Dr. Terrence R.M.Lalla LEARNING OUTCOMES 1. Explain what a business concept is 2. Position the concept in the value(supply) chain 3. Develop an effective distribution strategy 4. Build a business model for a new concept. Why a Business Concept and Business Model Matters A substantial amount of Business Planning is required Develop a business concept that meets a real market need; Develop a business model that captures value for customer and the business Developing a Business Concept (BC) Concise description of an opportunity (Concept Statement) that contains 4 elements : 1. Customer definition; 2. Value proposition (benefit to customer); 3. The product/service 4. Distribution channel (Supply Chain) Customer Definition Who is your customer (the one who pays?) Where do you lie on your supply chain Value Proposition 1. Why should anyone be interested in this concept? 2. What is the pain that is being eased? 3. What problem does this concept solve? The Product/Service Provide revenue streams for competitive advantage Definition and design stem from Customers needs Core competencies Part of concept statement
The Distribution Channel Delivers the benefit to the customer How to get to the customer? Where and how the product should be sold? Direct or through channel intermediaries
Developing the BC Statement The BC Statement is a compelling story that consists of a problem and a solution containing the 4 elements Quick Test: 1. Am I passionate about it? 2. Are others interested? 3. Will you pay for it? 4. Why me? 5. Why now? The Value Chain and the BC Value Chain (VC) consists of 2 Parts that can make or break the BC 1. Upstream activities ( inbound logistics, operations, outbound logistics) 2. Downstream activities (marketing and sales, service) 3 Forces affecting VC 1. Internet 2. Reduced transactions cost 3. Disintermediation
Value Chain: Porters model, 1985 Firm Infrastructure Human resources management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Source: Porter, ME. (1985) Competitive Advantage, The Free Press Customer demands Narrow focus of traditional logistics Manufacturing From VC to Supply Chain (SC) Source: Gattorna, J. (2006) Living Supply Chains, FT Prentice Hall Firm Infrastructure Human resources management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service M a r g i n Firm Infrastructure Human resources management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service M a r g i n Firm Infrastructure Human resources management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service M a r g i n Suppliers Retailers/ distributors Inbound logistics Outbound logistics Internal operations Internal interfaces External interfaces Broad focus of integrated supply chain Transportation and Logistics in supply chains Diagram source: New and Payne, 1995. Components of an Effective SC 1. Inventory 2. Ownership 3. Financing and Payment 4. Risk management 5. Member power SC Strategy or design The location and capacities of production and warehousing facilities; Products to be manufactured or stored at various locations; Modes of transportation to be made available along different shipping legs; Type of information system to be utilized. SC Planning Define a set of operating policies that govern short term operations; Forecast for the coming year; Decisions regarding market segment(s) to be supplied from which location; The planned buildup of inventories; Subcontracting of inventories; Backup locations for stockouts; Timing of marketing promotions.
SC Operation Weekly or daily time horizon; Decisions regarding individual customer orders; Implement effecting and efficient operating policies; Allocate individual orders to inventory or production; Set date for order fulfillment; Generate pick lists at a warehouse; Allocate an order to a particular shipping mode and shipment; Set delivery schedules of trucks; Place replenishment orders. The Business Model (BM) Involves the CREATION and CAPTURE of VALUE by: Differentiating from competitors; Meeting an unserved need in the market; Making money. Thru a community of PARTNERS;SUPPLIERS, CUSTOMERS and MEMBERS of the VC. NOTE: BM change over time as customer change Building a BM Requires continual innovation and new ways to satisfy the Customer Important QUESTIONS (Q) to be answered and STAGES (S) to be followed: Q1 What are the cash cows? Q2 What are the cost drivers? Q3 When and How much capital is needed? Q4 What are the critical success factors? S1 What position in the SC? S2 Calculate how to create value to the Customer S3 Identify revenue streams and cost drivers S4 Test for weaknesses S5 Develop Competitive Strategy
Sources of Opportunity 1. Reposition on the value chain; 2. Reinvent the SC; 3. Redefine value added; 4. Determine when the BM must change Tutorial 2 : Business concept; Business model 1. With the use of examples state the reasons why a business concept and business model are essential to the success of a business idea. 2. Using examples explain what different forces affect the workings of the value chain. 3. With respect to the above, discuss how the characteristics of an effective supply chain can be used to overcome challenges.
Tutorial Question How do companies add value, and what are the dimensions of performance that customers are expecting of companies? Answer Companies add value through R&D, design of products, services, or processes, production, marketing, distribution, and customer service Customers want companies to deliver performance through cost and efficiency, quality, timeliness, and innovation. Assignment (5%of the 20%) Team Project Date given : 12/09/2011 Date due : 26/09/2011 With respect to your business idea : 1. Develop the business concept 2. Position the concept in the value(supply) chain 3. Develop an effective distribution strategy 4. Build a business model