Business Model
A business model is a plan to generate money and turn it into profit:
Business strategy
Organizational strategy
Business plan
Value proposition
Set of core capabilities
Cost structure
Revenue model
Business strategy
Low cost
Best cost
Broad differentiation
Focused differentiation
Focused low cost
Low-cost advantage strategies
Reduce cost in all areas. Low cost and large market can have great leverage on suppliers, cutting
facility costs, relocate and adopt leand manufacturing. Has high operational efficiency, standarized
products, tight supplier inventory control. High supplier quality and cut on reworks.
Product or service differentiation strategies
High quality items
Diversity of the product line
Great reliability
Products with special features
Strategies for product differentiation
Modular design with postponement
Base model with numerous options
Collaboration with suppliers to develop innovative designs
Global track and trace technology to reduce counterfit
Focus advantage strategies
Nice marketing: for a mass market or a slice of a larger market
Responsiveness: fast, large stocks
Innovation: a must-have its for large market heavy, heavy research and learn customer desires
Supply chain agility: the hability of sourcing and manufacturing to rampup or own in production
volume quickly without underdue cost or hardship
Mass marketing: strategy of sending the same message to all potential customers
Nice marketing: to one or more market segments
Organizational strategy
Goal to satisfy customer growth, compete, organize and make money.
Strategy: customer focus and aligment
Focus on what is good for the customer, not for the company or the supply chain. Balance of quality,
price, availability that is right for the customer
Strategy: forecasting driven enterprise
Based on push system: 1. production requried times based on schedule in advance, 2. Issuing
material at its start time, 3. In distribution, a system for replenishment field warehouse inventories,
usually manufacturing site
Strategy: demand driven
Based on Pull systems: 1. Production based on demand, 2. Material as demand, not issue until sign
comes from user, 3. In distribution, system for replenishment are made at the field warehouse, not
at a central warehouse
Most organizations purse push-pull and the point where pull moves to pull is the key strategy
decision
Key changes:
access to read demand data for visibi
trust and collaboration with SC partners
increase agility of trade partners (because buffer inventories will decrease)
Strategy: product driven
Functional products: mature, low profit margin and predictable demand, long life cycles, easy to
forecast
Innovative products: unpredictable demand, short lie cycles, high contribution margin. Average
stockout is 10-40%, sale 10-25%
Focus on market responisivenes, performance indicators as:
excess buffer capacity and safety stock
aggressive reduction of lead times
suppliers chosen for agility, speed, volume and production, quality (rather than cost)
modular design that postpones differentiation as long as possible
Products:
Staples: strady year around, low margin
Seasonal products: patio, holiday, predictable demand
Fashion products: Zara, mix of fast and low cost suppliers
Business Plan
Long term strategy, revenue, cost, profit, objectives, budgets, balanc sheet, PL, cash flow. Displayed
in USD, grouped by product family
Michael Porter 5 forces:
Customer service
Sales channels
Value system
Operating model
Asset footprint
Value proposition
Set of activities to be considered valuable to a customer
Core capabilities
Decision making: planning, enabling
Execution: sourcing, making, delivering, returning
Areas of competitive advantage:
Economy of scale
Geographical expertise
Technology advantages
Resource advantage
Cost structure
Make to stock: low production cost, high inventory carring cost. Standarized, high-volume
products
Assemble to order: modules are made to stock but final customer order is asembled only after
being ordered. Moderate production cost and low inventory carrying and planning. High
demand items with many options as computers
Make to order: high production cost but low inventory carryng cost and low planning cost.
Sporadic demand patterns and wide configuration options
Configure to order: mass production items that can be configured after being ordered. Like an
extension of make-to-order has moderate production and inventory carrying cost. It is used
when customer is willing to wait
Engineer to order: production and inventory cost after payment
Three models how these cost can be configured:
One set of locations
Production and sales are localized by regions
Country specific asset footprint
Revenue model
Plan on how to earn more revenue to earn profits. A revenue model considers sales channels that
the organizationwill employ to sell good or service.
