Primary Selection Criteria Supply demand at lowest possible cost Select primarily for cost Low Cost Respond quickly to changing requirements and demand to minimize stockouts Select primarily for capacity, speed, and flexibility Response Share market research; jointly develop products and options Select primarily for product development skills Differentiation
Maintain core competencies and protect personnel from layoff
Lower production cost
Assure adequate supply
Utilize surplus labor and make a marginal contribution
Frees management to deal with its primary business
Lower acquisition cost
Preserve supplier commitment
Obtain technical or management ability
Reasons for Making Reasons for Buying
Forms of Vertical Integration Iron Ore Steel Automobiles Distribution System Dealers Silicon Integrated Circuits Circuit Boards Computers Watches Calculators Farming Flour Milling Raw Material (Suppliers) Backward Integration Current Transformation Forward Integration Finished Goods (Customers) Baked Goods
Supply Chain vs. Value Chain
Supply chain: often focuses on activities that get raw materials and sub-assemblies into manufacturing operations smoothly and economically.
Value chain: looks at every step from raw materials to the eventual end-user (even including disposing of packaging after use). The goal is to deliver maximum value to the end user for the least possible total cost.
VCM needs to look at the entire value-adding process. Just optimizing one step usually is not a good solution. Because of the numerous interactions between functional areas (internal) and firms (external), any optimization actions should focus on the entire system, not just on a sub-system or on one task in a transformation process.
Measuring Value-Chain Effectiveness
A suggested measure is called the IPC ratio which compares cycle times for three elements: Information, Products, and Cash. Ideally, information and cash should take less time to flow through the VC than actual product creation and distribution.
E-Commerce Benefits for the Value Chain
The biggest benefit is time.
E-commerce operations can give a firm invaluable information about trends and changing needs in its market.
E-commerce can help a firm to cut costs and provide more flexibility in availability inquiries, order processing, billing, and other distribution activities..