Strengths of the traditional business model
1. IT application base:
– Has an established Company Area Network
– Inventory information shared across the company
– Existing employees were familiar with IT applications
2. Chain store model:
– Centralized procurement and selling through a multi-channel system
– Associated methods of settlement, review and allocation and users’ files
3. Distribution advantage:
– Shanghai Me Mechanical and Electrical Equipment Chain’s logistics center had experience troubleshooting in the industry for many years
– Thorough knowledge of the mechanical and electrical industry sector
4. Established customer base:
– Partners with some of the biggest domestic stock-bearing companies such as Wafandian Bearing Stock Co. Ltd
– General Electric, Baosteel, Shanghai Krupp Stainless are some of its biggest customers
Environmental Factors Necessary for Traditional Model’s Success
1. A closed economy
– run by state-owned enterprises
– little attention to marketing and selling of products
– buyer power was low and
– almost no competition from efficient MNCs
2. Minimal fluctuation in prices of products procured would result in high profits
3. Slow technological changes in product lines
– Inventory should not become obsolete
4. Competitors also do not adapt the latest technology to streamline business processes
All the above factors were not sustainable and not in favour of SHMEC!
Value added to customers by traditional SHMEC
1. Credit based procurement of products by customers
– Products were sold on credit basis thus increase in sales were observed
2. Large inventory backup thus ensuring no delay in deliveries
– Followed the policy of buy first and sell later, hence inventories used to pile up
3. Diversified presence of SHMEC and diverse customer base
4. 40 years of rich experience in production of Mechanical & Electrical equipments
– Established in 1955, it gained necessary experience in production
5. Production of superior quality products and high brand loyalty by customers
– People were ready to buy products from SHMEC store even though if it opens on the Huangpu River, by using ferries
Environmental Factors Necessary for Success of New Model
1. Competitive or Industrial Environment
– Maintain large customer base and stable syndication in the upper and lower chain (supplier and distributor) to continue ME-Online’s core competency.
– Competitors can contribute to stability in market place
– Complementors as well as strategic partners can create demand for ME-Online’s services.
2. Technical Environment
– Orientation towards IT of all 4 members of ME-Online would contribute to its success
– ME-Online should try to keep abreast of technological developments that may affect its industry and focus on continuous innovation and improvements.
3. General Environment
– Laws and Regulations: ME-Online should understand regulations and the rational for local taxes, including how tax revenues are spent.
– Economic Climate: Sound financial strategies will help maintain cash flow and solvency during an economic downturn.
– Worker Availability: Obtain and keep qualified employees with programs such as training, child care, and employee services.
Strengths of new business model
• Offers value to all members of the supply chain
• Would lower the cost of operation by reducing inventory levels and logistics uncertainties
• Would ensure product quality at source
• Reduction in account receivables would reduce bad debts
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