GAINING COMPETITIVE ADVANTAGE USING EFFECTIVE SUPPLY CHAIN MANAGEMENT By Osita Chukwuma

Transcription

1 GAINING COMPETITIVE ADVANTAGE USING EFFECTIVE SUPPLY CHAIN MANAGEMENT By Osita Chukwuma 1.0 Introduction Christopher (2005, p.5) describes supply chain management as follows: The management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole Until recently, supply chain management has been largely viewed as a necessary evil and the focus has been strictly on cost reductions. Today however, many are coming to the realization that supply chain management can be much more strategic, affording a company the opportunity to out-perform competitors. With supply chains becoming more elongated as they become more global, the pace of demand changes increasing and product lifecycles shrinking, the responsiveness of a company s supply and fulfillment networks to change is becoming a more substantial determinant of company success. As such, companies must view their supply networks as a competitive weapon that can not only deliver low costs but impact top-line growth through superior responsiveness and best-in-class customer service. If these and other similar strategies as will be described in this write-up are available for only one company at the markets, this company has competitive advantage over its competitors (Barney, 1991; ketchen, 2004; Rungtusanatham et al., 2003). Another way to gain competitive advantage is to optimize one or several activities. However, a consideration has to be taken so that optimization does not end in optimizing one function at the expense of the others (Lumsden, 1998; Porter, 1985). Porter (1985) argues that competitive advantage is gained by being the lowest costcompetitor or by differentiating. However, within the supply chain domain, competitive advantage is gained by two facts: reducing costs and increasing responsiveness (agility) to customers needs (Martin & Grbac, 2003). If the company strives to meaningful cost reductions, more efforts on cross-firm co-operation, coordination, collaboration and integration are required (Flint,2004). The basic recognized supply chain practices that a few companies described in our cases leveraged on to gain competitive advantage include: Strategic supplier relationship, Customer relationship, Information Technology, Utilization of 3PL/4PL providers, Co-operation with competitors, Postponement and VMI, Performance measuring. 2.0 Dell DELL one of the world s giant Personal Computer (PC) makers shut to the top and gained a unique advantage over established PC makers like IBM by selling directly to customers. Dell assembled and sold every PC to order which enables it to maintain its cost advantage over conventional rivals as inventory management costs as well as component keeping cost were virtually eliminated. This made it possible for Dell to receive payment within 24 hours of order placement, while its competitors had to wait for 35 days for payments through primary dealers.

2 With the advent of the internet, Dell invested in elctronic commerce and began to make sales of $1m per day via the internet [McWillaims et al 1997]. Dell also reengineered its processes and relationship with Logistics providers and suppliers such that every Dell order is built, customized and shipped within eight hours. Dell continued to re-engineer its logistics operations until the total number of interventions involved in the manufacture of a Dell PC was reduced to 60, against an industry average of 130. The drive for this reduction also instigated Dell to go into a long term relationships with her suppliers including competitors such as IBM and Toshiba. Dell also imbibed vendor managed inventory (VMI) strategy where components are never ordered from suppliers until orders are received from Dell customers. In line with this Dell reduced the number of suppliers from 204 to about 30 companies in Dell entered into strategic relationship with the suppliers such that they are expected to maintain eight to ten days inventory in their own warehouses which must be located 15 minutes away from Dell factory. Dell also developed an Information system that integrates its key suppliers to the company s information base, such that production can be easily scheduled every two hours. Dell s own forecast is posted to its extranet for easy access by their suppliers and other partners. Suppliers also have access to hub-level inventory holdings and are responsible for restocking the hubs and delivering to the factories on a consignment stock basis. This strategy enables Dell to carry only four days of inventory while its competitors continue to hold days worth. 3.0 Zara ZARA is one of the world s most successful and dynamic apparel businesses. It began operation is La Coruna, Spain in 1975 and has built a reputation of continually seeking process improvement. Zara over the years has developed a strategic and unique supply chain management process that has put it ahead of its competitors. Its emphasis is on permanent innovation and low prices. Zara stores are digitally linked to headquarters; employees collect and share input from customers daily. The different teams understanding of directional fashion trends is further guided by regular inflows of sales data and other information from all of the company s stores and sites around the world. This has also enhanced greatly the operating strategy based on the dual objectives of minimizing stock and responding quickly to market needs-even more effectively than its internationally acclaimed rivals. Zara designers come up with new styles based on customer input and hot spot trends. Feedback loop: designs are pulled from the market which is the basis for its ability to produce fashion without waste. This ensures that stock is constantly varied and updated. New designs and deliveries arrive on a twice weekly basis, and few products are available in the store for more than a month. Zara s blend of global sourcing policy and agility has made it retain its high growth rate and competitive advantage. Some items are imported from low cost manufacturing centers in Asia, and the rest produced by quick response. The unique global sourcing policy of using a broad supplier s base provides the wildest possible selection of fashion fabrics, at very low prices while reducing dependence on any single source. About fifty percent of the materials are purchased in gray, to be dyed or printed and finished by a Galician subsidiary. Local workshops perform final sewing/assembly thus maintaining quality and reducing obsolesce as designs and

3 colors can easily be altered without shipping the materials back to Global source or third parties outside Spain. Continuous postponement of design, succeeds Benetton, in that it has been able to design a supply chain able not only to postpone colour choices but also postpone final design changes. This is the key instigator of their agility. Zara s manufacturing systems are similar to that of her competitors but Zara has surpassed them in terms of operational efficiencies which emanated from ideas developed in conjunction with Toyota. Only operations which enhance cost efficiency through economies of scale are conducted in house (such as dying, cutting, labeling and packaging). In terms of inventory, design-led procurement prevents the build up inventory & enables companies to be more responsive. Zara keeps the cost to the minimum because it pays only for the completed garments. Finished goods are forwarded to its two distribution centers. One distribution centre dispatches product to stores twice weekly. All deliveries are completed within 48 hours. Zara also reduced its lead time to four/five weeks against its competitors lead time to run into several months. Heavy centralisation of a (mostly) integrated supply chain in Spain allows rapid production of new collections in a co-ordinated and consistent way. Thus Zara has developed a lean enterprise but also agile. Also, by aligning design with the supply chain in this way, the companies have reduced their exposure to supply chain failure & ensured that suppliers are able to produce exactly what they require 4.0 Wal-Mart Wal-Mart was the undisputed market and cost leader and the main innovator in the North American retailing. It led the way through aggressive investment in Information Technology Systems which re-engineered its processes, eliminating wastes and entrenching indefatigable efficiency. It was the first company in the 1960s to adopt the use of Bar-codes technology and have it integrated into their inventory management system and entire operations. Later on it deployed Electronic Data Interchange (EDI), to improve communication and coordination with suppliers. Wal-Mart later introduced wireless scanning guns and the retail link program, which captures real data and gives real-time visibility of stock holding and sales patterns. This also facilitated better inventory management, significant cost savings, and was passed on customers in form of excellent customer service and every day low price. Wal-Mart later redesigned its distribution network evolving centralized distribution centres with cross-docking warehousing method which reduced also inventory carrying cost to a level its competitors could not match. These with the IT deployments and integrations, led Wal-Mart to enjoy economies of scale that has put it far ahead of her competitors like Kmart. A few years later, Wal-Mart could not be matched by its competitors in America and it began to expand to other countries of the world. Wal-Mart is a good American success story of using Supply chain management to gain unequivocal competitive advantage. 5.0 Fedex FEDEX is one of the biggest logistics and courier service companies in the world today. In 1986 FEDEX began investment in network improvements to gain competitive advantage (Huttenlocher, 2004). Although the network improvements improved speed and efficiency of communication, the network improvements alone did not create the advantage. The Information Systems connected to the network together with other Supply chain strategies improved the package handling and

4 tracking process. This removed the need for customers to rely upon telephone enquiry systems to track their cargo. The power shifted toward the customer tracking their own cargo by using a web-enabled front end to the FEDEX information systems. At the time, this facility was new to the industry and so created the following competitive advantages: 1986 handheld scanner recorded every movement of a package, Electronic records, lowered costs, provided more information, Increased information gave customers more control, Increased access to information Internet increased customer base, 1994 first web site to enable customers to track status of their cargo, Tracking becomes a major value to consumers. Information about the package is important to consumers. Providing that information across an easy to use interface creates a competitive advantage. The increased transparency of the process pushed for continued improvement in its business process and customer service, which led to the establishment another competitive advantage. It led FEDEX to discover its lapses and inefficiencies which were strategically eliminated and the company refocused for excellent customer service. The inventory holding cost as well as cost of transportation was reduced which also transcended to the customers in form of lower service costs. 6.0 Conclusion The four companies examined in this write-up have their Supply Chains reengineered for cost reduction, agility and overall increased operational efficiency. Their Supplier relationships are strongly characterized by strong strategic alliances fuelled by technologies like EDI, B2B internet systems, extranets and direct access to real time sales and forecast data. These alongside the other strategies listed have created value for their customers whilst giving them strong competitive advantage over their competitors. It is therefore obvious that competitive advantage can be achieved and maintained by any organization using an effective supply chain management. References Barney, J.B. (1991) Firm Resources and Sustained competitive Advantage, Journal of management, Vol. 17, No. 1, pp Bocij, Paul, Chaffey, David, Greasley Andrew and Hickie, Simon, (2003), Business Information Systems. Technology, Development and Management for the e-business. Second Edition, FT Prentice Hall, Pearson Education Limited Christoper, M., (1992) Logistics and Supply Chain Management, Pearson education limited. Christoper, M., (2005) Logistics and Supply Chain Management. Pearson education limited. Flint, D.J. (2004) Strategic marketing in global supply chains: Four challenges, Industrial Marketing management, Vol.33, pp Hammant (1995) p32. Hammant, J. (1995) Information technology trends in logistics, Logistics Information management, Vol. 8 No. 6, pp Huttenlocher, D. (2004), Differentiating IT Department of Computer Science, Cornell University. URL: Ketchen, D.J.Jr & Giunipero, L.C. (2004) The intersection of strategic management and supply chain management, Industrial marketing management, Vol. 33, pp Lumsden, K. (19198) Logistikens Grunder, Studentlitteratur, Lund

5 Martin, J.H. & Grbac, B. (2003) Using supply chain management to leverage a firm s market orientation, Industrial marketing management, Vol. 32, pp Porter, M. (1985) Competitive Advantage, The Free Press, new York Rungtunsanatham, M & Co.(2003) Supply chain linkages and operational performance: A resource-based-view perspective, International Journal of operations & Procustion management, Vol. 23, No. 9, pp