Industrial Relations

1
Industrial Relations

• Veronica Fellman
• 11 December 2006
• Arcada

2
Distribution in Business Networks

• the route taken by a product as it moves from
  the producer to user
• Many manufacturers have hardly any contact with
  the end-users of their offerings, but major
  relationships with industrial distributor
  companies
• Distributors hold stock and deliver products to
  users and provide them with information and
  after-sales service
• Fulfil important elements of the suppliers
  offering
• Intermediaries become important, end users do not
  need to be in touch with manufacturers
• Here analysed from the users side

3
Distribution in Business Networks

• Distribution
• As the activities that bridge the gap between
  producer and user
• Distribution functions activities necessary for
  gap-bridging and include promotion, negotiation,
  physical distribution and risk-taking
• Distribution as physical delivery
• Fulfilment of a business transaction
• Two flows a) a flow of information to be
  established between companies
• b) flow of products and services to be
  organised
• Distribution management
• Distribution as a network through which offerings
  are fulfilled
• Network consists of companies involved in
  distribution, the relationship between them and
  the resource infrastructure that they use in
  their operations.
• Companies manufacturers, distributors
  (wholesalers and retailers)
• Infrastructure roads, railways, trucks, material
  handling equipment, warehouses, communications
  systems, other facilities
• A wider network
• Distribution involves both activity and resource
  structures and how these are governed
• 4. Economic planning

4
Distribution in Business Networks

• SKF (manufacturer of rolling bearings) in direct
  contact with larger customers but also local
  distributors
• Technology car and truck assemblers are in touch
  with the users
• ABB the 100 largest customers account for 60 of
  total sales, and are supplied by the ABBs sales
  organisation, but 40 of sales is divided among
  39 000 users.
• Distribution provides the logistics element of a
  suppliers offering. A supplier can solve a
  customers problems about where, when and how
  frequently it needs to receive the product,
  service or advice elements of an offering.
• Distribution provides adaptations to other
  elements of an offering in product, service,
  advice and logistics. Many suppliers are unable
  to provide these adaptations themselves and rely
  on independent distributors for them.
• Developments in information technology and
  transportation facilities provide new
  opportunities for distribution.

5
Distribution from the Users Perspective

• Direct distribution or through intermediaries
• If intermediaries manufacturer must choose the
  most suitable intermediaries to channel the goods
  from the factory to the intended users
  efficiently and at low cost
• Also the distribution relationship is important!
• One view The problems of the user. Users require
  more complex offerings to solve their problems
• A multiplicity of different activities carried
  out in varying combinations by numerous
  companies
• Many companies will develop and/or produce
  offerings that are sold to others and merged by
  them in a number of plants. These may be made
  available in a variety of distant locations by
  those companies or by others as part of their
  offering. Yet other companies will take these
  offerings and install them for a user as their
  offering.
• Some companies will carry out many different
  activities themselves. Others will use
  third-party vendors or independent contractors,
  for example, in transportation or after-sales
  services. Some companies may manufacture most of
  what they sell, others will buy products and
  services from others and sell on. Some will
  provide all the logistics, advice and adaptation
  that their customers need, whereas some will use
  others for this. Some will supply designs to
  others to buy them for their own offerings.

6
Distribution from the Users Perspective

• The network view of distribution contrasts with
  the marketing channel perspective by emphasising
  that superficially similar companies can have
  quite different relationships with the firms
  around them, e.g. computers. The network view
  shows that we cannot make a separation of
  manufacturers, wholesalers or retailers.
• No network is designed, controlled or managed by
  one company or type of companies. This means that
  efficiency in distribution networks is dependent
  on the activities of many firms and that
  efficiency cannot be solely defined in terms of
  optimising the output of a single producers
  factory.

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Distribution example

• Example A home computer user who needs to create
  and print text documents, manipulate and analyse
  numbers and manage records.
• Offerings of product, service, logistics, advice
  and adaptation
• She can find an expert to diagnose her problems
  and recommend which solutions are required. She
  can then rely on the expert to procure the
  products on her behalf, set them up, install them
  and provide her with the basic training. A
  variation of this alternative would be if she
  specified a manufacturers brand that she trusts
  and then relied on the expert for the other
  elements.
• OR peruse the computer press and suppliers
  catalogues and then obtain offers from various
  suppliers. She could set up and install the
  equipment herself and then read the user manuals
  to train herself.
• Solutions depend on the user and her knowledge.

8
Distribution example

• Differences to a large user
• Main parts are the same Offerings of product,
  service, logistics, advice and adaptation, costs
• Problem of linking numerous, stand-alone
  computerised business processes across
  geographical boundaries
• Redesign of core processes to improve the
  satisfaction of its own customers.
• Options outsource/utilise own skilld, or both
• Service element is a larger part of the total
  bundle
• Adapted products
• Direct relationship with a computer manufacturer
  significant price or logistical advantages or
  integration is needed
• The nature of the existing relatinoship and the
  characteristics of the wider network that
  surrounds them will limit their options.

9
Distribution from a Network Perspective

• Not possible to make a clear distinction between
  manufacturers, distributors and users for
  distribution operations in business markets
• BMW uses Bosch to manufacture certain components
• Bosch uses many suppliers, which provide inputs
  Bosch uses for the offerings to BMW.
• Bosch uses BMWs design and production skills to
  transform its own and others components and thus
  bring them to a larger set of end-users.
• BMW can be seen as a distributor of Boschs
  products to new car buyers. In these operations
  BMW is acting in a similar way to the wholesalers
  and dealers that distribute Boschs offerings to
  the after-market of existing car owners. BMW is
  also similar to the new car dealers that
  distribute BMWs own cars and the components from
  which they are built.

10
Indirect relationship

• Neither Bosch nor BMW are perceived as
  intermediaries, each is an intermediary between
  other companies.
• All actors are intermediaries, because each is
  embedded in relationships and each of these
  relationships is embedded in others.
• All companies are customers and all are
  suppliers.
• Manufacturer-distributor-user relationship see
  picture
• Producer of domestic appliances tries to persuade
  a distributor to increase its stocks of a product
  that only sells slowly and is not very profitable
  for the distributor. The immediate relationships
• The manufacturer might be pushing this product
  because it is readily available when compared to
  others that are in short supply owing to
  restricted deliveries of components from its own
  suppliers
• The manufacturer might be interested to extend
  the sales of this product because its own
  suppliers are pressuring it to take more of the
  components on which it is based.
• The manufacturer might be trying to increase its
  share of the end-user market for this particular
  product by getting all its distributors to sell
  more
• The manufacturer might want all of its
  distributors to sell more of this particular
  product. It might hope that by achieving
  dominance among distributors it will discourage
  another manufacturer that this is thinking of
  launching a similar product.

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The Distributor as a Nexus of Relationships
Manufacturers
Distributor
Users
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Differentiated Distribution Networks An
Information Technology Network
Component suppliers
Other suppliers
Manufacturer X
VAD
Joint venture
Software house
Dedicated partners
Independent distributor
Installer
Resellers
VAR
Mail-order companies
End users
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Distribution in Business Networks

• Distribution and the resource structure
• Positional resources and technological resources
• Responsibility for stocking, logistics or
  advertising
• IKEA assembly and transportation to consumers
• Required Specialised resources, technological
  development
• Distribution and the Activity Structure
• Postponement and speculation
• Lead-times
• JIT
• Restructure of the activity structure
• Case Atlas Copco, a Swedish manufacturer of
  hand-held tools
• Postponement, speculation, customisation and
  standardisation provide suppliers with numerous
  opportunities for differentiation

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Atlas Copco
Improvements in Distribution Performance of Atlas
Copco through Reorganisation of Activity Links
Before the change After the change
Number of factories 7 1 Number of central
warehouses 2 (Sweden) 1 (Belgium) Inventories as
a proportion of yearly sales 55 18 Total
lead-time 16-20 weeks 2-3 weeks Service level
( of order lines as requested) 70 95
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A Continuum of Customisation/Standardisation
StrategiesPURE STANDARDISATION PURE
CUSTOMISATION
Other offering elements advice, adaptation,
product and service.
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Distribution and the Actor Structure

• Suppliers rely on a network of differentiated
  counterparts rather than a single marketing
  channel.
• Activities in distribution have become
  increasingly interdependent owing to the shift
  towards postponement.
• Co-ordination of activities and resources
• Relationship between a manufacturer and a
  distributor requires co-operative efforts.
• Conflicts menufacturer consumer, other
  incumbents
• Distribution partnerships successful?
• CEO of Caterpillar Wed sooner cut off our
  right arm than sell directly and bypass
  dealers... We wont turn on dealers in bad times
  to avoid short-term pain... When we see
  particular dealers not performing well, we jump
  in and help... We want dealers to succeed.

17
Change and Stability in Distribution Networks

• Factors that tend not to reinforce inertia
• Efficient processing and constant refinement of
  interactions make routines
• Long-term investments in facilities, warehouses
  and relationships
• Networks, e.g. Japan Western world
• Difficulty in changing suppliers
• Important in high-involvements relationships
  conflicting issues are handled in a more
  constructive way than is necessary in
  arms-length transactions.

18
Technology and Business Networks

• Companies establish relationships to gain access
  to the technological resources of others and to
  exploit their own expensively developed
  technologies. Without relationships a companys
  technologies have little value.
• Technology is developed in the relationships
  between companies as well as in the companies
  themselves as a result of both companies
  investments aimed at making their interactions
  more efficient and effective.
• Technologies developed by companies can be
  transmitted, modified and combined with other
  technologies in different relationships.
• A single technology cannot be used in isolation.
  Every new technology must be combined with
  others, both old and new and adapted and refined
  to solve particular problems. Each technology is
  embedded in the network of business
  relationships.
• Investment in technology investment in a
  relationship

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The Nature of Technology

• Technology is an ability based on scientific
  knowledge that can be used for commercial
  purposes.
• Product technologies problem-solving, demand
  abilities
• Process technologies fulfil an offering eg.
  McDonalds
• Technology improves production and processes
• Marks and Spencer cotton production
• Fashion industry
• Amgen Epoetin alfa
• Boeing production of undercarriages to its
  requirements
• BMW Rolls-Royce Sussex
• Economic potential of Technology in Business
  Networks
• The value of the product and process technologies
  depend on the product and process technologies
  that are employed in the components used in the
  production
• The value depends also on the support systems of
  other companies
• The value depends on the particular problems

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Economic potential of Technology in Business
Networks

• Technologies and relationships change
• Development in business networks
• Re-order existing technologies and develop new
  ones in existing relationships
• Relate these to technological developments
• Develop new relationships to exploit technology,
  provide access to different technologies
• Network view of technological development
• Embeddedness
• Knowledge
• Control
• Change
• Bundling
• Effects of relationships on technological
  development
• Interactive effects
• Complementary effects

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Duration of Development Relationships with
different types of partner
Duration (years) Customers Suppliers Horizontal
units 0-4 36 28 55 5-14 30 41 29 gt15
33 29 15 Weighted average 13 y 13 y 8 y
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Creating Economic Value from Technology

• Investment value
• Technological content what
• Business application what used for and how
• Tetra-Pak and KM7/Billerud-Uddeholm

BUSINESS APPLICATION
UNCLEAR CLEAR
TECHN. CONTENT KNOWN
1 Seek new applications for known technologies,
relationships important
2 Ordered development. Single actors are important
TECHN. CONTENT UNKNOWN
3 Development is random. Single actors are
important.
4 Seek new technological solutions for known
applications. Relationships are important.
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Three Aspects of Networking

• 1 aspect A companys relationships are the basis
  of its current operations and development. Yet
  those relationships also restrict that
  development.
• 2 aspect It is equally valid to say that a
  company defines its relationships or that a
  company is defined by those relationships.
• 3 aspect companies try to control the network
  and want the benefits of control, but control has
  its problems and when it becomes total, it is
  destructive.
• gt STRATEGY

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Three Aspects of Networking
Choices Coping Networking
CHOICES ABOUT WORKING WITHIN RELATIONSHIPS CHOICES
ABOUT NETWORK POSITION CHOICES ABOUT HOW TO
NETWORK
COPING WITH THE FIRST NETWORK PARADOX COPING WITH
THE SECOND NETWORK PARADOX COPING WITH THE THIRD
NETWORK PARADOX
THE FIRST ASPECT OF NETWORKING THE SECOND ASEPCT
OF NETWORKING THE THIRD ASPECT OF NETWORKING
CONFORM OR CONFRONT CONSOLIDATE OR
CREATE COERCE OR CONCEDE