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Value Chains And Alliance Networks

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  • 1. Value Chains and Alliance Networks Jordan D. Lewis
  • 2. Introduction
    • M&S
      • Quality, cost, value, fast response to changing market demands
        • Depends on performance of
          • Garmet makers
          • Fabric producers
          • Fiber sources (e.g., Du Pont)
    • Suppliers account for 50% of costs
      • Suppliers of suppliers rfepresent 50% of those costs
    • Effective management of supplier relations gives a competitive edge
    • Chrysler
      • Every supplier will see itself as a partner of its customer
        • And its customer’s customer
  • 3. Value chain management
    • Every firm may belong to more than one value chain
      • Suppliers of Motorola, Chrysler, Marks & Spencer serve those firms’ rivals through seperate value chains
      • In effect, value chains of rivals compete
      • Value chain management becoming central to a company’s business advantage
  • 4. Choosing value chains
    • Performance of a value chain depends on:
      • Appeal of a customer for a supplier compared to others
        • Purchasing power, rapid growth, good innovation
      • Conduct of the customers of the customer and other firms downstream
    • Consumer goods industry
      • Retailer-manufaturer relationship
        • Traditional arm’s length
          • Focus on price, shelf-space
  • 5. Choosing value chains (cont’d)
      • Standard, traditional terms
        • Reduce the incentive for retailers to improve efficiencies (e.g., joint cost management)
          • Most consumer goods are price elastic – Reduction in growth oppotunities
          • Du Pont and M&S relationship as a counter case
    • Molex: Supplier, customer or both?
      • Manage in both directions
      • Reduction in supply base
      • Giving suppliers clear descriptions of its objectives and those of its customers (e.g., HP, Ford, Motorola, Chrysler)
  • 6. Innovating in the value chain
    • Traditional view of suppliers
      • Hierarchy
        • Direct suppliers rank first
        • Others distant in the hierarchy often unknown
    • High performance value-chain
      • Order of supply links depends on the best way to create value, reduce costs, and cycle time
        • Bypass the hierarchy to cooperate on new developments
  • 7. M & S example
    • 1st tier suppliers: Garment makers
    • 2nd tier suppliers: Fabric knitters, weavers, makers of buttons, belts, trimming, linings
    • 3rd tier suppliers: Spinners, dyers, finishers, printers
    • 4th tier suppliers: Fiber manufacturers
  • 8. M & S example (cont’d)
    • Textile attributes
      • Garment texture, aesthetics, construction, performance
      • M&S deals with textile suppliers and their suppliers value (i.e., Courtaulds textile and garment makers are always ready in meetings)
    • Suppliers also innovate on their own initiative
      • Lycra: A highly technical product that needs custom equipment
        • Du Pont partnering with machine manufacturers
          • Ensure textile buyers receive equipment best suited with Lycra
  • 9. M & S example (cont’d)
    • Examples of innovations in clothing
      • Machine-washable silk blouses
        • Developed by DuPont and Ciba Geigy
    • How fast does information travel along the supply-chain?
      • M & S shares weekly sales and related data with all relevant suppliers
        • Advantage: Quick reaction capability
  • 10. M & S example (cont’d)
    • To be the fashion leader
      • M & S invites supplier presentations to its board of directors
      • Shares development plans, changing consumer values, and needs, etc. With suppliers – especially Du Pont
        • Sharper insights on where the market is going
        • Ex: Market data: Swimsuits were becoming worn out in chlorinated pools
          • M&S developed swimwear with its suppliers
  • 11. Promoting cooperation between suppliers
    • Better view the value-chain as a network than as a set of vertically linked companies
    • Motorola
      • Daily inventory information available on line
        • Supplier adjustment to demand fluctuations
      • Suppliers benchmark against excellent firms to reduce cycle-time
        • A small group of suppliers that were not rivals
          • Information, skill, best practice sharing
  • 12. Promoting cooperation between suppliers (cont’d)
    • Philips
      • Annual town meetings to leverage total TV set performance
        • All relevant suppliers and function managers involved
        • (i.e., wire connector, projection lense and TV screen suppliers)
      • Annual new product and technology meeting
        • Design, quality, engineering, production, purchasing, materials control and their counterpart suppliers
        • A joint vision of product performance and how parts contribute to that
        • Contribuets to production costs and performances
          • A new method of assembling TV sets
  • 13. Promoting cooperation between suppliers (cont’d)
    • Motorola
      • Seiko and Automatix collaboration for vision systems
        • Seiko best in robots, Automatix best for vision systems
        • Conceptual design – facility visits
        • Tenfold improvement in the automated vision systems of Motorola
          • Entire development effort baased on trust
            • No formal contracts until the system was complete
  • 14. Linking rival supplier firms
    • Cannot share as much information as non-rivals
      • Cooperate when benefits outweigh risks
      • M&S food suppliers exchange notes on safety
        • Visit each other’s factory: Cooperate on quality, safety, service, safety-related technology
          • No discussion of product innovation, pricing, profits
  • 15. A committed supply base
    • M&S helps its suppliers to keep up:
      • Technical assistance
      • Manufacturing equipment
      • Necessary skills, training
      • Prototype garments
    • In return, suppliers help M&S to meet difficult times
      • 1992 recession in UK
      • Price-cuts: Outstanding value campaign
        • Working closely with suppliers of core products
  • 16.  

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