Introduction
Supply chain management focuses on understanding and improving the coordination of multiple firms that compose a supply chain. There has been interesting in the hospitality sector on these issues of supply chain management. Then research in supply chain management about management of tour guide firms and hospitality. The explicit identification of firms separates supply chain management from approaches that focus more narrowly on production processes. There is a relationship between improving supply chain management touring firms and understanding the inherent behavior of firms in markets and the structural characteristics of those markets.
In support of dissertation, the researcher uses agenda combining elements from operations management/analytic modeling/logistics research and industrial organization theory. Analytic modeling addresses normative aspects of the behavior of individual supply chains or components thereof. In contrast, industrial organization theory addresses descriptive aspects of the behavior of firms in markets and the nature of market structure.
Whereas analytic modeling typically addresses managerial decisions, industrial organization has typically addressed guiding government policies. The policy-management division is not strict, and there are many instances of applications to both areas. For example, Porters’ (1980) “five-force” model is perhaps the best-known application of market-generated theory applied to managerial
Background of the Organization Chosen
The brand name Coca-cola has been with the company since its inception. From this quote obtained from the company website
“Thinking “the two Cs would look well in advertising,” Dr. Pemberton’s partner and bookkeeper, Frank M. Robinson, suggested the name and penned the now famous trademark “Coca-cola” in his unique script. The first newspaper ad for Coca-cola soon appeared in The Atlanta Journal, inviting thirsty citizens to try “the new and popular soda fountain drink.” Hand-painted oilcloth signs reading “Coca-cola” appeared on store awnings, with the suggestion “Drink” added to inform passersby that the new beverage was for soda fountain refreshment. During the first year, sales averaged a modest nine drinks per day”.
The trading symbol of Coca-cola shows how long they have been in the market. Even the advert “refreshing is associated with the trade. The trademark being in existence for a long period is like an inseparable asset that moves with the company the entire world. Let imagine a bottle of Coca-cola product with a different trademark it will be difficult to market it.
The company boasts of over 200 countries in the world and records revenue of over $250 billion annually and currently tops as the company with the highest record of sales in terms of the beverages industry. The subsidiaries are in over 200 countries of in all the continents that is Europe, Asia, North and South America, Africa and Australia.
North America is their largest market and they are largest foreign investor in Europe. They also own a significant Asia, south Africa market share with a fewer share in the Australian market. Its sales also dominate both the African and Australian markets. The company has also entered into joint ventures with other various companies in the same industry
Coca-cola key success factors include the maintenance of customer loyalty through constant supply of high-quality products and at reasonable prices, proficient employee work team and sound marketing strategies not forgetting their refreshing slogan that has been with the company for many years.
From the financial statements of the company, between Jan – September 2007, the net sales had increased by 41% and operating profits by 26% compared with the same period the previous year. The shareholders also received more earnings for each share held. There was an increase of 16% of Earnings per Share. There was no percentage change in the gearing level of the firm as this remained at an equivalent average compared to other years.
Application of Theory
Industrial Organisation Economics Theory
“The theory of industrial organization economics, which is often simply termed industrial organization, is a useful framework to explain primarily firm behavior within markets and inter-firm behavior between markets. Broad definitions suggest that it is a branch of microeconomics that deals with the performance of firms and especially with the effects of market structures on firm conduct (for example, pricing policy, restrictive practices, and innovation) and behavior i.e. how they are organized, owned and managed (Bancock et al. 1998).
According to Martin (1998) “contemporary industrial organization economics concerns itself with the analysis of market structure, firm conduct and market performance in oligopolistic markets.” This preoccupation with analysis of those particular markets where there are a few large suppliers was explained as such; “The most interesting and important applications in industrial organization economics concern primarily oligopolies; the type of market in which firms are neither monopolists nor perfect competitors, but something in between. By and large these are the kinds of firms and markets that we find in the real world (Martin 1998).
Microeconomics in general has focused upon simple market structures – competition and monopoly. The most important elements of market structure in this field are identified and the relevance of these characteristics to the construction supply chain concept are explored in Table 1.
Market structure
Relevance to supply chain concept the nature of the demand (buyer concentration, number and size of buyers), Buyers’ market ie upstream supply chain markets, impacts upon volume of work for downstream construction supply chain firms. This can affect procurement practices and tendering and pricing for individual project contracts or longer-term agreements; which for eg in turn impacts upon incentive for downstream firms to be involved in buyer supply chain management initiatives existing distribution of power among rival firms (seller concentration, number and size of sellers), Construction supply chain market structure impacts upon firms’ nature of response to buyers, in construction in particular the number and size of sellers impacts upon competition and whether or not there is an incentive to change supply chain processes entry/exit barriers.
Movement of firms also impacts upon degree of competition and ability to develop innovative products and processes and make long term technological improvements government intervention. Regulation affects competition ‘rules’ within a market. In many countries governments can intervene as a major construction buyer physical structuring of relationships (horizontal and vertical integration). For example, the degree of vertical integration increases the length of chains and can impact upon flow of information and product/ lead times/prices/profit margins. Horizontal integration blurs firm boundaries within markets and alters nature of competition within the market.
The industrial organization methodology can make two main contributions to management of the supply chain. Firstly it can serve to assist in understanding why certain behaviors are taking place in markets and thereby the nature of supply chain interfirm relationships.
Research in this arena primarily seeks to understand what is taking place, that is, it is descriptive initially and then explanatory. Secondly, the industrial organization economics literature can assist in a more prescriptive manner; in developing an understanding of better performing behaviors of firms and their suppliers. Research in this arena seeks to establish causal relationships between types of behavior and outcomes. This is more useful to, although not exclusive to, individual firms when taking a prescriptive approach to supply chain management.”
William J. O’Brien,1 Kerry London2 and Ruben Vrijhoef (2002).
Discussion
Five Forces Analysis
Porter, the Father of Competitive strategies identified five forces that drive competition within an industry (Porter M, 1986),. He listed them and explained how they are applied in the industry. These strategies include
- The threat of entry by new competitors into the industry: this is the main problem of the competition. A new competitors comes in there chances that he will go with some of the buyers. Another related problem is entering new market either through geographical or vertical expansion.
- The intensity of rivalry among existing competitors that the change of strategies: the current competitors and the task of staying competitive in current market was identified by Porter as another problem that needed strategies.
- Pressure from substitute products.
- The bargaining power of buyers.
- The bargaining power of suppliers.
No matter which competitive force is to used the most important thing to keep in mind is the relationship between profit margins or returns and the intensity of competition. The higher the intensity of competition, the low is profits (Varadarajan p and Cunningham H, 1995),
Porter Model Analysis for the Beverage (nonalcoholic) industry
Using Porter’s model of analysis (Rugman A and Verbeke A, 2004), when analyzing the model you start with Intra-Industry Rivalry: this are companies that operate in the industry and they compete for the same market. The companies operating in this industry include Coca-cola, Pepsi, Suntory and other small companies in various countries where Coca-cola is operating. From the case study, we are told that industry was very competitive with Pepsi engaging in price wars in various parts of the world. They were more capital constrained, had less predictable revenues and cash flows, lacked product diversity, and were forced to spread fixed costs over a smaller revenue base—factors that were prompting the industry to consolidate to a smaller number of companies. The shrub also is diminishing thus causing the industry to diversify to other drinks.
Another force in Porter’s model is buyers. Most of the customers for these soft drinks and beverages include the world at large. The companies making these beverages spend a lot of money to advertise targeting the at large world market. Most adverts have target world at periods of festivities and during hot seasons. Coca-cola company should target desert areas part of world where this drink will be at high demand because of the climate. This will increase the market share of the company and open up an exploited market. They should enter strategic relationship with companies exploring oil and drilling water in desert countries this will stamp their product in those countries. The purchasing power of the population has been affect by the economic performance of countries in the world.
For any production to be successive there must be suppliers. Porter recognized that fact in his model. Suppliers of this company include farmers of the shrub, glass manufactures, carbon-making companies, water distributing companies and government authorities, sugar manufacturing companies and plastic bottle manufacturers.
Substitutes have been identified as another force that affects the market of goods and services. Porter recognized that fact and he enlisted it as one of forces. The beverage industry is facing substitute products like banana juices, mango juices, passion juices, mango juices which are currently being manufactured by many companies.
The other force in the market entry of into the industry new competitors this is evident from the way far east countries are industrializing and how they are taking innovations. Coca-cola should aggressively enter geographically into Far East markets and acquire through mergers and acquisitions or takeovers companies that are seen to cause a threat in the future.
To reduce the strength and danger of this force, the company has strengthened its differentiation generic strategy as its framework. Customers would then be loyal to the uniqueness of their products even when Johnson and Associates increase in price.
Coca-cola adopted a value chain that has resulted in the maximization of value while maintaining the costs to their minimal levels.
Activities where value has been created and costs reduced include procurement of raw materials, Human Resource Management and Technology development. Other areas include Research & Development, Sales, and Marketing.
In procurement, Johnson and associates ltd Management has ensured that the raw materials and other supplies are close to their proximity to reduce transportation costs. They incur a significant cost in research and development but this cost is countered by the value generated there from i.e. products that cannot have substitutes.
Value is also added when it comes to outbound logistics. The tourist in long distances, the company has opened outlets in various tourist attraction centers while also reducing the number of the distances covered by their vans.
Coca-cola tries to reduce the costs associated with recruitment and hiring of staff like for instance doing the exercise online. The benefits/value of the exercise is enhanced by recruiting and hiring staff of high integrity, professionalism and expertise.
Recommendations and Conclusions
Analysis
In our case, since Coca-cola enterprise Inc. largest beverage company and the larger they become the challenges they face. With regards to threats, we cannot control these threats that might hinder business operations. However, these threats will serve as challenges and will focus on the strengths to attain success in achieving goals and missions.
4Ps
Positioning – Coca-cola Enterprises would like to create a niche in offering a wider array of beverages in the world market. As most competitors are offering sodas and juices. Coca-cola enterprises inc. will go a mile higher by offering bottled water, juices and natural fruits drinks to the world specifically desert countries. In achieving this, they will need to join oiling mining companies, water drilling companies and social groups in various markets. Coca-cola needs to be known as a company with a difference in producing their products.
Promotion – use of internet, television adverts, promoting social activities, fliers, sponsoring sports and many other promotional activity. Since we are involved in providing wider soft drinks choices, Coca-cola is inclined for product differentiation, which is essential in positioning. The products should be positioned so it can stand apart from competitive products. Coca-cola’s refreshing unique combinations that differentiate their products from other competitive offerings will enable customers to define the important attributes of the business.
Place – Coca-cola is situated in various parts of the world with head office in Atlanta.
Pricing – Coca-cola enterprises will make all the prices of their goods to match the prices of their competitors but will have an hedge because they are unique.
Potential Customers
Coca-cola will focus on customers who are well-being consumers and living in various parts of the world.. It is expected that people in hot environments will be the largest consumers and the current market should be
kept intact as they expand to other markets. China has ¼ of the population thus offering a huge market.
Coca-cola products
Coca-cola products are a health and of a wide array of soft drink products to the growing market of wellness consumers in the world. It should also plan to venture in producing other products. Since there is large market for beverages, the success will definitely rely on quality and standards.
Conclusion
In order to achieve better future results, better or higher to industrial average, the Coca-cola needs to cut down its operating expenses, enter to new markets through vertical integration, geographical expansion and product differentiation. This would considerably improve the profitability which is declining recently. They also have to review their policy on capital management and keep optimal levels of various items of current assets. This would improve the firm’s liquidity position. In order to improve the return on owner’s equity ratio, the management should invest in viable projects that would yield positive NPV’s. This has the effect of maximizing their wealth.
Annotated Bibliography
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In order to establish a foundation for a proactive stance on the industry, this article from the very beginning the research helps in the differentiating qualities wanted to be included in this market analysis. The market research proved to quantify the initial success of the industry and to offer a preliminary focus of the hotels.
“Developing A Business Concept.” 2005. Expat Media Group.
This source served as a general guideline to develop a business concept. It served as a checklist and starting point for research on the potential for our idea.
Quinn J B, (2003), Strategic Change: Logical Incrementalism, in Quinn and Mintzberg, the Strategy Process, Prentice-Hall.
This book is integral in assessing the competition in terms of where the hospitality industry and puts resources and what features they are installing in the markets. It offers supported facts and information about products and services as well as the operations of the store in relation to consumer needs.
Stephenson, J. W. (2007). Operations Management: International Student Edition with Global Reading (9th edition).Irwin: McGraw-Hill.
This business plan was examined in order to draw comparison between the large-scale commercial grocery outlets to small-business organic start-ups, mainly what the financials and demographics looked like. It was considerably longer and detailed some of the intricacies in constructing a physical food distribution market. While it did acknowledge the risks and pitfalls, it was not directly applicable to an organic food market.
Schiffman, Leon G., and Leslie L. Kanuk. Consumer Behavior. New Jersey: Pearson Prentice Hall, 2007.
By understanding the psychology behind the consumer, we can better serve our audience by facilitating communication and determining the most effective marketing techniques to reach our target demographic. This reference serves useful in the creation of an efficient advertising plan.
Ellram, L. (1997). “Supply Chain Management The Industrial Organisation Perspective.” International Journal of Physical Distribution and Logistics Management21(1): 13-22.
This article has in-depth information about the type of Supply Chain Management. It gave qualitative information about the growth in demand for food, and highlighted the potential constraints of the businesses. This information has been used to cover every angle of possible marketing towards our target market. Also, the information regarding the negative aspects provided a guideline of what not to do.
Federgruen, A., and Zipkin, P. (1986). “An inventory model with limited production capacity and uncertain demands I: the average-cost criterion.” Mathematics of Operations Research, 11, 193-207.
In this article, the author seeks to determine the common research tasks in higher education and which theories of research underpin these research tasks. The author presents a model which can be used to bridge theories of research with instructional processes and provides a way to assess the extent to which the activities chosen align with learning processes common to higher education learning tasks. In practice, the model leads to a shift to more practice in class and more information out of class.
Geunes, J., Pardolos, P. M., and Romeijn, H. E. (2002). Supply Chain Management: Models, Applications, and Research Directions. Kluwer Academic Publishers, Boston.
This business plan presented the details of what it would take to build a brand-focused line of food products in the gourmet category. As a business plan, it was hinged on the popular points and highlights of the market. It entailed the background in the industry and described why the industry is profitable. The document is considered reputable, however, it avoids any risks or downfalls of entering such an industry. It supported our statements that the industry is moving toward “partially prepared specialty items” and “ready for mass market, customizes, organic food products” (246).
William J. O’Brien,1 Kerry London2 and Ruben Vrijhoef (2002) construction supply chain modeling: a research review and interdisciplinary research agenda.
This paper presents findings from a previous study by the authors. The authors conducted extensive empirical research on the conditions of equality in supply chain. There are basic principles of equality of condition for promoting equality in supply chain.