Jakob Katchem
Professor Everett
Business 82 (1351)
Coopetition in the Supply Chain Process
Introduction
In today's modern cultures demand quite a lot from the companies in which they receive their goods. The efficiency of the supply chain strategies that a company implicates in its practices is ultimately decided by its installment and how it changes a long with the changing needs of its consumers. With the rapid change of technology and globalization, it is imperative that companies practice proper supply chain strategies for their industry. In this paper, I willing be focusing on the incorporation of ‘coopetition’ in supply chain management. The term coopetition represents the “collaboration between business competitors, in the hope of mutually beneficial results”. I will be looking into the advantages of coopetition and whether it will become a normal practice in supply chain management.
Coopetition Advantages
Due to the constant changing and and dynamic modern business environments, companies have adapted by forming multi-firm alliances to better their chances of beneficial results. Cooperation between companies that would typically be primary competitors is a very useful tool in the adaption to current business and consumer demands. There several major advantages that these business can receive for forming this type of alliance and I will write about each of them in-depth. These possible advantages are capability advantage, cost reduction, information increase, risk and uncertainty reduction.
Cost Reduction
Coopetition gives companies the possibility of reducing costs, as firms are always looking for ways to increase their profits. When a company begins to share its resources with a fellow firm, it can result in a very large reduction in their costs, primarily in its costs of transportation and economies of scale. Purchasing in large quantities becomes available when two companies begin to cooperate with one another, needing to supply both companies with its necessary products. Suppliers often provide large price reduction when buying in bulk, which would ultimately lower both companies economies of scale. An additional advantage that comes from the lowered cost of economies of scale is the utilization of transporting products. The companies are capable of transporting full trucks that will result in much higher profits, rather than a less filled truck that would break even with its transportation costs. A great example of this would be a two trucks filled with Iphones, one being filled half way and they are being entirely filled. Assuming both trucks have a transportation cost of $5,000, then the full truck would be able to double its profits and revenue after subtracting this necessary cost.
Information Increase
The information a company poses can range in a wide array of categories, some being technological practices, material information, or even consumer demand information. Having strong information is key when running a company and can ultimately be the greatest difference between competitors. When two firms begin to share information that they have gained through their practices, the result can be greatly beneficial to both firms, often lowering the cost of production and distribution because of advancements in information and technologies. Marquis Cabrera, a tech entrepreneur known for his work with IBM and with government officials, writes “Sharing information and expertise is a great way to build trust with your competitors.” This trust is important for your company to continue receiving any worthy information, so firm agreements are a common binding between firms in a cooperation. An example of this type of agreement is a Memorandum of Understanding (MOU), a non-legally binding agreement, like the one Ford entered into with Toyota. They are discussing a joint-venture in the development of a lightweight hybrid truck. A joint venture being a business entity that is comprised of two or more parties. Another agreement between strong competitors is Apples licensing of their “look and feel” patents to Microsoft for its new mobile phones, but they have an “anti-cloning” agreement.
Business Risk & Uncertainty Reduction
The term business risk refers to the uncertainty that an individual or firm faces in or when entering into a competitive market. The main risk that all companies face is the insufficient return of funds to the amount invested in starting or running the business. Studies have showed that around fifty-percent of business survive through their first five years and and even smaller one-third survive ten years. Along with this risk, businesses also face constant challenges with uncertainty in their markets. As demand for goods changes over time, it is vital for firms to constantly study the markets and practice proper supply chain strategies.
Hau Lee, Professor of Operations, Information and Technology at Stanford university, created a widely respected framework that differentiates between two types of products that a firm produces.
Depending on the products that a company chooses to produce, a cooperation with a competitor may be very beneficial if the company is able to further its understanding of demand and information on its products development and distribution. The more information a firm has on the market it is in, the lower its risk and uncertainty becomes. That being said, you can never fully eliminate the risk and uncertainty a firm has against it due to independent variables in the market.
Conclusion
In todays globalized and technologically advanced economic environments, it is imperative for businesses to keep a competitive edge. An often very beneficial approach to market improvement is found in firms laying down arms and teaming up with a competitor. This supply chain strategy is known as coopetition and has become a key factor in the prosperity of companies in many areas of business. The spread of technology and information provides both companies with new ways to advance their supply chain activities and development. Often reducing cost of procurement and risk, cooperation seems to be the best way for businesses to thrive in todays markets.
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