Chapter 2.1 Flashcards
1
Q
Tendering Process
A
A request from a buying organisation to invite suppliers to formally quote on a large value project
2
Q
What is an industry formed to?
A
A service market
3
Q
What are industries made up of?
A
Segments which are groups of organisations that share common characteristics, such as the type of customer served.
4
Q
Can a specific organisation work in more than one segment?
A
Yes
5
Q
How are industries normally classified?
A
In three main groups which are primary activities (essentially extractive industries, such as mining), secondary activities (manufacturing) and tertiary activities (services)
6
Q
How are the three groups of industries further analysed?
A
Using a coding system
7
Q
Name an example of a coding system
A
The four-digit SIC (standard industry classification) system which originated in the US and is now widely used around the world
8
Q
What is the SIC code for agriculture, forestry and fishing?
A
0100-0999
9
Q
What is the SIC code for mining?
A
1000-1499
10
Q
What is the SIC code for construction?
A
1500-1799
11
Q
What is the SIC code for ‘not used’
A
1800-1999
12
Q
What is the SIC code for manufacturing?
A
2000-3999
13
Q
What is the SIC code for Transportation, communications, electric, gas and sanitary services?
A
4000-4999
14
Q
What is the SIC code for wholesale trade?
A
5000-5199
15
Q
What is the SIC code for retail trade?
A
5200-5999
16
Q
What is the SIC code for finance, insurance and real estate?
A
6000-6799
17
Q
What is the SIC code for services?
A
7000-8999
18
Q
What is the SIC code for public administration?
A
9100-9729
19
Q
What is the SIC code for non-classifiable?
A
9900-9999
20
Q
Who are the SIC codes be further sub-divided by?
A
SEC (Securities and Exchange commission)
21
Q
Who suggested that there are three generic strategies for competing in an industry?
A
Michael Porter
22
Q
Name Michael porters three generic strategies for competing in an industry
A
- Cost leadership
- Differentiation
- Focus on a narrow niche segment
23
Q
Define cost leadership
A
A strategy used by businesses in order to gain a competitive advantage by having the lowest cost of operation within their particular industry
24
Q
Define differentiation
A
When a product or brand stands out as being unique to customers when compared to its competitors
25
How would you describe a company that is not clear about any of the three strategies for competing in an industry?
'Stuck in the middle'
26
What normally happens to 'stuck in the middle' companies?
They can't compete on price or differentiation and so it ultimately fails
27
Define rivalry
Competition between companies, usually within the same industry
28
What can be valuable information when managing a market or supplier or negotiating with a supplier?
Having an understanding of a suppliers strategy and how it is being used in order to compete
29
Define segment
A group of products or services that provide specific but different value for their buyers
30
What does an understanding of segments help procurement and supply with?
Shaping and managing the supply markets
31
When is a different segment created?
If product or service differences alter just one of the areas of competition
32
What are the two other variables that can lead to a different segment?
1. The distribution channel used to reach buyers
2. The geographical location of those buyers
33
What do product based segments contain?
The individual products or services and any ancillary services such as maintenance or consumables
34
Define distribution channel
The network used to get a product or service from the manufacturer or creator to the end user or consumer. It can include wholesalers, agents and retailers and can include online channels
35
Can groups of products be sold together?
Yes
36
Can single products be bundled with ancillary services?
yes
37
Can the physical size of a product create a segment?
Yes
38
Name 6 factors that can create different segments
1. Price levels
2. Features
3. Design
4. Packaging
5. Performance
6. New versus replacement
39
Name 5 factors that determine how industrial markets are segmented on the basis of buyers
1. Buyers strategy
2. Buyer's size
3. Ownership
4. Financial strength
5. Order patterns
40
How can a buyers size be measured?
Either by individual order size or by annual purchase value
41
What can the ownership of an organisation have a major influence on?
The motivation of that company
42
Define premium price
When a product is sold for a higher price than its competitors
43
Define bargaining power
The relative ability of one party to exert influence over another in a negotiation or commercial dealing
44
Kraljic matrix
Strategic tool to help managers recognise the weaknesses of their organisation and form strategies to guard against disruption of suppliers
45
Define order patterns
The manner in which customers purchase goods and services
46
Define consumer markets
A marketplace involving individual consumers rather than businesses or companies
47
What can consumer markets be segmented on the basis of?
Their buyers
48
Name 3 factors that help segments consumer markets on the basis of their buyers
1. Lifestyle
2. Language
3. Purchase occassion
49
What can the distribution channel used have implications for?
Costs
50
Name 3 factors that determine distribution channel based segments
1. Direct sale versus distributors
2. Direct marketing versus retail
3. Exclusive versus non-exclusive outlets
51
Name 4 factors that determine geographical based segments
1. localities, regions or countries
2. Route details
3. Climate zones
4. Country groupings
52
How can an organisation make a breakthrough in the outcomes it achieves and also reduce costs?
By identifying new segments
53
Name 5 questions you can ask to help identify other factors that may create new segments
1. Can other technologies or product designs deliver buyer needs in a better way?
2. Can the product or service be enhanced to provide better value?
3. Can the needs of some buyers be better met by reducing the number of functions the product or service delivers at the same time as reducing the price?
4. Are there other bundles of products or services and acillaries?
5. Are different channels available for reaching additional buyers or serving existing buyers more effectively?
54
What would you use to identify new segments?
A segmentation matrix
55
What does a segmentation matrix show?
A possible set of segments for a hypothetical industry
56
Name one difficulty with constructing a segmentation matrix
There can be dozens of factors that determine the segments. The first step is to reduce this to a manageable number by applying a significance test
57
What question does the significance test ask?
What impact will this factor have on competitive advantage?
58
What is the third level of market analysis?
Understanding individual companies within each segment of the industry
59
What do you first need to do when analysing a value chain?
Break down activities into those that have discrete technologies and costs. This means that broad functions such as manufacturing and marketing should be broken down into their main constituent activities
60
What characteristics should the main constituent activities have?
1. Different economics
2. A high potential impact on product or service differentiation
3. They should represent a significant and growing percentage of total costs
61
Why is it important for procurement to understand the value chains of major suppliers?
So that they can use that knowledge to identify how suppliers use differentiation to best support their own value chains
62
What does the value chain do?
Summarises the major activities of any organisation whether in manufacturing or services, the public or private sector
63
Name 6 examples of specific markets
1. Manufacturing sector
2. Construction sector
3. Retail sector
4. Finance sector
5. Agriculture sector
6. Services sector
64
Name 5 factors that need to be considered when analysing markets
1. Objectives
2. Drivers
3. Governance
4. Ownership
5. Commodity or non-commodity
65
Define manufacturing
The transformation of raw materials and components by mechanical, physical or chemical means into products that are sold to other companies or consumers
66
Describe the manufacturing market sector
Very diverse and there are 20 more subdivisions in the Standard Industry Classification (SIC) system
67
Name 5 common generic issues that affect most manufacturing markets
1. Manufacturing requires investment in machinery and access to a suitably skilled workforce as well as raw materials and components
2. The capital cost can be high and it can take time to build a network of suppliers that can provide the right quality of product at the right price
3. The profitability of the manufacturing industry tends to be relatively low as past entry by organisations in low-cost countries has capped prices that can be charged for the end product. Barriers to entry therefore are quite high in most manufcturing segments
4. Often there are no immediate substitutes available, but this can change as technology develops new ways of meeting buyer needs
5. Switching costs can be high in the short-term if the product has been integrated into the organisations production process or requires costly retraining if a switch is made. The threat of substitutes in the short term is relatively low
68
Describe the two groups that suppliers of manufacturing companies usually fall in to
1. Group 1 - made up of a few very large organisations whose bargaining power is high. These tend to provide raw materials such as steel
2. Group 2 - Group fragmented with many smaller suppliers, each of which has a little bargaining power. These tend to provide components
69
Is the capital cost in manufacturing generally high?
Yes
70
Name 4 challenges that shape the automotive industry (McKinsey)
1. Complexity and cost pressure
2. Diverging markets
3. Digital Demands
4. Shifting industry landscapes
71
How much was the global construction sector estimated to be worth in 2020?
$6.4 trillion
72
How much do they expect the global construction sector to be worth in 2030
$144 trillion
73
Name the 2 largest segments of the global construction sector
1. Construction of residential, industrial and commercial buildings
2. Heavy construction pf infrastructure such as roads, bridges and railways
74
Name 2 of the biggest barriers to entry for the global construction sector
1. Experience
2. Reputation
75
Are barriers to entry considered to be very high in the global construction sector?
Yes - very high
76
Are there substitutes for construction?
No, but there are for materials and components
77
Describe switching costs in regards to materials in the global construction sector
Generally low
78
Give an example of the construction market
The global market for infrastructure construction, such as transport, electricity or water systems
79
How would you describe the construction industry's productivity
It has remained relatively flat
80
Name 4 reasons why the construction industry's productivity has remained relatively flat
1. Poorly conceived projects
2. Length of time taken to approve projects
3. Lack of innovation in how to deliver projects
4. Not maximising the use of existing assets first
81
Name 4 drivers of sustainable performance that organisations in the construction market need to address
1. Poor levels of productivity therefore poor level of profit
2. The need to improve project performance
3. Shortage of skilled labour
4. Sustainability
82
How much of the worlds carbon emissions does the construction industry account for?
Between 25% and 40%
83
How much did the retail industry sector account for globally in 2018?
$24 trillion
84
How much is the retail industry sector estimated to account for globally by 2020?
$28 trillion
85
Name the 8 SIC subdivisions the retail sector covers
1. Building materials
2. General merchandise
3. Food stores
4. Automobile sales and gasoline service stations
5. Apparel and accessories
6. Home furniture, furnishings and equipment stores
7. Eating and drinking places
8. Miscellaneous retail
86
Describe the barriers to entry for the retail sector
usually high - investment in physical presence in cities and towns or web design etc
87
Why is the threat of substitutes high for the retail sector?
There are often several alternatives open to the buyer
88
Who are the buyers usually in the retail sector?
Predominantly individuals
89
Describe the competition in the retail sector
Often intense
90
How can the intensity of competition in the retail sector be mitigated in some instances?
By creating a brand that attracts loyalty from customers and even premium pricing
91
Name 5 expected drivers of the fashion industry
1. Continuing uncertainty in the industry in terms of demand
2. Comapnies around the world becoming more connected through technology
3. The emergence of disruptive technologies which are quickly adopted by companies in the industry
4. Consumers being in control by sharing information, opinions and reviews through connectivity and social media
5. The need to reduce the time from design to product shipment
92
Name 7 objectives of the fashion industry
1. Integrate physical and digital channels to market
2. Improve the retail experience
3. Build brands and brand loyalty
4. Build IT capability to digitise the value chain
5. Increase productivity
6. Reduce product complexity
7. Emulate start-up organisations by increasing collaboration and forming partnerships
93
Describe the financial services sector
Extremely diverse in the types of services offered.
94
What does the financial services sector consist of?
Primarily consists of businesses that engage in the creation, liquidation and change of ownership of financial assets, such as shares, bonds and derivatives
95
What do the customers of the financial services sector range from?
Individuals to businesses, non-profit organisations and the public sector
96
Name the 3 main segments in the financial services sector
1. Financial services (excluding pensions funding and insurance)
2. Insurance, re-insurance and pension funding
3. Auxiliary activities
97
What activities does the financial services (excluding pensions funding and insurance) segment include?
Activities such as banks, building societies, savings banks and credit unions
98
What activities does the insurance, re-insurance and pension funding segment include?
Life insurance, travel insurance, health insurance, property insurance, transport insurance and liability insurance as well as employee benefits, pensions and retirement plans
99
What activities does the auxiliary activities segment include?
Financial markets such as commodity and futures contracts and stock exchanges, brokerages, insurance agents and insurance loss adjustments
100
Why can't you do a proper analysis of the financial services sector
Because the segments are so diverse with differing buyers and rivalries
101
How would you describe the bargaining power of the suppliers in the financial services sector?
Relatively low
102
Name the 5 drivers of long term growth in the financial services sector
1. A move from focusing on products and services to putting the customer at the centre of everything
2. Modernisation of regulatory compliance
3. The need to better manage technology to emphasise activities that differentiate the bank from competitors
4. The need to mitigate cyber risk
5. A changing workforce with more people wanting to be freelance or become contractors rather than permanent employees
103
Name 4 objectives of the financial services sector
1. To improve customer experience of digital banking
2. To ehance data analytics capabilities to identofy customer needs
3. To find ways to reduce operating costs
4. To increase investment in innovation
104
What is the global food and agribusiness market sector valued at?
$5 trillion
105
What is demand of the global food and agribusiness sector expected to do by 2050?
Double
106
The SIC classification has 5 main subdivisions for agriculture. Name them...
1. Agricultural production - crops
2. Agricultural production - livestock
3. Agricultural services
4. Forestry
5. Fishing, hunting and trapping
107
Why is the threat of new entrants low in the agriculture market segments?
It requires significant investment in land and machinery which requires confidence in quality. And margins are often low.
108
Can there be substitutes for particular types of agriculture products?
Yes
109
When may supplier strength be high in the agricultural sector?
Many of the products can be subject to shortages. In these circumstances supplies may be rationed which means supplier strength is often high
110
How would you describe competition in a global agricultural market
Intense because many businesses compete for a share of the wallet of large retail chains
111
Name the 2 drivers of change in the agricultural sector
1. The level of income. This is a bigger driver than population growth as it increases the demand for animal protein. This is not as efficient to produce as plant-based diets in terms of energy use and energy conversion
2. The limited availability of land and water needed for crop production
112
What 4 areas can be considered when considering the service sector?
1. Information and communication
2. Professional, scientific and technical activities
3. Administrative and support service activities
4. Other service activities
113
Why may make suppliers bargaining power high in the service sector?
Staff retention and recruitment is a key activity and if there is a shortage of the skills needed then suppliers can command high salaries, making their bargaining power high
114
Why is competition in the service sector intense?
There are many suppliers of a particular service and switching costs are low.
115
Name 4 objectives of the service sector specifically professional services
1. To build trust with existing and potential clients
2. To empower service delivery staff to deliver a quality and time bound service
3. To establish uniform processes so that a common way of working is established even though each set of client needs are different
4. To achieve the highest levels of customer satisfaction
116
What was Kraljic's original definition of importance based on?
The profit impact of a category. The category could be low in spend but if it is used in the manufacture of 80% of an organisations sales then a price rise of that category or a failure in delivery can have a significant impact on the organisations overall sales and profit
117
Name 6 critical factors that determine the importance of a category
1. Value of spend
2. Importance of the delivery of the organisations service or product
3. Universality
4. Impact of the category on the quality of the final product
5. Volume purchased
6. Impact on the organisations plans for growth
