Supply Chain and Competitive
Advantage

The production of goods and services is the result
of the efforts of many organisations – a complex
web of contracts and co-operation known as the
supply chain or the value system.
2
Supply Chains
3
Supply Chains (cont.)

Supply chain parts

Upstream supply chain


Internal supply chain


activities of a manufacturing company with its suppliers
in-house processes for transforming the inputs from the
suppliers into the outputs
Downstream supply chain

activities involved in delivering the products to the final
customers
4
Supply Chains (cont.)

The success of an supply chain depends on:




The ability of all supply chain partners to view
partner collaboration as a strategic asset
Information visibility along the entire supply
chain
Speed, cost, quality, and customer service
Integrating the supply chain segments more
tightly
5
Supply Chain Problems
and Solutions

Typical problems along the supply chain




Slow and prone to errors because of the
length of the chain involving many internal
and external partners
Large inventories without the ability to meet
demand
Insufficient logistics infrastructure
Poor quality
6
Supply Chain Problems (cont.)

Bullwhip effect: Erratic shifts in orders up
and down supply chains



Creates production and inventory problems
Stockpiling can lead to large inventories
Effect is handled by information sharing—
collaborative commerce
7
Supply Chain Problems (cont.)

Need for information sharing along the
supply chain including issues on:





product pricing
inventory
shipping status
credit and financial information
technology news
8
Supply Chain Problems (cont.)


Information systems are the links that enable
communication and collaboration along the
supply chain
Information and information technology are
one of the keys to the success, and even the
survival in today’s economy
9
Supply Chain Problems (cont.)

Major solutions provided by an EC
approach and technologies





Order taking
Order fulfillment
Electronic payments
Inventories can be minimized
Collaborative commerce
10
Porter’s value chain model
support activities
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound Operations Outbound Marketing
Logistics
Logistics & Sales
Margin
Service
primary activities

Primary Activities:
 Inbound Logistics
 Operations (Production)
 Outbound Logistics
 Marketing and Sales
 Service
11
Porter’s value chain model
support activities
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound Operations Outbound Marketing
Logistics
Logistics & Sales
Margin
Service
primary activities

Support Activities:




Procurement
Technology Development
Human Resources Management
Firm Infrastructure
12
Linked value chains
Outbound
Logistics
Inbound Operations Outbound
Logistics
Logistics
Inbound
Logistics

Inbound Logistics
—from Suppliers

Outbound Logistics
—from Customers
13
(Inter-organisational value chain)
Porter’s value system
Supplier
Value
Chains


Firm
Value
Chains
Channel
Value
Chains
Buyers
Value
Chains
Overall organisational competitive advantage:
 efficiency of the company
 quality of its products
plus
 efficiency and quality of suppliers
 efficiency of wholesalers (Channel)
 efficiency of retailers
14
Competitive advantage

Three basic strategies:
 Cost leadership:
Prices lower than the competition.


Differentiation:
Products with some quality that makes them more attractive
than the competition.
Focus:
Concentration on a single aspect of the market (a niche).
(Porter, 1980)
15
IT and competitive advantage

Information and communications technologies (ICTs) can:
 Cost leadership:
 Reduce administrative cost
(including the logistics supply chain)



Differentiation:
 quality of service
 responsiveness to customer requirements.
Focus:
 Target information on the selected segment.
 Gather customer data from that segment.
Quick response and just-in-time can:
 Evolve new products and services.
 Facilitate customisation.
16
Porter’s model of competitive rivalry
Entrants
Supplier
Competitive
Rivalry
Buyers
Substitution
17
Porter’s model of competitive rivalry


The model helps a firm identify threats to its competitive
position and to lay plans, that may include IT and eCommerce, to protect or enhance that position.
The five forces identified by the model are:
 Competitive rivalry among existing players.
 Threat of potential new entrants to the sector.
 Threat of a substitute product or service.
 The bargaining power of the buyers.
 The bargaining power of the suppliers.
18
Porter’s model – new entrants




The ease with which a company can enter a given
trade sector.
Barrier to entry include the need for:
 Capital
 Knowledge
 Skills
The need for IT investment can be a barrier to
entry.
Internet e-Commerce can facilitate entry, e.g.:
 Internet bookshops
 Internet banks
19
Porter’s model – substitution


A new product or service that becomes available and
supplies the same function as the existing product:
 Substitution of natural fibres by synthetic fibres
 Replacement of glass bottles by a plastic alternative
 Replacement of the typewriter by the word processor
e-Commerce substitution:
 Online banking
 Down-loadable music
20
Porter’s model – bargaining power of
buyers



Buyers have bargaining power where:
 There are a number of competitors.
 There is a surplus of supply.
Defences include:
 Low production cost.
 Product branding.
 Efficient service (ICTs facilitated).
 Value added services (ICTs facilitated).
e-Commerce defences:
 Reshaped supply chain (dis-intermediarisation).
21
Porter’s model – bargaining power of
suppliers

Suppliers have bargaining power where:


There are few or no competitors.
There is a shortage of supply.
(The mirror image of the buyer’s position)
22
Porter’s model – existing players


The competition between existing players is won on
the basis of the generic competitive advantage of
price, differentiation or focus.
The use of e-Commerce can:
 Reduce the administrative costs of trading.
 Increase the logistic efficiency of the supply chain.
 Meet any requirements to trade electronically.
 Differentiate the product or service.
 Cut out intermediaries in the supply chain.
 Provide a new marketing channel.
23
First mover advantage




The first organisation to implement a new type of ICT system
can gain the price advantage or differentiation while
competitors are still operating with traditional methods and
systems.
e-Commerce first movers include:
 amazon.com
 eBay
First mover take a big risk:
 New business models.
 New (expensive) technologies
Second/late movers copy proven ideas and technological
applications.
24
First mover advantage



To gain competitive advantage using IS and IT usually
needs an element of surprise; the system needs to be
out in the market place before competitors make a start
in copying the idea.
Sustaining that competitive advantage requires either:
 Converting the technical advantage into brand
advantage.
 Sustaining the technical lead by continuous product
and service development.
The development of many e-Commerce systems, cannot
be entirely private – customers had to become involved
and competitors can copy.
25
Competitive advantage using e-commerce
Force
System
New entrants/
substitution
Internet
e-commerce
Suppliers
(& trade buyers)
e-commerce
logistics (EDI/IeC)
Competitive
advantage
Reduced entry costs
 New sales channel
 New service
opportunities




Buyers
Internet ecommerce



Competitive rivalry
E-commerce



Cost reductions
Quick response
Lockin
New sales channel
dis-intermediarisation
Customer Information
Cost leadership
Differentiation
Focus
26