Among two of the most important network groups are suppliers and partners, who sit at different positions in the value chain. The main activities listed along the bottom of the value chain are inbound logistics, operations, outbound logistics, marketing and sales and service. Support activities are arranged vertically at the top of the value chain and are procurement, technology development, human resource management and firm infrastructure.
For many companies, the purchase cost is 50 percent or more of the total cost of running the business. A major driver of this change was the recognition of the high fixed costs of supplier management. This includes the cost of the purchased product and other item costs such as insurance and transport.
The Chartered Institute of Purchasing and Supply UK estimates these to be around £50 on average, regardless of the value of the items purchased.
Category management
The Compaq and Laura Ashley data indicate which economies are feasible within a given area, such as logistics. Category management requires the retailer and supplier to establish close relationships that enable them to agree category objectives, optimize category assortment, introduce new products, delist brands or items that do not contribute to category performance, and or carry out brand promotions. Category management is made possible by IT applications such as EDI, electronic funds transfer and activity-based costing.
Category management is sometimes cited as a win-win strategy for both retailer and manufacturer, potentially generating a number of benefits, as shown in Figure 11.6 14 However, the consultants McKinsey & Company warn that most of the benefits of category management are distorted in favor of the retailer. 15 Indeed, research confirms that retailers enjoy higher prices and higher profits under category management than competitors with traditional brand acquisition strategies. Higher retailer profits are achieved only under certain circumstances, especially when inter-brand competition is high and consumer switching is low.
It is becoming more common for companies to collaborate with their suppliers on product improvement and new product development programs. For example, suppliers may be able to advise on cheaper or better product specifications. They can share part of the cost burden if they are assured of being a major supplier.
Technical Felts, a manufacturer of air filtration felts, membranes and fabrics, partners with key customers to develop application-specific solutions to those customers' air quality problems. For example, Boeing has created virtual design teams with its suppliers to work on aircraft design projects.
Cooperation between electronics components suppliers and OEMs in the automobile industry
In the travel industry, the distribution cost of a $1000 package tour is $150 if sold on commission through a travel agent, but $20 if sold directly over the Internet. These lower costs can be passed on to customers in the form of lower prices. Investment company Fidelity, for example, charges 3.25 percent of the value of a purchase when a retail customer uses a standard paper-based application form to buy mutual fund shares.
The electronic ordering trend is found in both business-to-business and business-to-consumer contexts.
Business-to-consumer e-commerce
Business-to-business e-commerce
Evidence suggests that B2B e-commerce relies overwhelmingly on proprietary electronic data interchange (EDI) systems.22 Experts generally agree that the value of transactions in B2B e-commerce is approximately ten times the value of B2C e-commerce. In the US, 27 percent of total shipments by value of manufactured output were sold online. Eighteen percent of wholesaler sales were completed online in the same year.
25 Some company websites, such as www.dell.com, dedicate sections of their website to corporate purchases, as opposed to the household section. For the customer, the expected benefits include wider choice of suppliers, lower entry costs and reduced transaction costs due to process automation. Microsoft has a third-party marketplace for companies whose products and services can be tailored to Microsoft's small business customers.
26 Sometimes an entrepreneurial third party forms a strategic alliance with key partners to establish the marketplace. This was the case with Hospitalitybex, which was established in Singapore in 2000 to serve as an electronic marketplace for the hospitality industry. It provides a one-stop destination for product and service procurement, negotiation, selection, ordering, fulfillment, payment and reporting for the now 4000 organization members.
For example, keen competitors Unilever and Procter and Gamble cooperate in sourcing raw materials for manufacturing. We do not use the term 'partner' in this section in the same way that some CRM technology firms do. PRM is best thought of as the deployment of CRM tools for managing relationships with a specific segment, i.e. the channel member or partner.
Strategic alliances
Generally they can be classified into alliances between non-competing firms and alliances between competitors (known as co-opetition). There are three main strategic motives behind alliances between non-competing firms: market expansion, vertical integration, or diversification.
Market expansion
Vertical integration
Diversifi cation
Shared supply alliances
Quasi-concentration alliances
Complementary alliances
A cross-industry group of benchmark participants from FedEx, Caterpillar, Westinghouse and DuPont was formed to learn from each other about best practices in the area of financial management. In the US, Avon Cosmetics' immediate customers are the 450,000 sales representatives who sell Avon products to the end consumer. Among the outcomes were changes to the way managers were trained in using the company's IT system, an improved call management system and regular meetings between customer service supervisors to share ideas and experiences.
In the United Kingdom, Ofcom is the regulator for the communications industries, with responsibilities over television, radio, telecommunications and wireless communications services. In 1972 it was instrumental in the establishment of the Office of Consumer Trade Unions (BEUC) which promotes consumer issues at the EC in Brussels. The CA has recently campaigned to limit the marketing of low quality food to children, to increase safety in the cosmetic surgery industry and to reduce bank charges.
He has been involved in the creation of federal regulatory agencies such as the Occupational Safety and Health Administration (OSHA), the Environment Protection Agency (EPA), and the Consumer Product Safety Administration. In the UK, for example, there are the National Schizophrenia Fellowship (NSF), Depression Alliance, SANE, Parkinson's Disease Society, British Diabetic Association, National Osteoporosis Society, Amarant Trust, Terence Higgins Trust, Women Health Concern, Aids Treatment Project, Wellbeing, Macmillan Cancer Relief, the British Heart Foundation and many others. Although sponsors are generally unimportant in the for-profit context, they play a much more important role in the nonprofit organization (NFP) context.
Sponsorship is the material or financial support of some property, usually sports, arts or causes, with which an organization is not normally associated in the course of its day-to-day business. In the program's first year, local Foot Alert screening events were held in communities across the country; local co-sponsors were usually an NCOA member center, a local television station, and a local mall, which also hosted the show. Organizations that enjoy the support of sponsors are common in the arts, sports or causes.
Agents
Their objectives in sponsoring motorsport were: to increase the visibility of their brands, to encourage consumers to try and buy the brands and to maintain loyalty to their more established products. They find they are competing for limited sponsorship funds and need to make a business case and provide sponsors with targets to maintain the relationship. Sass and Bide, Michelle Jank and Tea Rose tend to operate at the other extreme, selling through a few outlets known as "destination stores" at higher prices.
While the former have their own sales teams, the latter tend to work through agencies.
Brokers
Management contractors
Consortia
Franchisees
If franchisees were found to be changing the product offering and changing processes, the franchisor would most likely terminate the contract. There is a growing recognition that franchisor and franchisee can together create a mutually beneficial network through closer cooperation.
Licensees
It also shows that the endpoint of managing value chain operations is improved margins. For an alternative value chain (introduced in Chapter 1) that reflects this CRM focus, see Buttle, F. We prefer the term 'supply network management' to the more conventional term 'supply chain management' because it clearly reflects the systemic recognizes its value rather than its linear nature.
In this chapter you learned about the importance of two constituencies in the business network: suppliers and partners. Many companies now work closely with their suppliers in a number of activities, such as product development, supplier accreditation and process alignment. B2B electronic procurement, which has ten times the value of B2C online purchasing, takes a number of forms, including e-stores, e-procurement, e-malls, e-auctions and third-party marketplaces.
Companies have a number of different types of partners in value creation: joint venture or alliance partners, category teams, standards groups, regulators, customer advocacy groups, and sponsors. There are also a number of different types of value delivery partners: agents, brokers, managing contractors, consortia, franchisees and licensees. For more information, go to http://www.efqm.org/. 1994 ) Quality: from customer needs to customer satisfaction.
International Journal of Physical Distribution & Logistics Management, Vol. http://www.cips.org/professionalpractice/faqs/detail.asp?record 73. 2001) The Impact of Category Management on Retailer Pricing and Performance: Theory and Evidence. http://www.census.gov/mrts/www/data/html/06Q4.html. 2000) Electronic Commerce: Strategies and Models for Business-to-Business Commerce. http://www1.hospitalitybex.com/hbex/hbex.asp.
