Definition of supply chain power

This represents the extent to which a company has influence on other members of the supply chain.  A supply chain is the network of various companies that are involved in the sourcing, manufacture and delivery of products and services, from extracting raw materials to final consumption.

Let us consider shirts, there are many companies involved in the production of this item, such as the manufacturer of the fabric, the cotton supplier and the farmers managing the cotton plant.  Effective coordination and collaboration among channel partners provides a quality product at a competitive price delivered on time.

Example

The most powerful companies in the supply chain can push changes onto its suppliers which can have a profound impact on the company and the industry as a whole.

According to an FT article, 'Wal-Mart sees jump in CFL sales', in 2006 the US retail giant Wal-Mart set itself the goal of selling 100m low-energy light bulbs by 2007.  Within a year, the percentage of its customers buying the bulbs had more than doubled, from five to 13 per cent.  Now other retailers stock various energy efficient bulbs at competitive prices

Malcolm Baldrige National Quality Award

The Malcolm Baldrige National Quality Award recognizes U.S. organizations in the business, health care, education, and nonprofit sectors for performance excellence. The Baldrige Award is the only formal recognition of the performance excellence of both public and private U.S. organizations given by the President of the United States. It is administered by the Baldrige Performance Excellence Program, which is based at and managed by the National Institute of Standards and Technology, an agency of the U.S. Department of Commerce. Up to 18 awards may be given annually across six eligibility categories—manufacturing, service, small business, education, health care, and nonprofit. As of 2013, 102 awards have been presented to 96 organizations (including six repeat winners).The Baldrige National Quality Program and the associated award were established by the Malcolm Baldrige National Quality Improvement Act of 1987 . The program and award were named for Malcolm Baldrige, who served as United States Secretary of Commerce during the Reagan administration, from 1981 until Baldrige’s 1987 death in a rodeo accident. In 2010, the program's name was changed to the Baldrige Performance Excellence Program to reflect the evolution of the field of quality from a focus on product, service, and customer quality to a broader, strategic focus on overall organizational quality—called performance excellence.The award promotes awareness of performance excellence as an increasingly important element in competitiveness. It also promotes the sharing of successful performance strategies and the benefits derived from using these strategies. To receive a Baldrige Award, an organization must have a role-model organizational management system that ensures continuous improvement in delivering products and/or services, demonstrates efficient and effective operations, and provides a way of engaging and responding to customers and other stakeholders. The award is not given for specific products or services.

HISTORY OF CONTAINERIZATION

Modern container shipping had been use over 57 years until now. Almost from the first voyage, use of this method of transport for goods grew steadily and in just five decades, containerships would carry about 60% of the value of goods shipped via sea.

The idea of using some type of shipping container was not completely novel. Boxes similar to modern containers had been used for combined rail- and horse-drawn transport in England as early as 1792. The US government used small standard-sized containers during the Second World War, which proved a means of quickly and efficiently unloading and distributing supplies. However, in 1955, Malcom P. McLean, a trucking entrepreneur from North Carolina, USA, bought a steamship company with the idea of transporting entire truck trailers with their cargo still inside. He realized it would be much simpler and quicker to have one container that could be lifted from a vehicle directly on to a ship without first having to unload its contents.

His ideas were based on the theory that efficiency could be vastly improved through a system of "intermodalism", in which the same container, with the same cargo, can be transported with minimum interruption via different transport modes during its journey. Containers could be moved seamlessly between ships, trucks and trains. This would simplify the whole logistical process and, eventually, implementing this idea led to a revolution in cargo transportation and international trade over the next 50 years.

The Containership

On 26 April 1956, Malcom McLean's converted World War II tanker, the Ideal X, made its maiden voyage from Port Newark to Houston in the USA. It had a reinforced deck carrying 58 metal container boxes as well as 15,000 tons of bulk petroleum. By the time the container ship docked at the Port of Houston six days later the company was already taking orders to ship goods back to Port Newark in containers. McLean's enterprise later became known as Sea-Land Services, a company whose ships carried cargo-laden truck trailers between Northern and Southern ports in the USA.

Other companies soon turned to this approach. Two years later, Matson Navigation Company's shipHawaiian Merchant began container shipping in the Pacific, carrying 20 containers from Alameda to Honolulu. In 1960, Matson Navigation Company completed construction of the Hawaiian Citizen, the Pacific's first full container ship. Meanwhile, the first ship specifically designed for transporting containers, Sea-Land's Gateway City, made its maiden voyage on 4 October 1957 from Port Newark to Miami, starting a regular journey between Port Newark, Miami, Houston and Tampa. It required only two gangs of dockworkers to load and unload, and could move cargo at the rate of 264 tons an hour. Shortly afterwards, the Santa Eliana, operated by Grace Line, became the first fully containerized ship to enter foreign trade when she set sail for Venezuela in January 1960.

The Container

It was a logical next step that container sizes could be standardized so that they could be most efficiently stacked and so that ships, trains, trucks and cranes at the port could be specially fitted or built to a single size specification. This standardization would eventually apply across the global industry.

As early as 1960, international groups already recognizing the potential of container shipping began discussing what the standard container sizes should be. In 1961, the International Organization for Standardization (ISO) set standard sizes. The two most important, and most commonly used sizes even today, are the 20-foot and 40-foot lengths. The 20-foot container, referred to as a Twenty-foot Equivalent Unit (TEU) became the industry standard reference with cargo volume and vessel capacity now measured in TEUs. The 40-foot length container - literally 2 TEUs - became known as the Forty-foot Equivalent Unit (FEU) and is the most frequently used container today.

Security In Logistics

   Security has become increasely important.Even legitimate business people must be aware of the regulations.This is because every shipper must comply with the same laws,and because one does not want to become accidentally involved in illegal activity.One of the main concerns with government agencies,and particularly customs,is corruption.Corruption is the misuse of entrusted power for private benefits.While many agencies are highly professional, there are also many where corruption is likely, or even the standard operating procedure.This becomes a major problem for buyer and society.

   Second is dangerous good for example is more than three billion tons of hazardous materials are transported by air,rail,vessel or highway, annually in US,more than 800,000 shipments every day.There is now a large industry of logistics and transport professionals specializing in this area.Buyer and society need to be aware of what they are shipping and the regulation that apply.In most industries logisticians do not need to worry about much of technical aspect of their transportation ,but that is not the case with dangerous goods.

     Security also in this case refer to threat of attack to both cargo and the people involved in logistics process.Issues of security in business can become quite broad,so discussion will be limited to matter of transport security and incidental threats to personnel managing the transport such as vessel. The importance of security can be seen in the variety of threats that are presented in the supply chain:

              Cargo theft is one cause of loss where a lot can be done to control it,yet it has been called the transportation industry’s ‘dirty little secret’.Two things put cargo at its greatest risk ,dwell time and changes in control.

              Dwell time is when the cargo is not physically moving .It is extremely difficult to steal cargo while it is moving.Besides,when difficult to move the good to transportation,the carriers have limited personnel on transportations and it would be hard for anyone to get away with cargo stolen while enroute.For that we know if vessel not move from port,the vessel can be easy to dissapears.

              Changes in control refer to those points in shipment where cargo is being passed from one party to another. This may be at port, where different modes of transport connet. It may also be when drivers are switched. Every transaction is risk point. The receiving party should check the cargo, but often this does not happen. Often it is impossible to check the transportation when the transportation is handed off. The cargo may taken at port by someone posing as buyer or the seller.

    For the last is smuggling that is defined as “conveing goods or persons,without permissions, across the border of country or other political entity. This means that only international transfer are smuggling. Earlier we discussed corruption and security issues. Corruption is the relationship between the seller and government official. Smuggling refers to the relationship between a smuggler and government. Trafficking,unlike smuggling, is the buying or selling and transport of something, yet the term has become synonymous with smuggling.

Pricing strategy

A marketing strategy used by firms to attract customers to a new product or service. Penetration pricing is the practice of offering a low price for a new product or service during its initial offering in order to attract customers away from competitors. The reasoning behind this marketing strategy is that customers will buy and become aware of the new product due to its lower price in the marketplace relative to rivals.

Penetration Pricing Strategy

Penetration pricing is used when a company wants to really dominate a market. They lower almost all of their prices in order to keep customers buying. Retailers who use this strategy make their profits primarily through volume sales. Large sales enable those same retailers to buy in bulk, so to speak, and receive their wares at a much lower cost per unit. This increases their profit margin. The risk with penetration pricing is that the image of the company may be perceived as lower quality because the price is lower. Most managers, though, take the risk because of the huge promise of market share that will allow them to control a good portion of the industry.

Skimming

The best example of price skimming happens frequently with computers, mobile phones and other electronics. For a short time when the product is first released on the market as a new and highly coveted item, it is expensive. Only an exclusive group of people can afford to buy the product and be a part of the elite club of those who have “access.” Once the item becomes more popular and sales volumes begin to rise, pricing falls, and those early adopters who chased the prestige move on to the next greatest new product. The benefit of this strategy is clearly short-term profit. Over time as prices fall, the pricing strategy must shift to ensure a profit.

Competition-Based Pricing Strategy

Keeping track of your competitors is a basic business practice that does not always involve pricing. Sometimes, it is merely a practice to keep your company on its toes. When it is done for the purpose of pricing, however, it is a good way to stay informed about what is unfolding in your industry – and who is making things unfold. Choosing to orient your company as a competition-based company means that you will have to stay innovative to keep ahead of your competitors. Since it is also driven by supply and demand, it also means that the general public likely will get the best deal from the best company selling the product. While it is important not to be distracted by being obsessed with the dealings of other companies, it is just smart business to always have some idea of how they are delivering to their customers.

Consumer-Based Pricing Strategies

Consumers tend to consider prices in terms of what they think the price should be, comparing their perceived price with the actual price. Discrepancy in either direction (too high or too low) may cause the consumer to purchase the product from another company. A consumer-based pricing strategy can be advantageous because it goes inside the mind of the intended consumer to predict what the consumer would be willing to pay for a product. Market research and attention to other elements of the marketing mix help determine the consumer’s ideal price.

Pricing According to Demand

Price strategy may also be tied to the economic “law” of supply and demand. The law of supply and demand states that prices should rise as demand for the product rises. The rise in price leads to a rise in profits, which allows the company to produce more products. The additional products leads to a surplus, the surplus causes prices to fall once more, and the lower prices lead to an increase in demand, starting the cycle over again. Advantages of demand pricing include the ability to optimize prices using charts and mathematics that predict ideal prices. However, demand pricing may lead to revenue loss by failing to take into account variables such as production costs and the consumer’s desired price.

Porter's 5 Forces in the Automobile Industry

Porter's 5 Forces in the Automobile Industry

   Porter's Five Forces, also known as P5F, is a way of examining the attractiveness of an industry. It does so by looking at five forces which act on that industry. These forces are determinants of that industry's profitability.





The forces are:

1. The threat of new entrants
   In the auto manufacturing industry, this is generally a very low threat. Factors to examine for this threat include all barriers to entry such as upfront capital requirements (it costs a lot to set up a car manufacturing facility!), brand equity (a new firm may have none), legislation and government policy (think safety, EPA and emissions), ability to distribute the product (Alfa Romeo has been out of the US since the early 90s largely due to the inability to re-establish a dealer network. But if you are looking at Singapore, for example, only one Alfa Romeo dealer is needed!).

2. The bargaining power of buyers/customers
   Who in the US has ever bought a car without bargaining? Anybody? In 2009 especially, US dealers were giving great deals to buyers to get the industry moving. While quantity a buyer purchases is usually a good factor in determining this force, even in the automotive industry when buyers only usually purchase one car at a time, they still wield considerable power.

However, this may be different in other markets. In Singapore it sure is lower than in the US, creating a more favorable situation for the industry but not the buyers.

Generally, however, it's safe to say the customers have some buying power, but it depends on the market.

3. The threat of substitute products
   If buyers can look to the competition or other comparable products, and switch easily (they have low switching costs) there may be a high threat of this force. With new cars, the switching cost is high because you can't sell a brand new car for the same price you paid for it. A P5F analysis of the car industry covers the new market, not used or second-hand.

But what about the threat of substitute products before the buyer makes the purchase? You need to know whether the market you are analyzing has many good alternatives to new cars. A vibrant used car market perhaps? Used cars threaten the new market. How about a very good mass-transportation system?
Product differentiation is important too. In the car industry, typically there are many cars that are similar - just look at any mid-range Toyota and you can easily find a very similar Nissan, Honda, or Mazda. However, if you are looking at amphibious cars, there may be little threat of substitute products (this is an extreme example!).


4. The amount of bargaining power suppliers have
   In the car industry this refers to all the suppliers of parts, tires, components, electronics, and even the assembly line workers (auto unions!). We know in the US the auto unions are tremendously powerful. But we also know that some suppliers are small firms who rely on the car makers, and may only have one car maker as a client. So this force can be tricky to evaluate.

5. The intensity of the competitive rivalry (which is in part determined by 1-4)
   We know that in most countries all carmakers are engaged in fierce competition. Tit-for-tat price slashes, ad campaigns, and product developments keep them on the edge of innovation and profitability. Margins are low and pressure between rivals is high.

All major car-producing nations experience this intense rivalry. This obviously includes the US, Japan, Italy, France, the UK, Germany, China, India, and more.

State-owned car manufacturers like Proton in Malaysia experience less rivalry but are still under pressure from imports.

While a P5F analysis applies to all companies competing in one industry (and market) the same, what differs is that those firms' profitability will vary between them. This is because of their own competitive advantages and varying business models. So just because all firms in one industry and market are subject to the same forces doesn't mean they perform equally.

A P5F analysis should always be done in conjunction with other assessments, and should not be regarded as being absolute. It should only serve as an indicator, not absolute fact or even necessarily accurate.
There are many critical assumptions that should be made and explained in one's P5F analysis. The market must be described, the competition must be explained, and the products must be defined.

For example, a P5F analysis of the car industry in the US would not necessarily apply in China. The markets are totally different, and the product life cycle is not even close to being the same.

Another example is the type of automotive industry. A P5F analysis of the electric car industry would be entirely different than one of the conventional car industry.

A summary of the findings is below:

1. There is low threat of new entrants
2. The bargaining power of buyers/customers is low
3. Suppliers do not have much bargaining power
 
  The bargaining power of suppliers and threat of new entrants are moderate, which is not very favorable to industry profitability. It should be noted, however, that the bargaining power of suppliers may be induced upon them by force, as if they stop supplying it is not because they have money and are threatening the automakers, but because they cannot afford to keep assembly lines open. This creates a negative-sum game, hurting both parties. It could force the automakers to rescue the suppliers.

In summary, the industry is unfavorable to profitability.