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Cost Management-final                                                                                                       18

Tetra-Pak is an excellent example of a firm that reconfigured the value chain in the packaging industry for dairy products and orange juice. Tetra-Pak designed filling machine for its aseptic packages and changed the packaging industry. Exhibit 5 illustrates Tetra-Pak's changes to the value chain.

HOW TETRA-PAK RECONFIGURED THE VALUE CHAIN

Retail Display

Transport

Customers

Filling

Make containerNo refrigeratedLow storeLonger shelf life

on sitetruckshandling

Terra PakNo wasted spaceNo need toNo need to

specialisedin filling &refrigerate &refrigerate & less

equipmentpackingless space isspace is required

required

Another example of a value chain reconfiguration is IKEA, which grew from a small, Swed­ish mail-order furniture operation to one of the world's largest retailers of home furnishings (Normann & Ramirez, 1993). As illustrated in Exhibit 6, IKEA selected numerous factors to offer prices that are 25-50 per cent lower than those of competitors.

HOW IKEA RECONFIGURED THE FURNITURE INDUSTRY

Value ChainMajor Choice

DesignSimple, high quality, designed to lower cost

PartsStandard & common, global supplier network

AssemblyBy the customer

Transport/stockingComputerised system for suppliers & warehouses

MarketingScandinavian image

DisplayFocus on designs, not pieces, to create value

Home deliveryBy the customer

4. Use core competencies to create new value chains : With strong core competencies in its existing businesses, an organisation can seek new customers by developing new value chains.

For example, Federal Express (FedEx) transferred its expertise in the delivery of small packages to contract new business with L.L. Bean for overnight distribution. Disney has exported its people-moving skills to urban mass transit for Oakland, California.

Segmentation Analysis : Industries are sometimes collections of different market segments. Vertically integrated industries are good examples of a string of natural businesses from the source of raw material to the end use by the final consumer. Several firms '• in the paper and steel industries are vertically integrated. Not all firms in an industry partici­pate in all segments.

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