Value Chain Analysis Applied to the Timber and Timber Products Industry. Exhibit 1.A below contains a depiction of the value chain. The links in the value chain are as follows:
1. Timber Tracts: Plant and maintain timber tracts (Weyerhaeuser) 2. Logging: Harvests timber (Weyerhaeuser)
3a. Sawmills: Cut timber into various grades of wood (Weyerhaeuser) 3b. Pulp and Paper Manufacturing: Grinds timber into pulp and converts the pulp into various grades of paper and cardboard (International Paper) 4a. Intermediate Users of Wood: Engage in construction and furniture manufacturing (Masco) 4b. Intermediate Users of Paper: Manufacture containers and packaging (Owens-Illinois) and various commodity and specialty papers (Georgia-Pacific) 5a. Retailers of Lumber and Wood Products: Sell such products to the final consumer (Home Depot) 5b. Retailers of Paper Products: Sell such products to the final consumer (Office Depot).
Value Chain for the Timber and Timber Products Industry
Retailers of Lumber and Wood Products
Intermediate Users of Wood
Retailers of Paper Products
Intermediate Users of Paper
Pulp and Paper Manufacturing
Economic Attributes Framework Applied to the Specialty Retailing Apparel Industry.
Demand. Firms attempt to compete on design, colors, and other product attributes, but apparel is largely a commodity. Demand is somewhat cyclical with economic conditions; customers tend to delay purchases or trade down during economic downturns. Demand is seasonal within the year. Demand grows at the growth rate in population, which suggests that apparel retailing is a relatively mature market. To the extent that retailers can generate customer loyalty, demand is not highly price-sensitive. However, given the similarity of product offerings across firms, firms cannot price their goods too much out of line with those of their competitors.
Supply. In most markets, there are many firms selling similar apparel. The barriers to entry are not particularly high because an apparel line and retail space are the most important ingredients.
Manufacturing. The manufacturing process is labor-intensive. The manufacturing process is relatively simple, and firms source their apparel from Asia, which has low wages.
Marketing. Because of the large number of suppliers selling similar products, apparel-retail firms must stimulate demand with attractive store layouts, colorful product offerings, and various sales promotions.
Investing and Financing. Firms must finance inventory, usually with a combination of supplier and bank financing. The risk of inventory obsolescence is somewhat high if the product offerings in a particular season do not sell. Firms tend to rent retail space in shopping malls, so they need to engage in extensive long-term borrowing.
Identification of Company Strategies.
The strategies of Home Depot and Lowe’s are marked more by their similarities than by their differences. Both firms sell to the do-it-yourself homeowner and the professional builder, plumber, or electrician at competitively low prices. Their in-store product offerings are similar, roughly evenly split between building materials, electrical and plumbing supplies, hardware, paint, and floor coverings. Their store sizes are approximately the same. Both use sales personnel with expertise in a particular home improvement area to offer advice to customers. Both rely on third-party credit cards for a large portion of their sales to customers. Home Depot is slightly less than twice the size of Lowe’s in terms of number of stores. Home Depot’s stores span the United States, whereas Lowe’s tends to locate in the eastern United States. However, Lowe’s is expanding westward.
Effect of Industry Economics on Balance Sheet.
Among the three firms, Intel faces the greatest risk of technological...