power, rapid growth, good innovation </li></ul></ul></ul><ul><ul><li>Conduct of the customers of the customer and other firms downstream </li></ul></ul><ul><li>Consumer goods industry </li></ul><ul><ul><li>Retailer-manufaturer relationship </li></ul></ul><ul><ul><ul><li>Traditional arm’s length </li></ul></ul></ul><ul><ul><ul><ul><li>Focus on price, shelf-space </li></ul></ul></ul></ul>
  5. 5. Choosing value chains (cont’d) <ul><ul><li>Standard, traditional terms </li></ul></ul><ul><ul><ul><li>Reduce the incentive for retailers to improve efficiencies (e.g., joint cost management) </li></ul></ul></ul><ul><ul><ul><ul><li>Most consumer goods are price elastic – Reduction in growth oppotunities </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Du Pont and M&S relationship as a counter case </li></ul></ul></ul></ul><ul><li>Molex: Supplier, customer or both? </li></ul><ul><ul><li>Manage in both directions </li></ul></ul><ul><ul><li>Reduction in supply base </li></ul></ul><ul><ul><li>Giving suppliers clear descriptions of its objectives and those of its customers (e.g., HP, Ford, Motorola, Chrysler) </li></ul></ul>
  6. 6. Innovating in the value chain <ul><li>Traditional view of suppliers </li></ul><ul><ul><li>Hierarchy </li></ul></ul><ul><ul><ul><li>Direct suppliers rank first </li></ul></ul></ul><ul><ul><ul><li>Others distant in the hierarchy often unknown </li></ul></ul></ul><ul><li>High performance value-chain </li></ul><ul><ul><li>Order of supply links depends on the best way to create value, reduce costs, and cycle time </li></ul></ul><ul><ul><ul><li>Bypass the hierarchy to cooperate on new developments </li></ul></ul></ul>
  7. 7. M & S example <ul><li>1st tier suppliers: Garment makers </li></ul><ul><li>2nd tier suppliers: Fabric knitters, weavers, makers of buttons, belts, trimming, linings </li></ul><ul><li>3rd tier suppliers: Spinners, dyers, finishers, printers </li></ul><ul><li>4th tier suppliers: Fiber manufacturers </li></ul>
  8. 8. M & S example (cont’d) <ul><li>Textile attributes </li></ul><ul><ul><li>Garment texture, aesthetics, construction, performance </li></ul></ul><ul><ul><li>M&S deals with textile suppliers and their suppliers value (i.e., Courtaulds textile and garment makers are always ready in meetings) </li></ul></ul><ul><li>Suppliers also innovate on their own initiative </li></ul><ul><ul><li>Lycra: A highly technical product that needs custom equipment </li></ul></ul><ul><ul><ul><li>Du Pont partnering with machine manufacturers </li></ul></ul></ul><ul><ul><ul><ul><li>Ensure textile buyers receive equipment best suited with Lycra </li></ul></ul></ul></ul>
  9. 9. M & S example (cont’d) <ul><li>Examples of innovations in clothing </li></ul><ul><ul><li>Machine-washable silk blouses </li></ul></ul><ul><ul><ul><li>Developed by DuPont and Ciba Geigy </li></ul></ul></ul><ul><li>How fast does information travel along the supply-chain? </li></ul><ul><ul><li>M & S shares weekly sales and related data with all relevant suppliers </li></ul></ul><ul><ul><ul><li>Advantage: Quick reaction capability </li></ul></ul></ul>
  10. 10. M & S example (cont’d) <ul><li>To be the fashion leader </li></ul><ul><ul><li>M & S invites supplier presentations to its board of directors </li></ul></ul><ul><ul><li>Shares development plans, changing consumer values, and needs, etc. With suppliers – especially Du Pont </li></ul></ul><ul><ul><ul><li>Sharper insights on where the market is going </li></ul></ul></ul><ul><ul><ul><li>Ex: Market data: Swimsuits were becoming worn out in chlorinated pools </li></ul></ul></ul><ul><ul><ul><ul><li>M&S developed swimwear with its suppliers </li></ul></ul></ul></ul>
  11. 11. Promoting cooperation between suppliers <ul><li>Better view the value-chain as a network than as a set of vertically linked companies </li></ul><ul><li>Motorola </li></ul><ul><ul><li>Daily inventory information available on line </li></ul></ul><ul><ul><ul><li>Supplier adjustment to demand fluctuations </li></ul></ul></ul><ul><ul><li>Suppliers benchmark against excellent firms to reduce cycle-time </li></ul></ul><ul><ul><ul><li>A small group of suppliers that were not rivals </li></ul></ul></ul><ul><ul><ul><ul><li>Information, skill, best practice sharing </li></ul></ul></ul></ul>
  12. 12. Promoting cooperation between suppliers (cont’d) <ul><li>Philips </li></ul><ul><ul><li>Annual town meetings to leverage total TV set performance </li></ul></ul><ul><ul><ul><li>All relevant suppliers and function managers involved </li></ul></ul></ul><ul><ul><ul><li>(i.e., wire connector, projection lense and TV screen suppliers) </li></ul></ul></ul><ul><ul><li>Annual new product and technology meeting </li></ul></ul><ul><ul><ul><li>Design, quality, engineering, production, purchasing, materials control and their counterpart suppliers </li></ul></ul></ul><ul><ul><ul><li>A joint vision of product performance and how parts contribute to that </li></ul></ul></ul><ul><ul><ul><li>Contribuets to production costs and performances </li></ul></ul></ul><ul><ul><ul><ul><li>A new method of assembling TV sets </li></ul></ul></ul></ul>
  13. 13. Promoting cooperation between suppliers (cont’d) <ul><li>Motorola </li></ul><ul><ul><li>Seiko and Automatix collaboration for vision systems </li></ul></ul><ul><ul><ul><li>Seiko best in robots, Automatix best for vision systems </li></ul></ul></ul><ul><ul><ul><li>Conceptual design – facility visits </li></ul></ul></ul><ul><ul><ul><li>Tenfold improvement in the automated vision systems of Motorola </li></ul></ul></ul><ul><ul><ul><ul><li>Entire development effort baased on trust </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>No formal contracts until the system was complete </li></ul></ul></ul></ul></ul>
  14. 14. Linking rival supplier firms <ul><li>Cannot share as much information as non-rivals </li></ul><ul><ul><li>Cooperate when benefits outweigh risks </li></ul></ul><ul><ul><li>M&S food suppliers exchange notes on safety </li></ul></ul><ul><ul><ul><li>Visit each other’s factory: Cooperate on quality, safety, service, safety-related technology </li></ul></ul></ul><ul><ul><ul><ul><li>No discussion of product innovation, pricing, profits </li></ul></ul></ul></ul>
  15. 15. A committed supply base <ul><li>M&S helps its suppliers to keep up: </li></ul><ul><ul><li>Technical assistance </li></ul></ul><ul><ul><li>Manufacturing equipment </li></ul></ul><ul><ul><li>Necessary skills, training </li></ul></ul><ul><ul><li>Prototype garments </li></ul></ul><ul><li>In return, suppliers help M&S to meet difficult times </li></ul><ul><ul><li>1992 recession in UK </li></ul></ul><ul><ul><li>Price-cuts: Outstanding value campaign </li></ul></ul><ul><ul><ul><li>Working closely with suppliers of core products </li></ul></ul></ul>
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