Ecco’s global value chain management Essay
Ecco’s global value chain management
1. Describe the competitive environment of ECCO and determine how well ECCO is positioned (vis-à-vis the competitors) to take advantage of changes in the industry. http://wulibraries.typepad.com/files/footwear.pdf
2. Analyze ECCO’s global value chain. How well does this configuration match the drivers in the industry? Analyze ECCO’s global value chain.
High demand for quality and reduced lead times led the company to a self-sufficiency approach on streamlining its entire value chain from raw hides to finished shoes unlike its major competitors who only designed and marketed their products without in house manufacturing. In having a global network of tanneries, production facilities, research centers and distribution centers, ECCO is able to meet customer demands in specific geographic locations in terms of response times which lead to customer satisfaction. Additionally the firm accrues from benefits of lower labor and production costs and different expertise levels in different locations which can be in turn transferred down to the customers. http://www.pwc.com/en_GX/gx/operations-consulting-services/pdf/pwc-supply-chain-and-risk-management.pdf According to Porter’s value chain framework, ECCO utilized various strategies to achieve a balance of responsiveness and efficiency in their efforts to improve its global value chain. http://www.strategicmanagementinsight.com/tools/value-chain-analysis.html Specifically, the firm utilized:
1) Firm infrastructure
In having a factory based in Slovakia, uncertainty and risk of political instability in Thailand could be mitigated by helping to drive up volume between plants and ensuring quicker delivery speeds to markets in Russia & Poland. 2) Human Resources Management
ECCO ensured knowledge remained in the company through promoting workers from within and improving worker skills through trainings. 3) Technological Development
R&D activities were relocated to the production sites where they could adequately support production processes and optimization of materials. The
key competencies of the firm were in product development and production technology to ensure customer comfort in the shoe designs. 4) Procurement
ECCO maintained high demands for quality and lead times for the vendors and worked only with experienced firms in building their factories. 5) Inbound Logistics and Outbound Logistics
Streamlining of logistics was performed through location of tanneries adjacent to shoe production facilities in Indonesia & Thailand Distribution centers in United States and Denmark were strategically located to serve the market demand in order to match market needs. Appropriate modes of transport such as by sea, vans, freight planes and lorries were utilized depending on the nature and urgency of deliveries. 6) Operations
The firm also accrued benefits of sustainability by having control over the entire value chain as it could directly tailor its R & D efforts into production and closely monitoring operations. The distribution centers adapted to changing business environments by expansion to meet capacity demands and closure of some warehouses when sales to the Danish market reduced. 7) Marketing & Sales
Utilization of specialty outlets and multi-brand stores ensured ECCO’s shoes would be accessible to the target market of consumers focused on high quality rather than fashion and elegance. Establishment of sales subsidiaries and production units spread all over the world enable the firm to save in terms of labor costs and spread risk. ECCO’s marketing team screened samples and made forecast volumes and production styles before the set shoes were scheduled to be in demand. 8) Service
The firm concentrated on utilizing special expertise to its advantage in the case of the Thailand firm producing complicated shoes due to the ability of the Thais to deliver first class workmanship. In addition to shoe manufacture, ECCO supplied leather to auto & furniture industries which offered an alternative market for the tanneries and generated more revenue for the firm. How well does this configuration match the drivers in the industry? Ownership of tanneries, factories and leather research centers maintained the firm’s brand of commitment to quality and boosted the company’s ambition and confidence in delivering products that met customer expectations In reducing the number of vendors, the company was able to maintain high quality levels through close quality control measures and maintain its brand image of working to create the perfect shoe. The firm also made compromises to its approach in some cases by outsourcing its production for shoes that could not benefit from its in-house technology. Most firms in the shoe industry outsourced production as a way to cut production and vendor logistic costs.
3. ECCO has a fully integrated vertical value chain. What are the pros and cons of this strategy? What economic and strategic factors should be analyzed to answer this question? Pros:
Higher demands of quality can be achieved (e.g. through better quality control) supports the company’s vision of high quality products
Core Technology stays within the company
You have more price control (=> less exposed to price fluctuation) Eliminate the intermediaries (and obtain the margin of supplier / intermediaries) Higher economies of scale
Ability to access leading expert knowledge about tanning
Implement shoe and company specific Research & Development (for example less pollution => can be used for marketing) Potential for growth
Access new markets attaining market power => eventually monopolize the market
Get into new markets (auto and furniture industries) => diversification => risk spreading Shorter lead times achievable
Shows a high level of ambition and confidence
Less transaction cost
Easier coordination of all stages to reach the objective of customer’s satisfaction More control: You can have more influence on how the product is presented to the people and you can block competitors from getting access to scarce resources Reduce transportation costs if common ownership results in closer geographic proximity ECCO example: factory and tannery in China
Increase entry barriers to potential competitors, for example, if the firm can gain sole access to a scarce resource Cons:
Difficulty of integrating the different stages into one entity It requires different skills
It may decrease the focus on core competencies
High organizational requirements => eventually costs too high It deepens the position in the same field => less flexibility for different variants => not responsive to changing wants of the customer e.g. ECCO is attached to leather shoes
Maybe less quality because of lack of competition
Strategic and economic factors that should be analyzed:
How technology intensive is the market? What skills are needed? Do we fulfill these needs? Can we compete with other companies? Is there a market entry barrier? How much do we have to invest? How many distributors / suppliers are available? How competitive is their market? How big is their margin and market power? Will an integration result in less price fluctuation? Do we have enough resources to realize the organization of the whole supply chain? Do we really want to reinforce our position as a leather shoe fabricant? Or do we want to achieve higher flexibility to open chances to enter new markets? Do we generate a higher supply chain surplus with a vertical strategy? Are there laws or political issues to be considered?
Are current suppliers unreliable, expensive or cannot supply the required inputs?
http://www.strategicmanagementinsight.com/topics/vertical-integration.html http://smallbusiness.chron.com/advantages-vertical-integration-strategy-20987.html http://www.quickmba.com/strategy/vertical-integration/
4. Is ECCO following the inside-out or outside-in strategic perspective? What are the implications of this choice and how can ECCO increase their sales/marketing efforts?
ECCO is following the inside-out strategic perspective.
Inside-out strategic perspective definition: “You pick your own brand direction. You take a stand, confidently go out to the world and declare,
“This is what we stand for and the way we are going.” A combination of gut instincts and sheer courage is enough to create the conviction that your brand strategy will resonate with your target audience. You believe with all your heart that by sticking to your guns, you’ll win a loyal following.” http://thefinancialbrand.com/1162/inside-out-vs-outside-in/
Evidence supporting this perspective in the paper:
“most wanted brand within innovation and comfort footwear – a position that can only be attained by constantly and courageously researching new paths…” – Company Vision Statement “Evidently, trends in the market it terms of fashion and elegance were important, but usability was ECCO’s highest design priority.” This indicates that ECCO has chosen their brand direction, and even though they do follow market trends, they are maintaining their current course. “ECCO is not a fashion brand and it never will be. We do not sell shoes where the brand name is the most important and quality is a secondary consideration. Primarily, we sell high-quality shoes and that is where we seek recognition.” – Soren Steffensen (Executive Vice-President, ECCO) A “fashion brand” would be a good example of a company utilizing an outside-in strategic perspective.
Steffensen also addresses ECCO’s brand direction in this quote. Implications of following the inside-out strategic perspective: Often not enough market research is done by companies following this strategic perspective because they are supremely (over) confident in their vision. Inside-out strategic perspective leads to undifferentiated brand strategies like “excellent usability”, “high quality”, or “great value”. An inside-out brand strategy really doesn’t take into account wants/needs of customers. Instead, ECCO attempts to dictate what these wants and needs should be. Ways to increase sales/marketing efforts:
ECCO can increase sales by shifting more from “inside-out” to “outside-in” in their strategic perspectives. This means instead of simply saying “X is our priority and Y and Z are our goals”, the company should take customer wants/needs and market trends more into account and tailor their brand direction around this target market. Even though Soren Steffensen states that ECCO is essentially a shoe company focused on utility, perhaps sales would increase with a greater focus on fashion. A company with a greater emphasis on fashion would probably be a company utilizing an outside-in strategy. Companies based on an inside-out strategic perspective usually require more extensive marketing efforts than companies founded on an outside-in perspective. This is due to the fact that inside-out companies are creating products that the customer has less input in. With this less input, the customer needs to be convinced to purchase the product.
5. How is family ownership affecting ECCO? Comment on the corporate ownership structure and its implications for strategy-making and implementation. What alternatives exist?