The logistics implications of emerging business models

Abstract

The network structure has expanded the nature of organisational economics from a limited perspective, based upon economies of scale (within which the firm became volume oriented striving to achieve its minimum cost/volume position on its long-run average cost curve (Chandler: 1962), to a ‘collective’ perspective based upon a notion of dispersed operations (i e, the complete range of value creation, production, delivery and service provision). It is no longer sufficient to be the lowest cost provider in a market but rather it is now essential to be the most effective and efficient solution provider: end-user markets are product-service dominated. These may be PRODUCT-service markets, however in the New Economy many industrial markets are product-SERVICE markets: the customers are aware of product application performance but are often more influenced by service-maintenance availability rather low prices, hence the approach by major manufacturers of such products as aero-engines which are priced by the hour of serviceable use. To be effective it is essential that suppliers and customers understand each other’s expectations (value drivers) and costs (value driver response costs). The complexities of markets encourage a network approach, one in which “solutions” to customers’ “problems” may take on a PRODUCT-service format or (increasingly) a product-SERVICE offer and the solutions will cross a number of international borders as well as a number of intra and inter-organisational boundaries during the process.