Supply chain Management strategy

Addis Ababa University

College of Business and Economic
School of Commerce
Graduate Program

Supply chain Management strategy

group Assignment

Prepared by ID NO
Ayyana Denko GSR/4487/11
Lake Beminken GSR/6995/11
Mengistu Abebe GSR/8423/11
Regular logistic and supply chain management students
Submitted to; - Shiferaw Mitiku (Ph.D.) (Ass. Prof.)
28/May/ 2019
 Supply chain Management strategy

Abyssinia Spring water business environments analysis

under Porter’s five force model and Saunders
environmental factors (PEST factor) analysis

Abyssinia Springs is the first product line that was launched by the GA group after Abyssinia coffee. It is
another line that is carrying forward the Great Abyssinian tradition of marketing a product that is the best
and only the best. Distilled from a divine Ethiopian natural spring, Abyssinia Springs has already
managed to become one of the leaders in the local bottled water market .

Abyssinia Springs is indeed one of few pioneering bottled water products in Ethiopian markets. And
currently, it is a market leader in 5-liter Jar supply in Ethiopia. Preferred for its intact mineral content,
Abyssinia Springs hits the markets in 0.5, 1, 1.5 and 2 liters containers.
Bottled in two facilities, Sululta and Ferensay, Abyssinia Springs is also one of the few bottled water
products in Ethiopia which are safe for consumption by children and people in different age groups.

Abyssinia spring Water under Porter’s five force

model
Porter’s five force model is an analytical model used to help identify the structure of an industry and to
help companies determine their competitive strategies. The model was developed by Harvard Business
 Supply chain Management strategy

School professor Michael E. Porter as part of his book "Competitive Strategy: Techniques for Analysing
Industries and Competitors," published in 1980.
The model can be applied to any segment of the economy. It helps explain why various industries
maintain different degrees of profitability.

threat of
New
entrant

Rivalary
Bargaining
among
power of
supplier five forces existing
compitators
of
porter's
model

Bargaining
power of threat of
Buyers substitutes

Figure 1.1 five forces of porter’s Model

1. Rivalry among existing compotators: A higher degree of competition means the power of competing
company’s decreases. When competition is low, companies can do whatever they need to in order to
increase their profits. Rivalry among industry players can affect industry profits through (a) downward
pressure on prices, (b) increased innovation, (c) increased advertising, (d) increased product
improvements. An increase in competitive rivalry among existing firms brings an Abissina spring bottle
water closer to the theoretical “perfect competition” state. Factors that increase competitive rivalry among
existing firms include: a large number of firms, slowed industry growth, high fixed costs or high storage
costs and high exit barriers. According to Ethiopians food and beverage industry business area, the market
competition is very high. Currently there are 67 water bottling companies in Ethiopia that every emerged
company can compete with their upcoming brands without other qualification. Through this, the power of
Abyssinia spring water on Rivalry is very high.
2. The threats of entrants: potential competitor low pressure
New (and more) entrants into the market mean a company's power also decreases. Most companies prefer
to operate in a market or industry where there are fewer players
Entry barriers are relatively high for the beverage and bottling water industry: there is no consumer
switching cost and zero capital requirement. There is an increasing amount of new brands appearing in
the market with similar prices with Abyssinia spring water. Abissina spring is seen not only as a beverage
 Supply chain Management strategy

but also as a commercial brand. It has held a very significant market share for a long time and loyal
customers are not very likely to try a new brand.
3. Bargaining power of Supplier (seller): The more powerful a seller is relative to the buyer, the more
influence the seller has. This influence can be used to reduce the profits of the buyer through more
advantageous pricing, limiting the quality of the product or service, or shifting some costs onto the buyer
(e.g. shipping costs). Suppliers are powerful if: Suppliers are concentrated or differentiated, significant
costs involved in switching suppliers and Suppliers can forward integrate. This factor examines how
suppliers can use their power to increase the price of goods and services. The fewer suppliers there are in
the market means they have more power. The main ingredients for bottled water
include calcium chloride, magnesium chloride, sodium bicarbonate, and potassium bicarbonate. A bottle
of plastic Packaging is critical for the company. The suppliers are not concentrated or differentiated.
Abissina spring likely has the demographic area or customer of any of these suppliers.
4. Bargaining power of Buyer (customer): When consumers have more bargaining power, they may be
able to affect the price of goods and services, driving them down. The more powerful a buyer is relative
to the seller, the more influence the buyer has. This influence can be used to reduce the profits of the
seller through a reduction of prices, increased favor in customer service or order delivery, or influence
over who the seller supplies to. Customers are powerful if: Customers are concentrated, one customer
consumes a significant amount of output, and Customers possess the power to buy seller or rival. The
individual buyer no pressure on Abissina spring in case of Ethiopian bottle water price factor. The
bargaining power of buyers for this brand had not critical negative impacts. Large retailers, and whole
seller like agents, have bargaining power because of the large order quantity, but the bargaining power is
lessened because of the end consumer brand loyalty.
5. The threat of substitutes: Products and services by a rival that can easily be substituted are also a
threat to a business' profitability. A substitute is a product that performs the same or similar function as
another product. Microeconomics teaches that the more substitutes a product has, the demand for the
product becomes more elastic. Elastic demand means increased consumer price sensitivity which equates
to less certainty of profits. For example, bottled water is a substitute for a soft drink, and municipals water
is a substitute for spring water. Conditions that increase the threat of substitutes are an attractive price of
substitutes, Increased quality of substitutes, Low switching costs to consumers.
Generally based on the above porter’s five-factor analysis Abissina spring bottle water
Abyssinia spring bottle water business environment forces such as the threat of entry, power of
buyers, power of suppliers, the threat of substitute and competitive rivalry are another critical
factor that firms in the food and beverage businesses try very hard to fight so as to increase their
market share and profitability.
PEST Analysis

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes the
framework of macro-environmental factors used in the environmental scanning component of strategic
management.. The use of P.E.S.T. analysis can be seen effective for business and strategic planning,
marketing planning, business and product development, and research reports. P.E.S.T. also ensures that
the company’s performance is aligned positively with the powerful forces of change that are affecting the
business environmentt (Porter, 1985).
Political Factor
According to Grossman’s (1991) analysis of revolutions, in countries where rulers are relatively weak, i.e.
more easily overthrown, the probability of revolutions is higher and the citizens have higher incentives to
engage in revolutionary activities rather than productive market activities.Ethiopia is the one of the
counties that involved in such problems specially in previous three years. Ethiopia’s economy
experienced strong, broad-based growth averaging 10.3% a year from 2006/07 to 2016/17, compared to a
regional average of 5.4%. Ethiopia’s real gross domestic product (GDP) growth decelerated to 7.7% in
2017/18 because of the political instability of the country.( World Bank, 2019)
 Supply chain Management strategy

Based on political factors of business environment Abissinia spring water affected negatively before two
years ago when the country politics was instability through this production capacity, the market sells
volume and logistic flows were at risk. After EPRDF change the Prime Minister Ato Haile Marium
Desalegn resigned and FDRE cabinet meeting replaced by Dr. Abiy Ahamed, business environment
change positively such on operation and logistics flows.
Economics factors
Economic factors are connected with goods, services, and money. All Ethiopia business (local) directly
affected by the financial state of the economy on a greater level i.e. inflation rate, exchange rate, the
interest rate of a national bank and gross domestic product (GDP) growth rate. Therefore in current
Ethiopian economy status, Abyssinia spring bottle water is one of an affected enterprise. Out of the listed
economic factor, the shortage of hard currency has a direct negative impact on the production of bottled
water because the enterprise has imported packaging materials. The instability of inflation and GDP
growth rate indirectly affects the market of enterprise by creating finance free citizens. The borrowing
interest rate has a direct impact on the economy of Abyssinia spring water. In the other side, the following
indirect economic factors letter of credit and tax has impacts on the market of Abyssinia spring water.
The reason for this is that the state of the economy can decide many of the important details that come up
in an operating company, including such as consumer demand, taxes, and asset value.
Socio-cultural factors
Marketing remains as much an art as a science. Though marketing experts can provide with statistical
analysis of the market place, total population figures, and even total dollars/birrs spent by customers in
any given period, an organization must take into account the social and cultural influences on their target
customers. Understanding these influences requires to get to know customers and think about products or
services from their points of view. The highest determinant factors of socio-cultural on the market of
Abyssinia spring water are a lifestyle, Buying Habit, Emphasis on safety, religion and beliefs, the growth
rate of population, attitudes towards imported and fabricated products and attitude to quality. As
Abyssinia becomes one of the primary enterprises on bottled water business the company had built the
society trust, through this the sales volume increase from time to time relative to other brands. The
enterprise participates in social environments/social community responsibility/ like to build health care
institutions, construct infrastructures and other community-based activities. According to active
participation and closeness of enterprise to the family members, friends, colleagues, and other population
have great credit and demands to Abyssinia spring water. From the current market of Abyssinia spring
water, socio-cultural factors have positive impacts on the market of it.

TECHNOLOGICAL factors

Technology is fast disrupting various industries and Sales & Marketing is no different. Some of the
technological factors that are impacting the firm are– access to mobile phones driving empowerment,
access to greater information, innovation in product offerings, rate of technology-driven change,
population access to technology, supply chain disruption because of technology, innovation in customer
services, etc. The Abyssinia spring water had used the updated technology like oxygen-ozone treatment
line to produce quality water and provide competitive products to the customers. They use the updated
market information program through the free calling center and SMS/texts/ to order their products. The
Abyssinia spring water enterprise has continued research and development program for the rapid and
consistent growth of sale volume/production/ in the market. The Enterprise used the updated technology
for production of a quality product which is accepted to customer. Therefore technology role has a great
impact for Abissina spring bottle water to sustain in the market and as preferred the best one on the
market.
 Supply chain Management strategy

Reference
Grossman, H. (1991), “A General Equilibrium Theory of Insurrections, ” American Economic
Review, forthcoming.
Porter, M.E. (1980) Competitive strategy: techniques for analysing industries and competitors. New
York: Free Press.
World Bank. (2019)