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Course 5 - Coggle Diagram

- - - - to track the environment they’re operating in
      - planning to launch a new project/product/service
  - - - • What is the political situation of the country
        
        how can it affect the industry
        
        Crucial for any industry a business might be in
        
        represents one of the vertebras of the backbone of strategic management
        
        defines what a company should do
        
        accounts for an organization’s goals and the strategies stringed to them
      - • What are the prevalent economic factors?
      - • How much importance does culture has in the market
        
        what are its determinants
      - • What technological innovations are likely to pop up and affect the market structure?
      - • Are there any current legislations that regulate the industry
        
        can there be any change in the legislations for the industry?
      - • What are the environmental concerns for the industry?
  - - - determine the extent to which a government may influence the economy or a certain industry
      - Includes
        
        tax policies
        
        Fiscal policy
        
        trade tariffs
    - - determinants of an economy’s performance that directly impacts a company and have resonating long term effects
      - affect the purchasing power of a consumer and change demand/supply models for that economy
      - Includes
        
        inflation rate
        
        interest rates
        
        foreign exchange rates
    - - scrutinize the social environment of the market
      - gauge determinants like cultural trends, demographics, population analytics
    - - pertain to innovations in technology
        
        may affect the operations of the industry and the market favorably or unfavorably
        
        automation
        
        research and development
        
        the amount of technological awareness that a market possesses
    - - have both external and internal sides
        
        There are laws that affect the business environment in a certain country
        
        certain policies that companies maintain for themselves
      - Legal analysis takes into account both of these angles
        
        charts out the strategies in light of these legislations
    - - those that influence or are determined by the surrounding environment
        
        crucial for certain industries
        
        tourism
        
        farming
        
        agriculture
      - not limited to
        
        climate
        
        weather
        
        geographical location
        
        global changes in climate
        
        environmental offsets
- - - - how well do you know your suppliers at tiers two and three
        
        how critical they are to your supply chain
      - Do you know the factories and the locations in which your branded goods or components are made
      - What would happen to your business if a lower-tier supplier failed to supply
        
        earthquake
        
        A brand’s value could be eroded or destroyed through the errant actions of a lower-tier supplier
        
        civil unrest
        
        flooding
        
        fire
        
        financial collapse
      - impact to your brand if a second- or third-tier supplier was exposed as using child labour or treating workers badly
    - - Mitigating supplier risk and being able to respond quickly when disaster strikes
        
        dependent upon having visibility of the supply base across all tiers
      - create a co-ordinated global supplier database
        
        before moving on to build an accurate supply chain map
        
        every supplier at every level
    - - most effective way to gain visibility
        
        standardised approach to the management of supplier information is required
        
        buyers can request information from everyone involved in their supply chain
        
        instigates the action by inviting its first-tier suppliers to join the mapping process
        
        Tier one suppliers pass the invite on to tier twos and so on
        
        The key to success is automation
        
        ensuring the person in the middle can link what they sell to whom
        
        details of what they buy link to the next person in the chain
      - allows the buyer to assess which supplier manufacturing sites are potentially exposed to risk
        
        helps in addressing potential bottlenecks, reliance on single suppliers and companies with long lead- times
    - - critical to get suppliers’ support in mapping the supply chain
        
        clearly explaining the benefits
        
        supplier understand risk in their own supply chains and improve their own business resilience
        
        suppliers may be reluctant to provide information
        
        reassure suppliers that they can control who has access to their information
        
        can maintain commercial confidentiality
    - - most efficient and effective way
      - effort and cost are shared
      - central source of verified supplier data
        
        provide a perfect environment in which to map out supply chains
  - - - • Keeping prices low by maintaining competitive cost
      - • Reinvesting cost savings into R&D
      - • Moving increasingly into supply-chain ﬁnancing and investing as a means for tearing down supply-side barriers to entry
      - Rivalry Among Competitors
        
        • Communicating with suppliers and coordinating on innovation roadmaps
        
        • Co-developing with critical suppliers
        
        • Collaborating to drive substantial improvements in supplier performance
    - - • Unique product design through supplier involvement right from the engineering phases
      - • Discovering unique service partnership opportunities
      - • Driving customer loyalty by employing strong governance and ongoing performance management over strategic non-product factors
    - - • Spotting potential substitution threats
      - • Understanding the historic trends, volatility patterns and future expectations for costs, proﬁt and other success factors of substitute markets
      - • Analyzing the risks in supply chain
        of competitors selling substitute products
    - - • Increasing the percent of suppliers’ business dependency
      - • Unbundling and commoditizing of complex goods and services
      - • Pushing suppliers for greater cost-to-price transparency
- - - - Liquidity Ratios
        
        Current ratio =
        Current assets / Current liabilities
        
        Should be > 1.0
        
        Quick ratio =
        (Cash + Receivables) / Current liabilities
        
        At least 0.8 if supplier sells on credit
      - Activity Ratios
        
        Inventory turnover = COGS / Inventory
        
        Low means slow inventory or possible cash flow problems
        
        Fixed asset turnover = Sales / Fixed assets
        
        Too low means supplier may be inefficient
        
        Total asset turnover = Sales / Total assets
        
        Too low means supplier may be inefficient using its total assets
        
        Days sales outstanding = (Receivables x 365) / Sales
        
        Too high hurts cash flow
        
        Too low shows restrictive credit policy
      - Profitability Ratios
        
        Net profit margin = Profit after taxes / Sales
        
        after-tax return
        
        Return on assets = Profit after taxes / Total assets
        
        return earned on what a company owns
        
        Return on equity = Profit after taxes / Equity
        
        return on shareholders’ investment
      - Debt Ratios
        
        Debt-to-equity = Total liabilities / Equity
        
        3 means highly leveraged
        
        Current debt-to-equity = Current liabilities / Equity
        
        Too high means supplier may be unable to pays its bills
        
        Interest coverage =
        (Pretax income + Interest) / Interest
        
        Should be > 3
    - - The better the Supplier’s financial health, the more likely you will be able to reduce cost
        
        provide committed or improved performance
        
        Steps to analyze
        
        Get and review the Suppliers financial statements
        
        Exhibits referred to sources and use of funds, any noted change in financial position, major work in progress may also be helpful
        
        Calculate the 14 business ratios* and compare them against the best in their industry and location
        
        solvency, efficiency, and profitability
        
        Do a credit check on the Supplier
        
        Fully audited financials statements are only done once a year
        
        significant changes that have occurred since the last statement
      - ask questions or learn information that will also be useful in the negotiation
  - - - Strengths
        
        core competencies or capabilities that are executed well
        
        source of strategic alignment and competitive advantage
      - Weaknesses
        
        Procurement Function disadvantages that exist
      - Opportunities
        
        external factors
        
        source of Procurement Function enhancement and competitive advantage
      - Threats
        
        external factors
        
        constrain the Procurement Function and be a source of brand damage and customer dissatisfaction
        
        requiring intense risk mitigation