Professional Documents
Culture Documents
Ellram,
Fawcett
Chapter 2: Learning Objectives
1. Discuss the emergence of SCM as a strategic
response to a changing competitive environment.
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Chapter 2: Learning Objectives
4. Describe the forces driving change in today’s
market and their effect on decision-making.
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As the economy changes, as competition
becomes more global, it’s no longer company
versus company but supply chain versus supply
chain.
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SCM – A Strategic Weapon
SCM enables winning business models by helping
companies to:
Meet the demanding needs of customers worldwide
Build unique competencies to fend off fierce rivals
Acquire the best resources globally
Do it efficiently
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Vertical Integration
Henry Ford viewed the vertically integrated
organization as the ideal business model.
Acquired critical production resources
Hayes and Wheelwright identify the
following rationale:
1. Desire to reduce cost
2. Desire to increase control
Lack of focus actually contributed to
decreased competitiveness
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Relationship Integration
Kieretsu (buyer/supplier network) provided
Japanese companies with a competitive
advantage
Toyota and Honda rely on suppliers for
approximately 80% of a car’s value
Compared with 30% for American manufacturers
Japanese model resulted in superior quality and
a $2,000 per vehicle cost advantage
Relationship integration via collaboration
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A Changing SC World
All advantage is temporary. No capability is
unassailable, no lead is uncatchable, no kingdom
is unbreachable. Indeed, the faster the
clockspeed, the shorter the reign. Sustainable
advantage is a slow-clockspeed concept;
temporary advantage is a fast-clockspeed
concept. And, clockspeeds are increasing almost
everywhere.
- Charles Fine, Professor at MIT
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Environmental Scanning
Proactive companies use insight gained from internal and external scanning
to avoid surprises, identify opportunities and threats, and improve both
tactical and strategic decision-making.
Identifies a firm’s strengths and weaknesses vis-à-vis competitor
capabilities and customer expectations.
Scanning attempts to:
1. Detect important cultural, economic, legal, political, social, and
technological events and trends.
2. Help managers accurately and objectively understand the company’s
strengths and weaknesses.
3. Identify and define potential opportunities and threats implied by identified
events and trends.
4. Provide a common and correct perception for tactical and strategic
planning.
5. Promote an adaptable, forward-looking mindset among managers and
employees.
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The Scanning Process
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SWOT Analysis
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Environmental Scanning - Failures
Manager should seek to avoid the following common pitfalls of
environmental scanning:
Failure to involve people who can act on the insight
Failure to incorporate diverse sources of information
Failure to use multiple methods of gathering information
Failure to look at information from diverse viewpoints
Failure to consider both internal and external issues and
perspectives
Failure to understand interaction among environmental trends
Superficial analysis
Study to narrowly focused
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Forces of Change
Many industry-specific forces affect companies;
however, ten generic forces are helping to shape how
business is now conducted.
1. Competitive Pressure 6. Global Capacity
2. Corporate Social 7. Globalization
Responsibility 8. Mergers and
3. Customer Expectations Acquisitions
4. Role Shifting 9. Technology
5. Financial Pressure Innovation
10. Time Compression
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Forces of Change
Issue Competitive Imperatives
Competitive Pressure Must reduce costs relentlessly
Must seek innovation and non-imitable products/processes
Must create switching costs via relationships
Corporate Social Must understand how customers define “good” or ethical business practice
Responsibility Must understand global social norms and track working conditions in SC
Must develop, implement, and communicate company codes of conduct
Customer Expectations Must get into the mind of downstream customers
Must realize that the best way to adapt to the future is to create it
Must build learning organization that thrives on continuous improvement
Role Shifting Must establish valued core competency to avoid dis-intermediation
Must make supply chain visible
Must actively & formally evaluate role-shifting opportunities
Financial Pressure Must recognize that stock markets are not always right
Must establish viable long-term strategy & stick to it
Must create incentives that will not lead to short-term decision making
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Forces of Change
Issue Competitive Imperatives
Mergers & Acquisitions Must realize that mergers & acquisitions are hard to do successfully
Must formally evaluate soft issues—culture, processes, policies, people
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Globalization of Markets
Technology has overcome much of the
distance created by geography and culture.
The pace of globalization depends on:
1. Advances in information and communication
technology
2. Availability of reliable transportation
3. Reduction of protectionist trade policies
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Globalization’s Implications
Business knows no national boundaries. Capital
and work - your work! - can go anywhere on
earth. The consequence of all this is painfully
simple: If the world operates as one big market,
every employee will compete with every person
in the world who is capable of doing the same
job. There are a lot of them, and many of them
are very hungry.
- Andrew Grove, former CEO at Intel
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Importance of Global Markets
95% the world’s population lives outside the U.S.
80% of the world’s gross domestic product is
produced outside the U.S.
50%+ of the population is under 20 years old in
many countries
Educational background and disposable income are
prime factors motivating consumption decisions
US companies earned $315 billion profits overseas
in 2004, up 78% over the past decade
This pace far outstrips domestic profit growth
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Importance of Global Markets
$3,000,000
$2,891,500
$2,500,000
$2,000,000
$ in millions
$1,820,641
$1,500,000
$1,493,400
$1,000,000
$771,994
$575,204
$387,401
$500,000
$299,490
$147,832 $219,183
$-
1990 1995 2000
Years
Global Sales of U.S. Foreign Affiliates U.S. Exports - Goods U.S. Exports - Services
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Global Business is Different
Managers must consider four differences between
Global and domestic operations.
1. Politics –political stability and undercurrents that
might jeopardize global business strategies.
2. Legalities – requires competent legal counsel
3. Finance – exchange rate risk and hedging; taxation
issues
4. Culture –must adapt to local views on time, personal
space, worker/manager relations, individual
accountability, etc.
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Six Globalization Imperatives
Six imperatives are shaping the global
competitive landscape:
1. Establish a Triadic Presence – companies
need to operate in the three major world
markets – U.S., E.U. and Asia
2. Utilized Beachheads – use operations in
industrialized countries as bridges into
emerging markets
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Six Globalization Imperatives
3. Achieve Seamless Performance Across
Markets – deliver the same high quality
product with the same excellent service
everywhere
4. Extend Reach Through Alliances – alliance
partners can provide market knowledge,
technological expertise, operational know-
how, and/or financial resources.
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Six Globalization Imperatives
5. Compete in Competitors Home Market –
competition prevents cross profit
subsidization
6. Coordinate Global Activities – cross-
pollination of ideas creates synergy while
reducing redundancy
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Designing a Global Network
To insure access to customers and worldwide
resources, companies are increasingly
creating worldwide supply chain networks.
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Designing a Global Network
To insure supply chains are properly designed four
criteria should be considered:
1. Compatibility – need to align network design
decisions with company’s overall strategy
2. Configuration – need to identify and consider issues
that will affect network performance when deciding
where to locate value added activities
3. Coordination – need to direct and integrate
geographically dispersed activities
4. Control – need for consistent and proper day-to-day
decision-making at local value added facilities
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