CHAPTER 3
STRATEGIC INITIATIVES FOR IMPLEMENTING COMPETITIVE ADVANTAGES

supply chain management

Defintion

• supply chain management involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability.

4 basic components of supply chain management

• supply chain strategy - the strategy for manging all the resources required to meet customer demand for all products and services.
• supply chain partners - the partners chosen to deliver finished products, raw materials, and services including pricing, delivery and payments processes along with partner relationship monitoring metrics.
• supply chain operation - the schedule for production activities incliding testing, packaging and preparation for delivery. measurements for this component include productivity and quality.
• supply chain logistics - the product delivery processes and elements including orders, warehouse, carriers, defective product returns, and invoicing.

Effective and efficient SCM system can enable an organization to :

• decrease the power of its buyer.
• increase its own supplier power.
• increase switching costs to reduce the threat of substitute products and services.
• create entry barriers thereby reducing the threat of new entrants.
• increase efficiencies while seeking a competitive advantage through cost leadership.

Effective and efficient supply chain managements effect on Porter's five forces :

customer relationship management

Definition

• customer relationship management involves managing all aspects of a customer's relationship with an organization to increase customer loyalty and retention and an organization's profitability.
• many organizations, such as Charles Schwab and Kaiser Permanente, have obtained and great success through the implementation of CRM systems.
• CRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprisewide level.

CRM can enable an organization to :

• identify types of customers
• design individual customer marketing campaign
• treat each customer as an individual
• understand customer buying behaviors

CRM overview

business process reengineering 

Definition

• business process - a standardized set of activities taht accomplish a specific task, such as processing a customer's order.
• business process reengineering (BPR) - the analysis and redesign of workflow within and between enterprises. 
• the purpose of BPR is to make all business processes best-in-class

Reengineering the corporation - book written by Michael Hammer and James Champy that recommends

 

Finding opportunity using BPR

• a company can improve the way it travels the road by moving from foot to horse and then to car
• BPR looks at taking a different path, such as an airplane which ignore the road completely.

Progressive Insurance Mobile Chain Process

Types of change an organization can achieve, along with the magnitudes of change and the potential business benefit

enterprise resources planning

Definition

• enterprise resource planning - integrates all department and functions throughout an organization into a single IT system so that employees cam make decisions by viewing enterprisewide information on all business operations
• Keyword in ERP is "enterprise"

ERP systems collect data from across an organization and correlates the data generating an enterprisewide view

Chapter 2

Identifying competitive advantage

COMPETITIVE ADVANTAGE

•       A product or service that an organization’s customers place a greater value on than similar offerings from a competitor.
•       Unfortunately, CA is temporary because competitors keep duplicate the strategy.
•       Then, the company should start the new competitive advantage.

v  First-mover advantage: occurs when a company significantly increase its market share by being first with new competitive advantage.

v  Competitive intelligence: the process of gathering information about the competitive environment, including competitor’s plans, activities, and products, to improve a company’s ability to succeed.

Managers use three common tools to analyse competitive intelligence and develop advantages including the five forces model, the three generic strategies, and value chain analysis.

THE FIVE FORCES MODEL

•       Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment.
•       Formally defined, Porter’s Five Forces Model analyses the competitive forces within the environment in which a company operates to assess the potential for profitability in an industry.
•       Its purpose is to combat these competitive forces by identifying opportunities, competitive advantages, and competitive intelligence.

BUYER POWER

·         High – when buyers have many choices of whom to buy.

·         Low – when their choices are few.

·         To reduce buyer power (and create competitive advantage), an organization must make it more attractive to buy from the company not from the competitors.

·         Best practices of IT based loyalty program in travel industry (e.g rewards on free airline tickets or hotel stays)

·         Bargaining power of customers / buyer power:

o   Customers can grow large and powerful as a result of their market share

o   Many choices of whom to buy from

o   Low when comes to limited items

o   E.g used loyalty programs (jusco card, tesco card, -being a members to get the discount)

SUPPLIER POWER

·         High – when buyers have few choices of whom to buy from.

·         Low – when their choices are many.

e.g B2B marketplace – private exchange allow a single buyer to posts it needs and then open the bidding to any supplier who would care to bid. Reverse auction is an auction format in which increasingly lower bids.

·         Supplier power is the converse of buyer power.

THREAT OF SUBSTITUTE PRODUCTS & SERVICES

·         High – when there are many alternatives to a product or service.

·         Low – when there are few alternatives from which to choose.

·         Ideally, an organization would like to be on a market in which there are few substitutes of their products or services.

Best practices of IT

·         E.g Electronic product – same function different brands

·         Threat of substitutes

o   To the extent that customers can use different products to fulfil the same need, the threat of substitute exists.

o   E.g: electronic product – same function different brands

o   Switching cost – cost can make customer reluctant to switch to another product or service

THREAT OF NEW ENTRANTS

·         High – when it is easy for new competitors to enter a market.

·         Low – when there are significant entry barriers to entering a market.

·         Entry barriers is a product or service feature that customers have come to expect from organizations to compete and survive.

·         Best practices of IT

o   E.g. new bank must offers online paying bills, acc monitoring to compete.

o   Many threats come from companies that do not yet exist or have a presence in a given industry or market.

o   The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors.

o   E.g. new bank (online paying bills, acc monitoring)

RIVALRY AMONG EXISTENCE COMPETITORS

·         High – when competition is fierce in a market

·         Low – when competition is more complacent

·         Best practices of IT

o   Walmart and its suppliers using IT-enabled system for communication and track product at aisles by effective tagging system.

o   Reduce cost by using effective supply chain.

·         Rivalry among existing firms

o   Existing competitors are not much of the threat: typically each firm has found its “niche”.

o   However, changes in management, ownership, or “the rules of the game” can give rise to serious threats to long term survival from existing firms.

o   E.g: the airline industry faces serious threats from airlines operating in bankruptcy, who do not pay on debts while slashing fares against those healthy airlines who do pay on debt. (MAS & AIR ASIA)

THREE GENERIC STRATEGIC

COST LEADERSHIP

·         Becoming a low cost producer in the industry allows the company to lower prices to customers.

·         Competitors with higher costs cannot afford to compete with the low-costs leader on price.

DIFFERENTIATION

·         Create competitive advantage by distinguishing their product on one or more features important to their customers.

·         Unique features or benefits may justify price differences and/or stimulate demand.

·         Ex: i-care by Proton

FOCUSED STRATEGY

·         Target to a niche market

·         Concentrates on either cost leadership or differentiation

THE VALUE CHAINS – TARGETING BUSINESS PROCESSES

·         Supply Chain – a chain or series of processes that adds value to product & service for customer.

·         Add value to its products and services that support a profit margin for the firm.