Value Chains and Alliance Networks

1
Value Chains and Alliance Networks

• Jordan D. Lewis

2
Introduction

• MS
• Quality, cost, value, fast response to changing
  market demands
• Depends on performance of
• Garmet makers
• Fabric producers
• Fiber sources (e.g., Du Pont)
• Suppliers account for 50 of costs
• Suppliers of suppliers rfepresent 50 of those
  costs
• Effective management of supplier relations gives
  a competitive edge
• Chrysler
• Every supplier will see itself as a partner of
  its customer
• And its customers customer

3
Value chain management

• Every firm may belong to more than one value
  chain
• Suppliers of Motorola, Chrysler, Marks Spencer
  serve those firms rivals through seperate value
  chains
• In effect, value chains of rivals compete
• Value chain management becoming central to a
  companys business advantage

4
Choosing value chains

• Performance of a value chain depends on
• Appeal of a customer for a supplier compared to
  others
• Purchasing power, rapid growth, good innovation
• Conduct of the customers of the customer and
  other firms downstream
• Consumer goods industry
• Retailer-manufaturer relationship
• Traditional arms length
• Focus on price, shelf-space

5
Choosing value chains (contd)

• Standard, traditional terms
• Reduce the incentive for retailers to improve
  efficiencies (e.g., joint cost management)
• Most consumer goods are price elastic Reduction
  in growth oppotunities
• Du Pont and MS relationship as a counter case
• Molex Supplier, customer or both?
• Manage in both directions
• Reduction in supply base
• Giving suppliers clear descriptions of its
  objectives and those of its customers (e.g., HP,
  Ford, Motorola, Chrysler)

6
Innovating in the value chain

• Traditional view of suppliers
• Hierarchy
• Direct suppliers rank first
• Others distant in the hierarchy often unknown
• High performance value-chain
• Order of supply links depends on the best way to
  create value, reduce costs, and cycle time
• Bypass the hierarchy to cooperate on new
  developments

7
M S example

• 1st tier suppliers Garment makers
• 2nd tier suppliers Fabric knitters, weavers,
  makers of buttons, belts, trimming, linings
• 3rd tier suppliers Spinners, dyers, finishers,
  printers
• 4th tier suppliers Fiber manufacturers

8
M S example (contd)

• Textile attributes
• Garment texture, aesthetics, construction,
  performance
• MS deals with textile suppliers and their
  suppliers value (i.e., Courtaulds textile and
  garment makers are always ready in meetings)
• Suppliers also innovate on their own initiative
• Lycra A highly technical product that needs
  custom equipment
• Du Pont partnering with machine manufacturers
• Ensure textile buyers receive equipment best
  suited with Lycra

9
M S example (contd)

• Examples of innovations in clothing
• Machine-washable silk blouses
• Developed by DuPont and Ciba Geigy
• How fast does information travel along the
  supply-chain?
• M S shares weekly sales and related data with
  all relevant suppliers
• Advantage Quick reaction capability

10
M S example (contd)

• To be the fashion leader
• M S invites supplier presentations to its board
  of directors
• Shares development plans, changing consumer
  values, and needs, etc. With suppliers
  especially Du Pont
• Sharper insights on where the market is going
• Ex Market data Swimsuits were becoming worn out
  in chlorinated pools
• MS developed swimwear with its suppliers

11
Promoting cooperation between suppliers

• Better view the value-chain as a network than as
  a set of vertically linked companies
• Motorola
• Daily inventory information available on line
• Supplier adjustment to demand fluctuations
• Suppliers benchmark against excellent firms to
  reduce cycle-time
• A small group of suppliers that were not rivals
• Information, skill, best practice sharing

12
Promoting cooperation between suppliers (contd)

• Philips
• Annual town meetings to leverage total TV set
  performance
• All relevant suppliers and function managers
  involved
• (i.e., wire connector, projection lense and TV
  screen suppliers)
• Annual new product and technology meeting
• Design, quality, engineering, production,
  purchasing, materials control and their
  counterpart suppliers
• A joint vision of product performance and how
  parts contribute to that
• Contribuets to production costs and performances
• A new method of assembling TV sets

13
Promoting cooperation between suppliers (contd)

• Motorola
• Seiko and Automatix collaboration for vision
  systems
• Seiko best in robots, Automatix best for vision
  systems
• Conceptual design facility visits
• Tenfold improvement in the automated vision
  systems of Motorola
• Entire development effort baased on trust
• No formal contracts until the system was complete

14
Linking rival supplier firms

• Cannot share as much information as non-rivals
• Cooperate when benefits outweigh risks
• MS food suppliers exchange notes on safety
• Visit each others factory Cooperate on quality,
  safety, service, safety-related technology
• No discussion of product innovation, pricing,
  profits

15
A committed supply base

• MS helps its suppliers to keep up
• Technical assistance
• Manufacturing equipment
• Necessary skills, training
• Prototype garments
• In return, suppliers help MS to meet difficult
  times
• 1992 recession in UK
• Price-cuts Outstanding value campaign
• Working closely with suppliers of core products

16
(No Transcript)