In his book Competitive Advantage Michael Porter introduced the concept of a value chain, as a basic tool for analysing firm’s competencies and exploring the potential of developing competitive advantage in a certain field. Since competitive advantage cannot be investigated when looking at the entire company, value chain helps to identify separate activities, which may form the basis of further differentiation strategy. Careful analysis of the cost and efficiency components of every process makes it easier to identify areas of competitive advantage and those for further improvement.
The situation in the microchip industry makes it very hard for the original chips manufacturers to survive and be competitive. The general industry trend is such, that innovation cannot be the source of competitive advantage, as chips are easily duplicable.
For Smart Chips Company developing first-of-its kind microchips can be unfavourable, since once the investment into product creation is made, their competitors can easily copy the product and reap the benefits of lower development cost, thus offering lower prices to their customers. However, Smart Chips Company may try to seek competitive advantage in other areas, exploring activities along the value chain. For example, ensuring tight cooperation with suppliers and agile procurement mechanisms, would allow implementing just-in-time concept for production, minimizing the cost of inventory and optimizing time. In the manufacturing process, innovative technology and production know-how may yield competitive advantage, unless competitors can easily duplicate these methods.
Quality management is an integral part of company’s strategy. It is based on ensuring quality through improving processes rather than post-production controls, thus preventing the errors instead of correcting them at a later stage. Quality management is especially important for small products like microchips, where checking every item is not possible, however the cost of low quality is very high. Therefore, implementing quality management systems Smart Chips Company would reduce its cost of errors, therefore becoming more competitive.
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van Weele, A. (2010). Purchasing and supply chain management. Andover: Cengage