Week 3 Flashcards
Supply Chain definition
A supply chain is the series of steps that a product or service goes through from raw materials to the final customer connected through transportation, information and financial relationships.
Upstream and downstream
“Upstream” and “downstream” are general business terms referring to a company’s location in the supply chain. The closer to the end user a function or firm is, the further downstream it is said to be. Raw material extraction or production are elements of the supply chain considered to be upstream.
Backward integration
Backward integration is a form of vertical integration that involves the purchase of, or merger with, suppliers up the supply chain. Companies pursue backward integration when it is expected to result in improved efficiency and cost savings. For example, this type of integration might cut transportation costs, improve profit margins and make the firm more competitive.
Forward integration
Cutting out the middle man. A good example of forward integration is when a farmer sells his crops at a local grocery store rather than to a distribution center that controls grocery store placement.
Vertical integration
Vertical integration is a strategy where a company expands its business operations into different steps on the same production path, such as when a manufacturer owns its supplier and/or distributor. Vertical integration can help companies reduce costs and improve efficiencies by decreasing transportation expenses and reducing turnaround time, among other advantages. However, sometimes it is more effective for a company to rely on the established expertise and economies of scale of other vendors rather than trying to become vertically integrated.
Value Chain definition
process by which businesses receive raw materials, add value to the raw materials through various processes to create a finished product, and then sell that end product to customers. Companies conduct value-chain analysis by looking at every production step required to create a product and identifying ways to increase the efficiency of the chain. The overall goal is to deliver maximum value for the least possible total cost and create a competitive advantage.
Deploy approach
Companies create value by aggregating demand across multiple markets.
- Aggregate core competencies to realize economies of scale and scope
- Adapt the core competencies to match local production and demand conditions
Develop approach
Companies seek to exploit differences among countries to create and capture value.
- Differences in “willingness-to-pay”
- Differences in knowledge
- Differences in costs
Law of One Price
Identical goods should sell for the same price in two separate markets, assuming:
- No transportation costs.
- No transaction costs.
- Perfect information.
The strong version of globalization implies cross-boarder convergence of:
- Information
- Transportation
- Transaction
- Culture
- Administration
- Geography
- Economics
Arbitrage
Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies.
Core Competencies
Core competencies are the main strengths or strategic advantages of a business, including the combination of pooled knowledge and technical capacities that allow a business to be competitive in the marketplace. Theoretically, a core competency should allow a company to expand into new end markets as well as provide a significant benefit to customers. It should also be hard for competitors to replicate.