CHAPTER 4 Flashcards
(25 cards)
EXTERNAL STRUCTURE
EXTERNAL STRUCTURE:
- Industrial branche, horizontal relationships:
the horizontal relationship of organizations that experience each other as effective competitors (e.g. electronics industry)
-Industrial column or supplu chain:
a series of companies (links) in which the consecutive stages of production of an economic product take place
- Materials flow:
* Diverging materials flow (raw materials, beginning of industry column)
*Linear materials flow (finished product of one link is the main or sole input for the subsequent link)
*Converging materials flow (assembly, end of industry column)
External factors
Dermine the degree of availability of a cetain product and which cannot be influenced by individual companies
External factors are relevant because they determine the market structure
Examples are:
- the number of customers or buyers in a market
-the number of suppliers
-the market structure
-the stock situation of the product in question
-speed of technological innovation
External factors determine market structure
The total set of conditions in which a company sells its products, with special attention to the number of parties in the market and the nature of the product being traded
Central to this definition therefore are:
- numbers of suppliers
-number of buyers
-degree of differentiation
Market structures-supply side
pure competition
monopolistics competition
oligopoly
monopoly
Pure competition/ perfect competition
a market where there are many small producers offering identical products and no single supplier can influence the prices
for example individual farmers produce wheat but none of them can set the price as it is determined by market supply and demand
Homogeneous products
entry and exit is free
price setting power-none
influence on price- price taker
Monopolistic competition
a market where many suppliers sell differentiated products, allowing some degree of pricing power
for example the fast food industry
differentiated products
entry and exit relatively easy
price setting power is limited
influence on price-price maker
advertising is substantial
Oligopoly
a market dominated by a few large suppliers
for example oil companies
products are homogenous or differentiated
entry and exit are restricted
price setting power is limited
influence on price- price setter
advertising is moderate
monopoly
a market where there is only one supplier who has complete control over the price and supply of a product
for example regional electricity supplier
product differentiation is unique
entry and exit is blocked
price setting power is significant
influence on price is price maker
advertising is variable
Market structure demand side
pure competition
oligopsony
monopsony
Supply market research
Systematic gathering, classification and analysis of data considering all relevant factors that influence the procurement of goods and services for the purpose of meeting present and future company requirements
- on a regular or project base
-qualitative or quantitative
-focused on long term or short term supply
why supply market research
the factors that stimulate the development of supply market research:
- continuous technological development
-supply market dynamics
-monetary developments
-changes in tax regimes
Three areas of supply market research
Macro-economic research
meso-economic research
micro-economic research
Structure of supply market research
Objectives
cost-benefit analysis
feasibility study
design of research activities (what- desk research, where- field research)
execution of research activities
data collection
data analysis
prepare research report
Conclusions
-the ever-increasing turbulance in global supply markets makes supply market research crucial activity
-supply market research is required in order to keep informed about going on changes
-supply market structures determined the buyers tactics
- in setting up research a stepwise approach is recommended
HOW IS THE PURCHASE PRICE DETERMINED?
The price ultimately paid for materials and services is the result of environmental factors (internal and external):
- internal factors- can bring about a change in the cost of materials before the finished product is placed on the market (logistical, technical or organizational factors)
-external factors- those factors that change the availability of a product in a given market (economic, socio political or technological factors)
The influence of internal and external factors on purchase price
Buyer- trying to reduce the price
supplier- trying to raise the price
Internal factors- logistical factors, technical factors, organizational factors
External factors- economic factors, socio-political factors, technological factors
HOW IS THE PURCHASE PRICE DETERMINED?
Cost based pricing- the supplier’s offering price is directly derived from his cost price
Cost-based pricing means the supplier sets the selling price of a product by starting with how much it costs to make that product and then adding a profit margin on top.
Market based pricing- the price of the product is determined on the market and is generated by market circumstances (demand, supply, stock positions, economic factors..)
Competitive bidding- the price is influenced by market factors as well as cost factors. This situation is most common
Factors suppliers have to take into account to set the selling price
expected demand
number of competitors
expected development of the cost price per product unit
customer’s order volume
importance of the customer to the supplier
value of the product to the customer
Pricing Methods
Mark-up pricing- a fixec percentage is put on top of the cost price
Target-return pricing- predertermined total profit per product group. The price depends on the fixed costs and the selling volume
Pricing based on the buyer’s perceived value- base price on what the market can bear, not on the cost price
Value pricing- high quality offerings for fairly low prices
Going rate pricing- based on competitor prices
Auction type pricing- tender where the lowerst offer is awarded
The learning curve
Each time the cumulative production volume of particular item doubles, the average time required to produce that item is approximately x% less of the previously required number of hours
The learning curve describes how the average time or cost to produce a product decreases as a company gains experience producing more units.
Reasons explaining learning curve effects
Labour efficiency
Standardization, specialization and methods improvements
Technology- driven
Better use of equipment
Changes in the resource mix
Product redesign
Network-building and use-cost reductions
Shred experience effects
Supplier assessment
the need for obective assessment of suppliers increases as the role of the supplier in the business chain grows.
supplier assesment may take place at four different levels:
- product level- supplier’s product quality
- process level-production process
-quality assurance system level- entire supplier quality organization is subject of investigation by the customer
- company level- financial aspects are taken into consideration. also how competitive is the supplier in the future
two types of assesments may happen
objective- qualify the supplier’s performance
- spreadsheets- systematically compare and asses quotations obtained from suppliers. important criteria are listed on one axis and the supplier quotations on the other
- vendor rating- limited to quantitative data only. measuring aspects of price, quality, delivery reliability per supplier
subjective- when companies evaluate suppliers through personal Judgements
- qualitative assesment- for suppliers with whom exist close business relationships. specialists who have experience with the suppliers rate them according to a agreed checklist
- supplier audit- entails that the supplier is periodically visited by specialists from the customer. they investigate the production process and quality organzation
- cost modelling- specialists from the buying company estimate, based on the production technology, the cost of the product. This may lead to “should cost” discussions with the supplier
supplier assessment
Supplier auditing:
focus on future
new and current suppliers
mainly qualitative
broad and many aspects
time- consuming
subjective, manually
co-operation required
Vendor rating:
based on historical data
current suppliers
mainly quantitative
limited and few aspects
standard data
factual, computerised
based on internal, administrative data
