Why are supply chains as they are? Who decides what jobs a company should do, and which ones should be left to others? These slides encourage the learner to think about the company operations in their supply chain context, with reference to established principles such as Porter's Five Forces, and Brandenburger and Nalebuff's work on coopetition. Suggested student activities are included, and the presentation can be downloaded.

1. Your
supply
chain:context
competitioncollaborati
Richard Farr

2. Turning “stuff” into “things”
Your supply chain, in context
Supply Chain Positioning: “make or buy”?
Competition
Collaboration, and
Cooperation with competition
Questions at any time!
Contents

3. Turning “Stuff” into “Things”

4. “Everyone buys components,
but sells systems.”
– Kamm, 1996
Even the simplest product or service may involve a great
deal of complexity that you never see.

5. Adam Smith, on the
manufacture of pins…
“… a workman not educated to this business … nor
acquainted with the use of the machinery employed in it
… could scarce, perhaps, with his utmost industry, make
one pin in a day, and certainly could not make twenty.
But in the way in which this business is now carried on,
not only the whole work is a peculiar trade, but it is
divided into a number of branches, of which the greater
part are likewise peculiar trades. One man draws out the
wire; another straights it; a third cuts it; a fourth points it;
a fifth grinds it at the top for receiving the head; to make
the head requires two or three distinct operations; to put
it on is a peculiar business; to whiten the pins is another;
it is even a trade by itself to put them into the paper; and
the important business of making a pin is, in this manner,
divided into about eighteen distinct operations…”
– Smith, 1776

6. “…they could, when they exerted themselves, make
among them about twelve pounds of pins in a day. There
are in a pound upwards of four thousand pins of a
middling size. Those ten persons, therefore, could make
among them upwards of forty-eight thousand pins in a
day. Each person, therefore, making a tenth part of forty-
eight thousand pins, might be considered as making four
thousand eight hundred pins in a day.”
– Smith, 1776
Build a supply chain where you
let people that you trust do
what they’re good at.
“Stick to your knitting”
Adam Smith, on the
manufacture of pins…

7. Coping with Complexity
Consider a ‘focal company’

8. Supply Chain Positioning
What parts of the the value addition process is it most
appropriate for our company to...
Have control over (“value positioning”)
Perform ourselves (“make vs buy”)
Let others add value, based on their expertise.

9. Your supply chain, in context…
“Vertical Integration”
“Tier 1”“Tier 2”“Tier 3”

10. “Vertical Integration”
Raw material extraction
Refining e.g. steel
Assembly
Distribution
Dealers and aftermarket
Component manufacture

11. “Vertical Integration”
Current
transformation
Raw
materials
Finished
goods
Forward
integration
Backward
integration

12. Ownership of...
Car assembly plants
Design offices
Coal mines
Iron ore mines
Timber forests
Rubber plantations
A railway network
Freighters
Sawmills
Blast furnaces
A glassworks
... and more
Ford Motor Company
in the 1920’s

13. Questions
Why did Henry Ford want to own everything?
What are the advantages and disadvantages?
Is your business vertically integrated?
Why don’t we see the same “fully integrated” strategy
nowadays?

14. Ford had a supply network that wasn’t growing fast
enough to keep pace.
Raw materials were in short supply after the First World
War.
Inventory costs were too high to permit the holding of
safety stocks for every material.
Henry Ford’s strategy of vertical integration was very
successful... although it isn’t fashionable nowadays:
Anti-competitive.
Not concentrating on core competencies.
Supply Chain Positioning:
Henry Ford Chose Vertical Integration

15. Understanding Competition
Porter’s Five Forces
Porter identified the relevant variables and the questions
that one must answer in order to develop a strategy
tailored to a particular company’s situation.
The five forces...
– Porter, 2008

16. Porter’s Five Forces
A supplier (for example, somebody upstream in your supply
chain) has power if...
Few good alternative sources of supply exist.
They own a patent on something that you need.
Suppliers have solidarity (e.g. OPEC) – strongest when
they are few in number, and highly concentrated.
The cost of switching supplier is high.

17. Porter’s Five Forces
A customer (for example, somebody downstream in your
supply chain) has power if...
The product is a standard, largely undifferentiated type.
The customer’s business represents a major proportion
of the supplier’s total revenue.
The buyer has access to lots of information about
alternatives (e.g. Internet access).
There is a substitute product that might meet the
customer’s needs.

18. Porter’s Five Forces
A substitute product or service is more of a threat when...
Consumer’s switching costs are low.
The relative price of the substitute is low.
The substitute is being marketed aggressively.

19. Porter’s Five Forces
New entrants are unlikely when there are barriers to market
entry, such as...
Large capital requirements, or the need to achieve
economies of scale quickly.
Strong customer loyalty, or brand preferences.
Lack of adequate distribution channels.
Lack of access to raw materials.

20. Porter’s Five Forces
Internal competition is highest when...
There are a lot of competing companies.
Growth slows, or demand for the industry’s products
declines.
Fixed costs are high.
Barriers to leaving the industry are high.

21. Summary of
Porter’s Five Forces
A business operates within a complex
network, competing for customers,
but also competing for raw materials.
Threats to the industry come in the
form of new entrants, and substitutes.
As competition between businesses
intensifies, it tends to drive down
profits, until a balance is reached at a
point where additional new entrants
are discouraged by the low profit
margins.

22. Activity
Think about your own business unit, or your own role.
Consider each of the Five Forces:
The bargaining power of customers
The bargaining power of suppliers
The threat of new entrants
The threat of substitutes
Internal rivalry within the industry
Identify which forces are weak, or string, and why
Can anything be done, where you are not in a good
position?

23. Who’s competing how?
If we must compete in the marketplace, there are
four main ways to differentiate ourselves…
Quality
Cost
Lead time
Flexibility
... maybe some others?
How do these well-known companies compete?

24. Next ‘9pm’ Campaign
http://www.youtube.com/watch?v=4rtfM2KnPWI

25. Next ‘9pm’ Campaign
What do you think…
of how the supply chain is portrayed?
of their chosen basis for competition?

26. The Future of Competition?
There is a widely-held belief that competition will
increasingly occur not between companies, but between
supply chains.
What do you think?
Supply Chain ‘A’
Supply Chain ‘B’

27. Competition
Conceptual Supply Chain

28. Competition doesn’t just mean
competing for customers

29. Conceptual Supply Network
for Orange Juice
Where does
competition exist?

30. Porter’s Five Forces: force number six?
Coopetition
Cooperation and competition.
In addition to businesses competing for suppliers and
customers, there are providers of complementary
products and services.
Relationships in business don’t have to be win-lose:
sometimes both parties can win.
Coopetition occurs when companies collaborate in areas
of their business where they do not believe they have
competitive advantage and where they believe they can
share common costs.
Closely related to Game Theory.

31. Coopetition
The ‘Value Net’
– Brandenburger and Nalebuff (1996)

32. Definitions in Coopetition
A business is your complementor if customers value your
product more when they have a product from the other
business.
A business is your competitor of customers value your
product less when they have a product from the other
business.
Simple examples:
Computer hardware and software; if you update one,
you will find you have an incentive to update the other.
Radios would be pointless without radio stations... and
vice-versa.

33. War and Peace...
Two airlines are rivals: they compete for the attention of
customers, and they compete for ‘slots’ at busy airports.
When the same two airlines both order Boeing’s 787
‘Dreamliner’ (or any other new aeroplane) they are
complementors because they both pay towards Boeing’s
development costs.

34. Main principle
Don’t just fight for a bigger slice of the pie.
Work in partnership to make the pie bigger.
Then fight for a bigger slice.

35. Effective Coopetition
Have a cooperative attitude.
Be careful who you
cooperate with, and the
information you provide.
Treat your partners like your
customers.
Get creative: be prepared to
work in new ways.
Be transparent: trust is a
‘two-way street’.
Eat as much hay as you can!

36. Supply Chain Coopetition
Co-warehousing – make use of facilities that you share
with another business.
Load consolidation – transport your goods together with
those of another business:
Reduce costs for partial loads.
Increase power in negotiations.
Standardisation – make use of common components that
you design in partnership with other businesses.
Shared Research & Development costs.

37. Shared development cost
Having common components in their ‘city cars’ allowed
Toyota, Peugeot and Citroën to drive supply chain costs
down, and the lower retail price expands their market...
...but they still compete for their share of that market.

38. Can’t we all get along?
Apple and Samsung:
often found locked in
courtroom battles over
patents…
Samsung also make
components for the
iPhone: in some cases,
more than a quarter of
component costs went
to Samsung.
How does that work?

39. Activity
Draw a conceptual supply network that shows your own
business unit as the ‘focal company’.
Identify where competition exists – competition for
resources as well as for money/customers.
See if you can identify any opportunities for coopetition.
How might you turn competitors into complementors?

40. Thank you!
More from Richard Farr on Capacify,
the Sustainable Supply Chain blog:
http://capacify.wordpress.com
On Twitter: @Capacified

41. References
Brandenburger, A.M. & Nalebuff, B.J. (1996)
Co-opetition. London: Profile Books
Kamm, L.J. (1996) Understanding Electromechanical
Engineering: an Introduction to Mechatronics, New York:
IEEE Press
Porter, M.E. (1998) Competitive Advantage: Creating and
Sustaining Superior Performance. New York: Simon &
Schuster
Porter, M.E. (2008) The Five Competitive Forces that Shape
Strategy, Harvard Business Review, January 2008, p.86–104
Smith, A. (1776) ‘An Inquiry into the Nature and Causes of
the Wealth of Nations’, London: W. Strahan and T. Cadell