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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 41
PORTER SUPPLY CHAIN MODEL
Learning Objective
This topic concern with the porter supply chain model. After studying this chapter you are able to
understand that what are major forces of supply chain model and how it affects the performance of the
organization.
Porter supply chain model
The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through
which firms can create value and competitive advantage.
The activities of the Value Chain
Primary activities (line functions)
o  Inbound Logistics. Includes receiving, storing, inventory control, transportation
planning.
o  Operations. Includes machining, packaging, assembly, equipment maintenance, testing
and all other value-creating activities that transform the inputs into the final product.
o  Outbound Logistics. The activities required to get the finished product at the customers:
warehousing, order fulfillment, transportation, distribution management.
o  Marketing and Sales. The activities associated with getting buyers to purchase the
product, including: channel selection, advertising, promotion, selling, pricing, retail
management, etc.
o  Service. The activities that maintain and enhance the product's value, including: customer
support, repair services, installation, training, spare parts management, upgrading, etc.
Support activities (Staff functions, overhead)
o  Procurement. Procurement of raw materials, servicing, spare parts, buildings, machines,
etc.
o  Technology Development. Includes technology development to support the value chain
activities. Such as: Research and Development, Process automation, design, redesign.
o  Human Resource Management. The activities associated with recruiting, development
(education), retention and compensation of employees and managers.
o  Firm Infrastructure. Includes general management, planning management, legal, finance,
accounting, public affairs, quality management, etc.
Creating a cost advantage based on the value chain
A firm may create a cost advantage:
 By reducing the cost of individual value chain activities, or
 By reconfiguring the value chain.
Note that a cost advantage can be created by reducing the costs of the primary activities, but also by
reducing the costs of the support activities. Recently there have been many companies that achieved a cost
advantage by the clever use of Information Technology.
Once the value chain has been defined, a cost analysis can be performed by assigning costs to the value
chain activities. Porter identified 10 cost drivers related to value chain activities:
1. Economies of scale.
2. Learning.
3. Capacity utilization.
4. Linkages among activities.
5. Interrelationships among business units.
6. Degree of vertical integration.
7. Timing of market entry.
8. Firm's policy of cost or differentiation.
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Strategic Management ­ MGT603
VU
9. Geographic location.
10. Institutional factors (regulation, union activity, taxes, etc.).
A firm develops a cost advantage by controlling these drivers better than its competitors do. A cost
advantage also can be pursued by "Reconfiguring" the value chain. "Reconfiguration" means structural
changes such as: a new production process, new distribution channels, or a different sales approach.
Normally, the Value Chain of a company is connected to other Value Chains and is part of a larger Value
Chain. Developing a competitive advantage also depends on how efficiently you can analyze and manage
the entire Value Chain. This idea is called: Supply Chain Management. Some people argue that network
is actually a better word to describe the physical form of Value Chains: Value Networks.
148
Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning