commercial economics market system (suppliers, distributors, customers) ethics and social...

Commercial Economics Market System (suppliers, distributors, customers) Ethics and Social Responsibility 1

Relations between Suppliers - Distributors - Customers

Relations between Suppliers - Distributors - Customers

Resources and superior capabilities that are sources of competitive advantage over a firm’s rivals

Providing value to customers and gaining competitive advantage by exploiting core competencies in individual product markets

Core Core CompetenciesCompetencies

StrategyStrategy

Business-level Business-level StrategyStrategy

An integrated and coordinated set of actions taken to exploit core competencies and gain competitive advantage


Mission:

To provide customers with

the right parts at the right time in the right place at the lowest cost

and the best quality


The Challenges We FaceThe Challenges We Face

• Maintaining high quality as volume increases

• Hyper-competitive market; Lots of good products

• High customer expectations

• Maintaining high quality as volume increases

• Hyper-competitive market; Lots of good products

• High customer expectations

Our Success Depends on Delivering:Our Success Depends on Delivering:

Quality/ValueQuality/Value


Supply Chain Overview

Supply Chain continues to evolve based on The Toyota Way and TPS:

1. Customer First2. Respect for humanity3. Continuous Improvement (Kaizen)


Supply Chain Philosophy

Customer First:

1. Customer-driven supply chain

• Respect for Humanity:• Environmentally responsible and safety first• Collaboration with business partners• Associate engagement

• Continuous Improvement (Kaizen)

Process improvements through PDCA cycle with associate engagement

Logistics1. Quality

• Accuracy and damage reduction

2. Lead-Time

• Consistency and reduction (sequential integrity)

3. Cost

• Maximizing use of cubic space

• Elimination of waste and incidental work Associate DevelopmentGrowing Sales VolumeIncreasing Complexity


Strengthen Associates Expand TPS Knowledge & Application Lead Under the Toyota Way Provide Opportunity and Learning Improve Two-Way Communication

People

Associate

People


Vendor (NA/JP)

PC O/H Inventory

PDC O/H Inventory

PC Fill

Transit

PDC Bin

Vendor Fill

Transit

PC Bin

15% Reduction Lead-time &

Days of Supply

ProcessSupply Chain Leadtime Reduction


Preparedness Supply Chain Variability

Vendor (NA/JP)

PC O/H Inventory

PDC O/H Inventory

PC Fill

Transit

PDC Bin

Vendor Fill

Transit

PC Bin

15% Reduction Lead-time Variability


Associate Creativity

Supply ChainVelocity

Variance ReductionLead Time Reduction

Cycle Stock Inventory Reduction

Rising Volume

Safety Stock Inventory Reduction

More Space Capacity


Small Lot / High FrequencyIncreases Velocity

1 WEEK1 DAY

1 DAY

1 DAY

1 DAY

1 DAY

DEALER Supplier

PCPDC PCPDC

PDC PC SplrDlr

Reduces VariabilityReduces Variability


Why are we making these changes?Why are we making these changes?

Sales Volume (UIO)

More Piece Volume

More Inventory

Bigger Truck Parts

Bigger Locations

Size of Parts

More Part Numbers

More Locations

Proliferation

System, Space and Storage Challenges!


Strategic Drivers:

Meet Rising Customer ExpectationsMeet Rising Customer Expectations

Develop AssociatesDevelop Associates

Prepare Distribution Network to Prepare Distribution Network to Respond to Growth & Complexity Respond to Growth & Complexity

Globalize Supply ChainGlobalize Supply Chain

Reduce Impact on EnvironmentReduce Impact on Environment


Customers: Business-Level Strategic IssuesCustomers: Business-Level Strategic Issues

Customers are the foundation of successful business-level strategy

– Who will be served by the strategy?

– What needs those target customers have that the strategy will satisfy?

– How those needs will be satisfied by the strategy?


Customers: Who, What, WhereCustomers: Who, What, Where

Firms must manage all aspects of their relationship with customers

– Reach: firm’s success and connection to customers

– Richness: depth and detail of two-way flow of information between the firm and the customer

– Affiliation: facilitation of useful interactions with customers


Customer Needs—Who?Customer Needs—Who?

Determining the Customers to Serve

CustomersCustomers IndustrialIndustrialMarketsMarkets

ConsumerConsumerMarketsMarkets

Market Segmentation


Basis for Customer SegmentationBasis for Customer SegmentationConsumer Markets

1. Demographic factors (age, income, sex, etc.)

2. Socioeconomic factors (social class, stage in the family life cycle)

3. Geographic factors (cultural, regional, and national differences)

4. Psychological factors (lifestyle, personality traits)

5. Consumption patterns (heavy, moderate, and light users)

6. Perceptual factors (benefit segmentation, perceptual mapping)


Customer Needs—What?Customer Needs—What?

Customer Needs to Satisfy

– Customer needs are related to a product’s benefits and features

– Customer needs are neither right nor wrong, good nor bad

– Customer needs represent desires in terms of features and performance capabilities


Customer Needs—How?Customer Needs—How?

Determining the Core Competencies Necessary to Satisfy Customer Needs

– Firms use core competencies to implement value creating strategies that satisfy customers’ needs

– Only firms with capacity to continuously improve, innovate and upgrade their competencies can expect to meet and/or exceed customer expectations across time


Types of Potential Competitive AdvantageTypes of Potential Competitive Advantage

Achieving lower overall costs than rivals

– Performing activities differently (cheaper process)

Possessing the capability to differentiate the firm’s product or service and command a premium price

– Performing different (valuable) activities


Two Targets of Competitive ScopeTwo Targets of Competitive Scope

Broad Scope

– The firm competes in many customer segments

Narrow Scope

– The firm selects a segment or group of segments in the industry and tailors its strategy to serving them at the exclusion of others


How to Obtain a Cost AdvantageHow to Obtain a Cost Advantage

Cost DriversCost Drivers Value ChainValue Chain

Determine and control

Reconfigure, if needed

Alter production processAlter production process

Change in automationChange in automation

New distribution channelNew distribution channel

New advertising mediaNew advertising media Direct sales in place of Direct sales in place of

indirect salesindirect sales

New raw materialNew raw material

Forward integrationForward integration

Backward integrationBackward integration Change location relative Change location relative

to suppliers or buyersto suppliers or buyers


Examples of Value-Creating Activities Associated with the Cost Leadership Strategy

Examples of Value-Creating Activities Associated with the Cost Leadership Strategy


Value-Creating Activities for Cost LeadershipValue-Creating Activities for Cost Leadership

Cost-effective MIS

Few management layers

Simplified planning

Consistent policies

Effecting training

Easy-to-use manufacturing technologies

Investments in technologies

Finding low cost raw materials

Monitor suppliers’ performances

Link suppliers’ products to production processes

Economies of scale

Efficient-scale facilities

Effective delivery schedules

Low-cost transportation

Highly trained sales force

Proper pricing


Cost Leadership Strategy: New EntrantsCost Leadership Strategy: New Entrants

Can frighten off new entrants due to:– Their need to enter on a large

scale in order to be cost competitive

– The time it takes to move down the learning curve

The Threat of The Threat of Potential EntrantsPotential Entrants


Cost Leadership Strategy: SuppliersCost Leadership Strategy: Suppliers

Can mitigate suppliers’ power by:– Being able to absorb cost

increases due to low cost position

– Being able to make very large purchases, reducing chance of supplier using power

Bargaining Power of Suppliers


Cost Leadership Strategy: BuyersCost Leadership Strategy: Buyers Can mitigate buyers’ power by:

– Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm

Bargaining Powerof Buyers


Cost Leadership Strategy: SubstitutesCost Leadership Strategy: Substitutes

Cost leader is well positioned to:– Make investments to be first to

create substitutes

– Buy patents developed by potential substitutes

– Lower prices in order to maintain value position

Product SubstitutesProduct Substitutes


Cost Leadership Strategy: CompetitorsCost Leadership Strategy: Competitors

Due to cost leader’s advantageous position:– Rivals hesitate to compete on

basis of price

– Lack of price competition leads to greater profits

Rivalry with Existing Competitors


Cost Leadership Strategy (cont’d)Cost Leadership Strategy (cont’d)

Competitive Risks

– Processes used to produce and distribute good or service may become obsolete due to competitors’ innovations

– Focus on cost reductions may occur at expense of customers’ perceptions of differentiation

– Competitors, using their own core competencies, may successfully imitate the cost leader’s strategy


Differentiation StrategyDifferentiation Strategy

An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them

– Nonstandardized products

– Customers value differentiated features more than they value low cost


How to Obtain a Differentiation AdvantageHow to Obtain a Differentiation Advantage

Cost DriversCost Drivers Value ChainValue Chain

Control if needed Reconfigure to maximize

Lower buyers’ costsLower buyers’ costs

Raise performance of product or serviceRaise performance of product or service

Create sustainability through:Create sustainability through:

Customer perceptions of uniquenessCustomer perceptions of uniqueness Customer reluctance to switch to non-Customer reluctance to switch to non-

unique product or serviceunique product or service


Value-Creating Activities and DifferentiationValue-Creating Activities and Differentiation

Highly developed MIS

Emphasis on quality

Worker compensation for creativity/productivity

Use of subjective performance measures

Basic research capability

Technology

High quality raw materials

Delivery of products

High quality replacement parts

Superior handling of incoming raw materials

Attractive products

Rapid response to customer specifications

Order-processing procedures

Customer credit

Personal relationships


Examples of Value-Creating Activities Associated with the Differentiation Strategy

Examples of Value-Creating Activities Associated with the Differentiation Strategy

SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael E. Porter, 47. Copyright © 1985, 1998 by Michael E. Porter.

Figure 4.3Figure 4.3


Differentiation Strategy: New EntrantsDifferentiation Strategy: New Entrants

Can defend against new entrants because:– New products must surpass

proven products

– New products must be at least equal to performance of proven products, but offered at lower prices

The Threat of The Threat of Potential EntrantsPotential Entrants


Differentiation Strategy: SuppliersDifferentiation Strategy: Suppliers Can mitigate suppliers’ power

by:– Absorbing price increases

due to higher margins

– Passing along higher supplier prices because buyers are loyal to differentiated brand

Bargaining Power of Suppliers


Differentiation Strategy: BuyersDifferentiation Strategy: Buyers

Can mitigate buyers’ power because well differentiated products reduce customer sensitivity to price increases

Bargaining Powerof Buyers


Differentiation Strategy: SubstitutesDifferentiation Strategy: Substitutes

Well positioned relative to substitutes because– Brand loyalty to a

differentiated product tends to reduce customers’ testing of new products or switching brands

Product SubstitutesProduct Substitutes


Differentiation Strategy: CompetitorsDifferentiation Strategy: Competitors

Defends against competitors because brand loyalty to differentiated product offsets price competition

Rivalry with Existing Competitors


Competitive Risks of DifferentiationCompetitive Risks of Differentiation

The price differential between the differentiator’s product and the cost leader’s product becomes too large

Differentiation ceases to provide value for which customers are willing to pay

Experience narrows customers’ perceptions of the value of differentiated features

Counterfeit goods replicate differentiated features of the firm’s products


Focus StrategiesFocus Strategies

An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment

– Particular buyer group (e.g. youths or senior citizens

– Different segment of a product line (e.g. professional craftsmen versus do-it-yourselfers

– Different geographic markets (e.g. East coast versus West coast)

Types of focused strategies– Focused cost leadership

strategy– Focused differentiation

strategy

To implement a focus strategy, firms must be able to:

– Complete various primary and support activities in a competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns


Factors That Drive Focused StrategiesFactors That Drive Focused Strategies

Large firms may overlook small niches.

A firm may lack the resources needed to compete in the broader market

A firm is able to serve a narrow market segment more effectively than can its larger industry-wide competitors

Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage


Information NetworksInformation Networks

Link companies electronically with their suppliers, distributors, and customers

– Facilitate efforts to satisfy customer expectations in terms of product quality and delivery speed

– Improve flow of work among employees in the firm and their counterparts at suppliers and distributors


Risks of the Integrated Cost Leadership/ Differentiation Strategy

Risks of the Integrated Cost Leadership/ Differentiation Strategy

Often involves compromises– Becoming neither the lowest cost nor the most

differentiated firm

Becoming “stuck in the middle”– Lacking the strong commitment and expertise that

accompanies firms following either a cost leadership or a differentiated strategy

Ethics and Social Responsibility

McGraw-Hill/IrwinContemporary Management, 5/e

Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Explain the relationship between ethics and the lawDiscuss why it is important to behave ethically

Differentiate between the claims of the different stakeholder groups that are affected by managers and

their companies actionsDescribe four rules that can be used to help companies

and their managers act in ethical waysIdentify the four main sources of managerial ethics

Distinguish between the four main approaches toward social responsibility that a company can take

Ethical Dilemma quandary people find themselves in when they have to

decide if they should act in a way that might help another person even though doing so might go against their own

self-interest

Explain the relationship between ethics and the lawDiscuss why it is important to behave ethically

Differentiate between the claims of the different stakeholder groups that are affected by managers and

their companies actionsDescribe four rules that can be used to help companies

and their managers act in ethical waysIdentify the four main sources of managerial ethics

Distinguish between the four main approaches toward social responsibility that a company can take

Ethical Dilemma quandary people find themselves in when they have to

decide if they should act in a way that might help another person even though doing so might go against their own

self-interest


The Nature of EthicsThe Nature of Ethics

Ethics – The inner-guiding moral principles, values, and beliefs that

people use to analyze or interpret a situation and then decide what is the “right” or appropriate way to behave

There are no absolute or indisputable rules or principles that can be developed to decide if an action is ethical or unethical


Ethics and the LawEthics and the Law

Neither laws nor ethics are fixed principles



Ethical beliefs lead to the development of laws and regulations to prevent certain behaviors or encourage others



Laws can change or disappear as ethical beliefs change


Changes in Ethics Over TimeChanges in Ethics Over Time

Managers must confront the need to decide what is appropriate and inappropriate as they use a company’s resources to produce goods and services


Question?Question?

Who has a claim on a company’s resources?

A. Employees

B. Customers

C. Suppliers

D. Stakeholders


Stakeholders and EthicsStakeholders and Ethics

Stakeholders – – people and groups affected by the way a company and

its managers behave– supply a company with its productive resources and

have a claim on its resources


Stakeholders and EthicsStakeholders and Ethics

When the law does not specify how companies should behave, managers must decide what is the right or ethical way to behave toward the people and groups affected by their actions


Types of Company StakeholdersTypes of Company Stakeholders


StockholdersStockholders

Want to ensure that managers are behaving ethically and not risking investors’ capital by engaging in actions that could hurt the company’s reputation

Want to maximize their return on investment


ManagersManagers

Responsible for using a company’s financial capital and human resources to increase its performance

Have the right to expect a good return or reward by investing their human capital to improve a company’s performance

Frequently juggle multiple interests


ManagersManagers

Problem has been that in many companies corrupt managers focus not on building the company’s capital and stockholder’s wealth but on maximizing their own personal capital and wealth


Discussion Question: ManagersDiscussion Question: Managers

Is it ethical for managers to receive vast amounts of money from their companies?

A. YesB. NoC. SometimesD. Never


EmployeesEmployees

Companies can act ethically toward employees by creating an occupational structure that fairly and equitably rewards employees for their contributions


Suppliers and DistributorsSuppliers and Distributors

Suppliers expect to be paid fairly and promptly for their inputs

Distributors expect to receive quality products at agreed-upon prices


Vendor ConductVendor Conduct

Gap’s Code ofGap’s Code of

Vendor ConductVendor Conduct


CustomersCustomers

Most critical stakeholder Company must work to increase efficiency and

effectiveness in order to create loyal customers and attract new ones


Community, Society, and NationCommunity, Society, and Nation

Community – Physical locations like towns or cities in which companies are

located

– A community provides a company with the physical and social infrastructure that allows it to operate

A company contributes to the economy of the town or region through salaries, wages, and taxes


Ethical Decision MakingEthical Decision Making

Figure 4.3


Question?Question?

Which ethical decision rule produces the greatest good for the greatest number?

A. Utilitarian Rule

B. Moral Rights Rule

C. Justice Rule

D. Practical Rule


Ethical Decision ModelsEthical Decision Models

Utilitarian Rule Decision that produces the greatest good for the greatest

number

– How do you measure the benefits and harms that will be done to each stakeholder group?

– How do you evaluate the rights and importance of each group?


Effects of Ethical/Unethical BehaviorEffects of Ethical/Unethical Behavior

Figure 4.4



Moral Rights rule– Decision that best maintains and protects the

fundamental or inalienable rights and privileges of the people affected by it

Justice rule– Decision that distributes benefits and harms among

people and groups in a fair, equitable, or impartial way



Practical rule

- Decision that a manager has no hesitation about communicating to people outside the company because the typical person would think it is acceptable


Practical Decision ModelPractical Decision Model

1. Does my decision fall within the acceptable standards that apply in business today?

2. Am I willing to see the decision communicated to all people and groups affected by it?

3. Would the people with whom I have a significant personal relationship approve of the decision?


Why should managers behave ethically?Why should managers behave ethically?

The relentless pursuit of self-interest can lead to a collective disaster when one or more people start to profit from being unethical because this encourages other people to act in the same way


Trust and ReputationTrust and Reputation

Trust – willingness of one person or group to have faith or confidence in the goodwill of another person


Trust and ReputationTrust and Reputation

Reputation – esteem or high repute that individuals or organizations gain when they behave ethically


Determinants of EthicsDeterminants of Ethics

Figure 4.5


Societal EthicsSocietal Ethics

Standards that govern how members of a society should deal with one another in matters involving issues such as fairness, justice, poverty, and the rights of the individualPeople behave ethically because they have internalized certain values, beliefs, and norms


Occupational EthicsOccupational Ethics

Standards that govern how members of a profession, trade, or craft should conduct themselves when performing work-related activities

– Medical & legal ethics


Individual EthicsIndividual Ethics

Personal standards and values that determine how people view their responsibilities to other people and groups– How they should act in situations when their own self-

interests are at stake


Organizational EthicsOrganizational Ethics

Guiding practices and beliefs through which a particular company and its managers view their responsibility toward their stakeholders– Top managers play

a crucial role in determining a company’s ethics


Social ResponsibilitySocial Responsibility

Way a company views its duty or obligation to make decisions that protect, enhance, and promote the welfare and well-being of stakeholders and society as a whole


Approaches to Social ResponsibilityApproaches to Social Responsibility



Obstructionist approach – Companies choose not to behave in a social responsible way and behave unethically and illegality



Defensive approach – companies and managers stay within the law and abide strictly with legal requirements but make no attempt to exercise social responsibility



Accommodative approach – Companies behave legally and ethically and try to balance the interests of different stakeholders against one another so that the claims of stockholders are seen in relation to the claims of other stakeholders



Proactive approach – Companies actively embrace socially responsible behavior, going out of their way to learn about the needs of different stakeholder groups and utilizing organizational resources to promote the interests of all stakeholders


Why Be Socially Responsible?Why Be Socially Responsible?

1. Demonstrating its social responsibility helps a company build a good reputation

2. If all companies in a society act socially, the quality of life as a whole increases


Role of Organizational CultureRole of Organizational Culture

Ethical values and norms help organizational members:– Resist self-interested action– Realize they are part of something bigger than

themselves


Ethics OmbudsmanEthics Ombudsman

Responsible for communicating ethical standards to all employees

Designing systems to monitor employees conformity to those standards

Teaching managers and employees at all levels of the organization how to appropriately respond to ethical dilemmas


Obligations of member states

Competent Authorities

FPS Economy, SMEs, Self-employed and

Energy

FPS Employment, Labour and Social

dialogue

FPS Mobility and Transport

FPS Health, Food Chain Safety and

EnvironmentFPS Finance

Central Contact Point

Consumer Safety Commission


Obligations of member states

Competent Authorities

DG Energy

Central Laboratory

Product Safety Service Installation Safety Service Decentralised services

Safety Division

DG Q uality and Safety DG Control and M ediation

FPS Economy


Obligations of member statesM

ark

et

su

rveilla

nce

Market surveillance by the authorities

Administration

Consumers, industry, notified bodies ...

Product

control

Follow up

Consumers

Industry Authorities

Central Contact Point

Advisory commissio

ns

Ext. experts

and mediation

RAPEX

commercial economics market system (suppliers, distributors, customers) ethics and social...

Documents

customers ethics

suppliers distributors

social responsibility

customers resources

hypercompetitive market

competitive advantage

complexity slide

qualityvalue slide