The Production Chain

The notion of the production chain is similar to the value chain concept in which each discrete phase of value-adding activity is traced from the acquisition of raw material to its sale and after-sale service. The traditional model presumes that these activities are all performed internally in the firm. Under the new competi­tion, it is quite likely that firms will partner to perform value-adding activities and, through cooperation, allow one firm to better leverage the unique skills and competencies of another firm.

In an attempt to be more price competitive, firms across all sectors have searched for ways to extract more value from their total supply chain through rethinking channel flows, removing redundancies, linking value chain members through shared information systems like MRP2, ERP, and other enterprise software solutions, and/or outsourcing functions that can be done better by others. Dell and Cisco have become exemplars for others who wish to understand how to assemble virtual supply chains. Both companies have transparency throughout the supply network and use technology to effectively link all parts of the system.

The Sector

The previous discussion suggests the existence of a network of firms that tran­scends the single firm. Now the interfirm cooperative relationships become the appropriate level of analysis. Alliances and partnerships become key success fac­tors in a large number of industries. The business sector becomes the focal point of discussion, and interfirm relationships driven by cooperative interests become the meaningful competitive metric. A more traditional model might view such cooperative actions as cartel-like behavior. Such an interpretation would suggest that cooperation is anticompetitive and serves to stifle innovation. Under the new competition, the opposite is true, because these new organizational linkages often give rise to heightened competition and are the result of new and innovative thinking. Milliken, for example, sits at the hub of a number of interfirm networks whose immediate goal is to improve the inventory levels of the apparel industry through economic order levels and other types of just-in-time systems. This coop­eration from the mill to the fabricator, retailer, and consumer removes unneces­sary costs from the entire channel of distribution. This is but one example of supply chains that have been reconfigured to adjust to changing demands, com­petitive pressures, or attempts to gain competitive advantage. Wal-Mart has taken the helm in the reconfiguration of its value chain. As the largest U.S. company (by revenue), it has through its information technology changed the face of retailing.

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