Gereffii, G. (1994) introduced the concept of “supply” or “producer” driven and “buyer” driven commodity chain in identifying the different structure or organization of the GVCs. In producer driven chain, because of the technical knowhow and technology there will be a large lead firm being the influential one. The return is mainly boosted by scale economies. Its product specifications are very sensitive and interest in the protection of the knowledge, trust and relationships are very key in this kind of GVCs. Most of the time this GVCs are vertically integrated and have high barrier to entry of new actors/firms. The business relationships built here are mostly long lasting. Best examples of producer driven VCs are semi-conductor or the pharmaceuticals …show more content…
Here the lead firms are retailers and brand owners. There is easy entry and exit into this value chain and small and medium sized suppliers can participate. Relationships are more or less transactional or market based aimed at for the specified transaction may not last beyond that. GVCs like this are more spread out and have so many suppliers participating. Lead firm’s investment on suppliers is very minimal. Apparel, vehicle parts and electronics are some of the examples of buyer driven value chains. This type of value chains are preferred by developing countries to enter into and going up the ladder into high value products. (Humphrey, J., & Schmitz, H. 2000)
Further study in the production coordination, globally, has exposed the inefficiency of considering only these two types of commodity chain. Especially the studies in electronics and contract manufacturing identified different types of supplier connections mainly based on capacity of the suppliers. The more competitive the supplier is in modulation and production of customized products the organization and the power spread over that chain is flat while the more standardized product a supplier produces the less influential can be in the GVC
…show more content…
Modular value chains. In this type of GVCs suppliers are providing customized products to customers’ specifications. According to Gereffi, G. (2005) suppliers in modular value chains tend to take full responsibility for process technology and often use generic machinery that spreads investments across a wide customer base. This is less costly for the lead firm and requires complex information sharing between the supplier and buyer. Never the less the development of standards and codification is very much helpful in managing this information sharing.
3. Relational value chains. The harder it is to codify specification for customized production firms depend on relationship built on ensuring the required supply. Therefore in this type of value chains reputation, social, and spatial proximity are key factors for success. There is high level of interdependence between the buyers and the suppliers. The cost of breaking this relationship and start a new one is very high since building the trusted relationship can take a lengthy time and process. Therefore it is expected to have limited suppliers in this kind of value
Any time the company is looking into software project, there are areas associated with risk such as cost, time and relationship with suppliers. However, for Harley-Davidson, “collocation of suppliers with production facilities and their integration into company’s development process was the essential part of long-term relationship development”. Through a continued focus on collaboration and strong supplier relationships, the company could position itself to achieve strategic objectives and deliver cost and quality improvement over the long-term. Since, at that time company had no centralized system in place to handle relationship with suppliers and consequently, most of company’s time was spent on supplier management activities. For example, reviewing inventory, expediting and data entry. Furthermore, each supplier had different information systems for “Maintenance, Repair, and Operations (MRO), Original Equipment (OE), Parts and Accessories (P&A), and General Merchandising (GM) purchasing activities”. The systems, already provided by supplier, had to be further modified to meet individual need at each location, such as “the OE system at Harley-Davidson’s York, Pennsylvania site was different from the OE system in Kansas City”. However, due to long-standing tradition of gradual change implementation and focus on quality, quick transitions were unwelcome and did not come easy for the company. The size of the project determined how much risk was involved in terms of cost, time, and supplier relationships. The idea of switching to global purchasing system was seen as a threat not only in supplies and production flow interruption, but also in damaged dealer/customer relationships and lost sales. Furthermore, failure of the sy...
Suppliers must maintain good relations with the companies in the industry. This is low because there are multiyear service contracts and the delivery industry uses items such as vehicles, employee benefits, general goods and airline contracts associated with overhead of running business, but all contracts are rewarded through an RFP process. There are enough players in the market and had high fixed cost and thus have substantial buying power.
Gereffi (1994), a key author in this area of research, defined Global Commodity Chains as; ‘sets of interorganisational networks clustered around one commodity or product linking households, enterprises and sates to one another within the world economy”. This global interconnectedness rose out of commodity chains that out sourced some of their production to other countries as a way of reducing costs and gaining. Commodity chains refer to the whole range of design, production and marketing of a product. (Gereffi 1999) Gereffi (1994) identified three key characteristics of Global Commodity Chains; they have a specific input to output link production chain, a geography in the sense that various activities are located in different places and there is a governance structure determining the power relationships within the chain.
With the industrial revolution came a new era of trading goods and a redefined global market. It became easier and easier to form a network of interdependence between nations, and more importantly, cheaper to buy a pair of jeans. Using our connectedness, we are now exporting labor thousands of miles over seas, and reaping the benefits of these commodity chains.
In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.
If competitors offer equally attractive products and services, then one will most likely have little power in the situation, because suppliers and buyers will...
Since mid-90, technology changed procedures for evaluating supplier’s relationships. Before technology, Suppliers relationships used to be an isolated activity disconnected from others companies’ activities highly influenced by conflict of interest. But when technology started to provide accurate data, companies begin the focus on inventory management activities increasing the importance of procurements departments’ evaluation as a way to reduce supply chain cost. With data, procurement can evaluate suppliers and their benefits for the company. In today business environment, the company dilemma is evaluating if the supply chain should be vertical, full outsourced of mix, considering industry maturity impact and price competition (Chopra & Meindl, 2007; Slack & Lewis, 2011).
Huggins & Izushi (2011) affirms that "all firms in a given industry have a similar value chain, which includes activities such as obtaining raw materials, designing products, building manufacturing facilities, developing cooperative agreements, and providing customer service. " For this, it is necessary to carry out activities aimed at creating value for the customer, which will directly and positively affect the company's
For one thing this technique allows new supplier to come to the market making the competition more transparent and exiting. For another it still requires adequate perception, discipline and contribution.
The other implementation reflects in supplier relationship. “System Supplier” strategy has been widely applied in automotive industry to reduce vertical integration and share business risk (Clark, Fujimoto 1991). The introduction of ISO 9001 provides a multi-recognition tool for OEMs to admit their suppliers’ quality assurance. Since ISO 9001 defines the minimum requirements for quality management system, it is possible for final assemblers to set a benchmark for supplier to follow. Members in the Verband der Automobilindustrie (VDA) agrees implement ISO 9001 and acknowledge mutual auditing (Steven Casper 1999).
Markets have four different structures which need different "attitudes" from the suppliers in order to enter, compete and effectively gain share in the market. When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product (or service) at its price.
Access to suppliers: With so many suppliers, new entrants will have their freedom to choose their suppliers in establishing their infrastructure. But there is lot of cost involved in setting up the billing and operational support systems. It is moderate for the industry.
Each office has their own supply management function that increases Group’s purchasing, manufacturing, packaging and delivering costs. Scotts Europe has hundreds of suppliers, numerous uncoordinated contacts, even several contacts with the same supplier, but with the different pricing.
As pointed by Parsons A.L (2002), there was increasing dependent on the relationship and customers is demanding to receive high standard of products and services for them to sustain the business in the intense manufacturing environment. Besides, Xu et al. (2008) has highlighted that supplier is developing a long-term relationship with their crucial suppliers to increase the competitiveness and to establish an effective and efficient supply chain. Trend (2005) also mentioned that work closely in partnership with suppliers is the only way to survive in today’s competitive business environment.
In the era of globalization and international trade, global value chains (GVCs) have emerged as an important avenue for economic development especially for developing countries. GVCs allow small companies, and enterprises in low income countries to take part in the increasingly integrated global economy. A value chain refers to the range of processes involved in making a product including its conception, creation, distribution etc. and, the same process, when conducted amongst firms on an international level is considered a global value chain (Gereffi and Fernandez-Stark 4). The framework of GVCs is very detailed - it allows us to understand the complex processes and intricate procedures for production in global industries and the role various