Table of Contents
The company under focus is Coca Cola Company. Coca Cola’s primary customer base is all people above the age of a toddler. This is because the soft drinks and other forms of fruit drinks produced by the company are considered suitable for people of different age groups. Over the years, Coca Cola has differentiated themselves in the market with the use of a positioning of offering higher differential advantage. With the advent of new forms of products similar to what Coca Cola offers, it can be said that it uses a differentiation strategic option, where its products are considered to be of higher quality and therefore with higher prices than other alternatives (Gleason & Wiggenhorn, 2007).
Above-the-line versus below-the-line
Prior (2009) explained that in explaining the concepts of above-the-line and below-the-line, line is used to refer to a company’s gross profits. On a typical income statement, above-the-line items are found to include sales and cost of sales. In some cases, cost of goods sold is also counted as above-the-line item (Fugate, Sahin & Mentzer, 2006). Below that line are costs that come in the form of operation expenses, taxes and interests. Controlling the items on both sides of the line is necessary in maximizing profits (Gleason & Wiggenhorn, 2007). In the case of Coca Cola, supply chain management (SCM) can play an important role in supporting items on both sides of the line. For example through effective SCM, the company could cut down on the bargaining power of suppliers and the overall cost associated with the supply chain. By so doing, the cost of sales will reduce, which will help control the above-the-line turnover. The main cost that can be controlled with SCM is operating expenses. This is because there are several activities as part of the operating expenses that fall under the supply chain. Through SCM initiatives like use of strategic alliances and partnership, the company can support its below-the-line cost (Fugate, Sahin & Mentzer, 2006).
- Excellent quality
- 100% Turnitin-safe
- Affordable prices
Porter’s five forces model
Because SCM is central to all the company’s operations from the raw material stage to disposal stage, it is possible to use it in a strategic manner to reduce to major forces pertaining to an industry such as those identified under Porter’s five forces. First, Coca Cola can use its position as a supplier to reduce buyer power by offering higher differential advantage of its industry products. This way, buyers will not put the company under pressure to reduce its prices merely because there is the availability of alternatives (Porter, 2008). Such buyers would perceive Coca Cola products as being unique and so no need to expect to pay same price for it as for alternative products. Second, Coca Cola can use reduce supplier power as a buyer by either using strategic partners as suppliers or developing its own internal suppliers. This is because when the company relies on the same suppliers as its competitors, it would create low supplier concentration to firm concentration ratio, which increases supplier power (Porter, Argyres & McGahan, 2012).
Third, Coca Cola could use SCM to reduce the threat of substitute products by ensuring that it constantly bridges the gap between demand and supply. A study by Porter (2008) showed that for market leaders like Coca Cola, it is often difficult for buyers to switch to alternative products if there can always be sufficient supply. This is particularly the case with the products are perceived to have higher differential advantage. An efficient SCM that reduces cases of shortages in supply can therefore reduce threat of substitute products. Finally, Coca Cola stands to reduce the threat of new entrants if it can continue to maintain its product differentiation and brand equity by promoting total quality management (TQM) within the supply chain. With TQM within the supply chain, the overall standards and quality of products as well as services rendered can be high. This will maintain the company’s current positioning, which is relevant to ensuring customer loyalty to the brand (Porter, Argyres & McGahan, 2012).
Under Porter’s value chain analysis, two main types of activities that are identified are primary and support activities. In the case of Coca Cola, SCM is a primary value process. As noted by in the value chain concept, primary value processes seek to address issues of sale and support of products (Prior, 2009). Meanwhile, SCM at Coca Cola is an activity directed at the need to make manufacturing and sales available, in the right quantities, at the right time, to the right places, and at the right cost. What is more, there are other activities such as procurement and human resource management that are used to support SCM. This means SCM is an independent activity at Coca Cola.
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- Gleason, K.C. & Wiggenhorn, J. (2007). Born globals, the choice of globalization strategy, and the market’s perception of performance, Journal of World Business, 42(3), 322.
- Porter M. E. (2008). The Five Competitive Forces that Shape Strategy, Harvard Business Review, 20(8), 86-104.
- Porter M., Argyres N. & McGahan A. M. (2012). An Interview with Michael Porter, The Academy of Management Executive 16(2), 34-56
- Prior, D. D. (2009). Integrating Stakeholder Management and Relationship Management, Contribution from the Relational View of the Firm. Journal of General Management, 32(3), 17-30.