The Researches on the Value -Chain Strategy of the Manufacturer for Daily Consumption Goods

Transcription

1 The Researches on the Value -Chain Strategy of the Manufacturer for Daily Consumption Goods YAO Zeyou RUAN Ping University of Electronic Science and Technology of China Zhongshan Institute P.R.China Zhongshan Abstract: On the foundation of analyzing the traits of the daily consumption goods, this essay analyses how to get a competitive edge and draws a conclusion that supply-chain management is the available channel to get the competitive edge. And then it systematically elaborates how the manufacturer for daily consumption goods gets the competitive edge through the supply-chain management. Keywords: the manufacturer for daily consumption goods value chain strategy 1 Introduction The word Daily Necessities means day-to-day appliance things (according to the Dictionary of Modern Chinese), such as towels, soaps, toothpastes and so on. As for marketing, commodities have the traits of low unit price, low unit profit, large extent of consumption and high rates of consumption, so the enterprise which produces they must cover more extensive market to make profits; The enterprise cannot depend on large-area direct distribution, but the general agencies, distributors, retail shops to sell their products; The channel is complex, trivial and lengthy with too many selling spots. Besides, the distributors in the passageway have relatively lower qualities than those in other trades. These characteristics decide that daily necessities trade relies more on channel and thus it is more difficult to manage. [1] Moreover, since the daily necessities market has been highly mature, and there are no much differences among those competitors who produce the same products, the basic competition is that in the price. However, because major competitors have similar procedures in production, similar vendors, so they have the similar costs in turn. Any decrease of price will be reflected in the competition immediately. According to the price theory, those enterprises in the highly competitive trade will confront a typical profit corroding curve. In that case, even if any of the competitors decide to raise the price, the overall market price will hold the line and that competitor losing its market share. On the other hand, if any of the competitors cut back on price, there will appear a new lowered price in the market. In order to keep the market share, other competitors will also reduce their price. Now, the market share keep changeless but profit margin has declined. There are also many products which are not commodities but have the similar characteristics with commodities. All the enterprises that produce these products with these characteristics are called manufacturer for daily consumption goods by us. 2 Channel choice of the manufacturer for daily consumption goods to obtain a competitive edge The idea of competitive edge originated from the industry organization theories in 1930s, and it got a quick development after 1960s. Hofer and Schendel introduced this idea into the strategic management field and Believing that competitive edge is to gain a unique market potential by an organization s resources allocation. Jay B.Barney thinks that when an enterprise is able to carry out some value creative strategies while other existing or potential competitors can t do this meanwhile, we can say that this enterprise has competitive edge. In the middle of 1980s, Michael Porter initiated the market orientation theory on the basis of the industry organization theory and did a systemic and embedded research in the competitive edge of enterprises. He believes that the competitive edge of a particular enterprise comes from the value which this enterprise brings to customers, i.e. consumers and which at the same time exceeds the value of its cost. Value is the price that consumers are willing to pay, and the excess value come from supplying same avail in lower price than competitors or 1311

2 supplying particular avail which make up the price enough. [2] John T. Mentzer, a professor in Tennessee University summarized the previous researches and generalized the competitive edge as the capability to possess longtime advantages in the market. How can manufacturer for daily consumption goods possess longtime advantages? Many academician of management have analyzed the strategies in getting competitive edges from different aspects. The resource-based theory represented by Collins and Montgomery comes to the conclusion that two relevant methods can help obtain competitive edges. One is assets, which are the fortunes from commercial accumulation. Assets include tangible assets and intangible assets. Tangible assets are also called hard assets which are those with physical configuration such as factory facilities, labor tools, producer goods and the like. Intangible assets are also called soft assets which are those without physical configuration, but could persistently bring economic and social benefits to the owners and operators. Intangible assets include brands, reputation, property rights, corporate culture, knowledge, the managerial systems, social relations and so on. The other is capability, which can effectively combine all varieties of assets. However, capability is different from assets. Capability deeply immerges organic rules and operational methods, which couldn t be bought or imitated. As human beings enter into the knowledge economy era, capability based on intangible knowledge is becoming a more and more significant source for enterprises to gain competitive edge. On the other hand, the Environmental-based theory represented by Michael Porter proposes that it s better to analyze competitive edge of enterprises from outside enterprises. They believe that the source of gaining enterprises competitive edge is cost and differences. If the management can keep low cost, they could gain cost leadership according to cost strategy. To keep the cost advantage for a long time, Porter considers it must rely on some obstacle, which can prevent other competitors from imitating. This obstacle can be relative to entrance or agility. But it also can be a chain which come from cooperation between enterprise and its supplier or channel. This chain prevent others from imitating by flowing obstacle. The second strategy is difference. If an enterprise can uniquely keep something that is valuable to consumers, it can distinguish itself from its counterparts. The maintenance of difference depends on two points. One is to continue to offer the values that can be perceived by the clients. The other is the capability that cannot be imitated by the competitors. As far as Porter is concerned, if the difference comes from many resources rather than only one, then there will be immense possibility of the sustainability of this difference strategy. Day and Wesley analyzed two orientations of getting the competitive edge in the market: competitors- oriented and consumer-oriented. The competitors- oriented method is to recognize competitors firstly, then to compare with the most important ones, in accordance with the actions and reactions of those competitors, to take actions to adjust to the market. The consumers- oriented method is based on the belief that clients aren t the same in nature. Therefore, enterprises should first recognize clients, analyze their interests, and in the end schedule necessary actions to provide them with recognized value. As looking at the single enterprise, it is an extremely difficult matter, if the manufacturer for daily consumption goods want to gain the competitive advantage. Guaranteeing low cost is very important forever, which will be advantageous to the enterprise obtaining a good starting point in competition,but the cost of the manufacturer for daily consumption goods is nearly the same. The maintainable difference is another effective method of competition,although there are similar production processes,similar suppliers, similar marketing channels amongst the manufacturer for daily consumption goods. However,the dawn will come if only we drive the supply chain management by focusing on the consumers. When we real reduce the cost through managing the supply chain, the competitors will find it difficult to imitate because of the " flowing obstacle ", and the convergent of cost will be broken. though it is also difficult to use the supply chain to change the homogeneity of products of the manufacturer for daily consumption goods, but it may bring differences in service, for higher-quality service could make the products gain the recognition of customers. For example,one of the large-size equipment enterprise replace some component of the equipment before they are broken through logistics 1312

3 lever. As a result, its customers consider that "the production equipment is extremely good and never down. This is the typical example of good service bringing the great cognition for the products. Finally, the difference of the service resulting from the complicated supply chain management stem from not one factor but many interactional factors. Therefore, this kind of difference may be maintained long time. Obviously, the manufacturer for daily consumption goods should be with the aid of supply chain management to provide the special value for the customers which the competitors cannot provide, thus gain competitive advantages. 3 Implementation of value-chain strategy of the manufacturer for daily consumption goods Passing value to customers in supply chain should follow certain steps. These steps connected could decide the survival and development of the enterprise which are on the level of strategy. So we call them the strategies of supply chain value, i.e. value-chain strategy. Value-chain strategy like figure 1 [3] shows. 3.1 Identifying customers Who are our customers? The answer to it is much more complicated than imagination. Customers of the daily necessities enterprise include three kinds: retail businesses, the merchants and the final consumers. Some customers are the key to the enterprise s success, and some are not that important who also need good treatments. But also there have some which will disperse us to supply the services to the first two kind of customers, therefore will be supposed to reject. It s most important to identify key customer. Some enterprises do it by estimating customers lifelong value (the product of each time average expenditure and average consumption frequency). Those whose lifelong value is large are key customers. However, this procedure also receives some scholars' questions thinking it at least is not comprehensive. Although some customers consume frequently, and each time expends a lot, they are unwilling to do it, just because of the shift barriers or every kind of restraints, i.e., the products and services supplied aren t they need really. This relationship which aren t needed each other cannot bring the loyal customers. manufacturer for daily consumption goods especially need to differentiate the terminal customers and the transaction partners. According to actual research, the key customers of manufacturer for daily consumption goods usually are not the final customers but the transaction partners. For instance, in our investigation, there are some manufacturer for daily consumption goods whose products are not more attractive than their counterparts. But they attach importance to strengthen the relation with the key customers, chain supermarkets, and use strategies such as VIM(supplier management stock) to reduce the stocks of the chain supermarkets. So they enhance the chain supermarkets sellers reserve rate. Thus the supermarkets benefit so they increase dependence 0n Daily necessities enterprise. In return, the products of "Daily necessities enterprise" obtain a higher carriage rate and realize the competitive advantage. 1313

4 Identifying customers Identifying the value Choosing the value Competitive advantages Providing the value Communicating the value Estimating value Figure1: Supply chain value strategy 3.2 Identifying the value. How to identify the value approbated by customers? One good way is to communicate with customers. First of all,the enterprise should send a group of well-trained investigators to do the investigation. The investigators should abandon the procedure of "I needs you to fill in this form." Instead, they should communicate with the customers. We cannot supply the better service to you if we do not know what you want most. So, please tell us which are more important to you in our products and our services? Please tell me three items you care most, if you have any wishes to our products. Which is the most important to you? Which is the second important to you? The result of the communication is that the enterprise is clear the value approbated by customers as well as arrangements of the value according to importance. 3.3 Choose the value. Usually the value of customers approval is a value set. But it is impossible for the daily necessities enterprise to make an even effort on each value. It should choose one or a part of them as its emphasizing key point. [4] According to our actual research, we find that the key customers, chain supermarkets, regard Footfall and seller reserve rate as important. Some research indicates that about 60% of the customers purchasing behaviors is impulse after they enter the sales field. So the customers may buy more if only the supermarkets are able to lure customers entering the supermarkets. A lot of factors contribute to the supermarket s footfall, such as the geographical position, the shopping environment, the daily necessities itself attraction, the service personnel quality and so on. As suppliers, the manufacturer for daily consumption goods should make theirs have more attractions to the terminal consumers in order to place influence on the supermarket s circulation. But in fact, it is hard for the "Daily necessities enterprise" to do it like that, because of the characteristics of the products and the professional competition. The seller reserve rate is target measuring the support of the supplier to the retail merchant s fund. the seller reserve rate of chain supermarkets got from "Manufacturer for daily consumption goods" which is decided by age of account payable, days of goods in stock and age of account receivable. Their relation expresses as the following formula: The seller reserve rate = age of account payable/(days of goods in stock + age of account payable). Daily necessities enterprise could reduce the days of the stock in chain supermarkets on the ground of not sacrificing its benefits. Then increasing the chain supermarket s seller reserve rate is the emphasizing key point of the daily necessities enterprise. 1314

5 3.4 Providing the value Providing the value customers need is made up by a series of plans and motions. The daily necessities enterprise may use VIM to provide the value the customers regard as important. 3.5 Communicating value The communicating value means telling customers that we can provide the value. This count for much but very easily is actually neglected by the enterprise. According to our actual research, many manufacturer for daily consumption goods link up the value with the aid of advertisements, such as If we cannot send you any product on your order form in 24 hours, then all of the products on the order form are free for you. As a result, their customers degree of satisfaction and the market share are all remarkably enhanced. 3.6 Estimating value Estimating value means to enquire the degree of satisfaction of the customer to the value supplied. Usually, the process of the supply chain value strategies is company with error and misunderstanding, taking examples of the misunderstanding of Identifying value and choosing value. As result, our providing value is deviating from the exception of customers. So, it is important to consult customers termly with question do we still satisfy you with our products or services? Since it will actuate the supply chain value strategies connecting the head and tail, and enter into a dynamic circulation. 4 Conclusion Let us take a summary of the essence of the supply chain value strategies of the manufacturer for daily consumption goods. It is hardly to hear that enterprises needn t do well on something customers do not care in order to obtain competitive advantage. For it sounds that is in contradiction with the spirit of Total Quality Management. But the enterprise could do not so well in something in order to avoid being fell into "Stuck-in-the-middle" strategy. What need the enterprise s caring are just two things: 1matters customers care;2matters customers do not care but be helpful to reduce cost. [5] The essence of the supply chain value strategies of the manufacturer for daily consumption goods is to make the enterprise resources shift from the matters customers do not care or pay attention to the matters customers care but the enterprise do not well on the view of supply chain but not the enterprise interior angle. Reference [1]. Zhao Xiaofei,How do the daily necessities make the marketing,marketing management, in rd issue: [2]Porter,M.E.Clusters and New Economics Competition[J].Harvard Business Review, 1998,(11):78~80 [3] John T Mency,Supply chain management introduction,electronics industry publishing house, in February,2006: 80 ~ 83 [4] Wang Jifa, Li Hanling,Reorganizes the research based on thevalue chain enterprise Management science digest [ J ]. 2000, 1: [5] Bjorn Haavengen, D.H.Olsen, J.A. Sena. The value chain component in a decision support system: a case example[j].1996,(43): The author can be contacted from yaozeyou@126.com 1315