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Gaining Competitive Advantages Through Supply Chain

Management:Success Stories

Lijo M Loyid

School of Management Studies

CUSAT, Kochi - 22

E-mail:l i jomloyid@gmail.com

Abstract: Supply chain management is defined as the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. Vendor-managed inventory (VMI) is a family of business models in which the buyer of a product provides certain information to a supplier of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer's consumption location. B2B, an effective supply chain can create a strong competitive advantage for the firms involved within it. Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. Strategic partnership involves a supplier / manufacturer partnering with a distributor or wholesale consumer. Demand chain management is the management of upstream and downstream relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. These types of recent developments are included, which help an organization to increase profit.

Key words: Competitive advantage in Supply Chain, Supply chain, recent issues, Supply Chain

Management, waste inventory reduction,Inventory, JIT, DCM, EDI,B2B

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1.0 INTRODUCTION The business environment has been suffering from fierce competition since the escalation of technology evolution and internet growth had become wildly increasing. To survive in today’s market; the business should be characterized by faster production pace, shorter product life cycles, more innovative and sophisticated, and well-organized. That adds much pressure to the supply chain usability. It should react rapidly, efficiently, and effectively in order to respond to changes happening in the marketplace so as to sustain, and, most importantly, to create competitive advantage. According to Towill and Christopher (2002) the key success of a supply chain is basically determined by the end customer. Delivering the right goods to the right customers at the right price and time is not a guarantee for companies to stay competitive in the market, but it is an inevitable key to survive. As a result, competition between supply chains has become more important rather than competition between individual companies (Christopher, 1992). In B2B, an effective supply chain can create a strong competitive advantage for the firms involved within it. A competitive advantage is defined by the capabilities that an organization can develop for defensible position over its competitors (Li et al., 2006). This goal can be reached in several ways, starting by creating a strong collaboration with companies by working together to make the whole supply chain competitive. The backbone of this strategy requires wide use of information technology in order to share information, and also generate future demand. The primary idea in SCM is that the entire process must be viewed as a one united system. The core competencies of individual organizations are determined and invested for to create supported competitive advantage for the supply chain. This report discusses how a supply chain can create a strong competitive advantage for organizations. In order to give the reader a clear idea about that, several success storiesrelated to some of the most well-known organizations are reviewed.

1.1 BACKGROUND The transformation that accompanied the industrial revolution had also a direct impact on supply chains, which forced the latter to apply some changes in order to keep the business updated and adapted. In the past, and to differentiate themselves from their competitors, companies used a combination of factors including quality, price, customer service, product features, and availability.The new nature of competition is driven by critical factors, such as rapid shrinkage of product lifecycles,in which products are placed and replaced on the market faster. High technology and apparel industriescould be evident examples of that shrinkage, where new products introduced are quickly replaced by new ones less than within six months. Anotherdriving factor is the growth of internetnetworks. Selling goods through via webspositively affectsale growth forcompanies because of the possibility to be connected directly to their end customers. E-business dramatically changed the way companies produce, sell, and distribute products, and even the way they share information with their suppliers and partners. Previously, companies considered information as confidential that need to be protected instead of being shared. The nature of competition has been shifted from company-based to supply-chain-based competition, which encouraged sharing information along a supply chain.Havingefficient information systems, companies have not to own all the pieces of a supply chain network, instead, they may consider working as a cooperative supply chain that functions as a single entity. A supply chain that assures secure and smooth flow of information can react faster to fulfill the customer’s needs and be adapted to the market changes. Coordination and information exchange between partners within a supply chain is

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the key to stay competitive. Such change requires set of business processes including planning, ability to receive regular feedbacks, and usage of information technology.

2.0 THEORY A supply chain is a network of organizations performing various processes and activities to produce value in the form of products and services for the end customer (Christopher, 1992). In other words, and according to (Stapleton et al., 2006), supply chain management is the integration of all network activities which manufacturers, suppliers, , retailers and distributers are involved to improve products, services, and information flow throughout the chain from suppliers to the end customers, without ignoring the need forcost reduction while maintaining target service level. Supply chain management is undertaken to achieve four major goals includingtime compression, waste reduction, and unit cost reduction,flexible response. For waste reduction, companies that use SCM strive for waste reduction at all levels within the supply chain, through minimizing duplication by keeping inventories maintained and managed efficiently, and seeking to achieve uniformity of operations and systems among supply chain actors. Another important goal of SCM is time compression of order-to-delivery cycle time, since it helps in reducing inventories, and therefore, all entities in the supply chain become able to operate in more efficient way.Thatalso allowsa quick response whenever problems occur, and speeds up the cash flow and financial performance connected to the system. The third goal of SCM is to develop flexible response to meet customer’s needs in cost effective manners that may include order size, configuration, and product variety. The fourth goal of SCM is reducing cost per unit to end users (Hutt &Speh, 2004). According to (Day, 1994),the competitive advantage has traditionally been gained through focusing on price and product performance attributes to conserve the market share of the current customer. However, competition is considered as a war of movement that relays on quick responding to market needs by creating superior competencies required to add a customer value and achieve cost efficiency and profitability (Stalk et al., 1992). Competitive advantages are built up on five main dimensions. The first dimension is price/cost,which is the ability to compete with lowest possible prices (Li et al., 2006). The second dimension isproviding customers with appropriate product qualities (Koufteros, 1995). The third dimension is delivery dependability, which means providing the clients with their right products, at the right quantity, and on time (Li et al., 2006). The fourth dimension is product innovation, which could be seen as thereintroduction of product features to the market place (Koufteros, 1995). The fifth dimension is time to market, which is the time required to react (Li et al., 2006). SCM efficiency andeffectivenessareenhancedby three important drivers including powerful information systems. The most important driver is internet, which is regarded as essentialfor managing all types of integrated supply chain systems. The use of internet helped business marketers to achieve several benefits such as reducing customer support costs, minimizing channel inventory, and targeting new customers. The third driver is the SCM software applicationsthat supportmanaging the flow of information and material throughout the network (Hutt &Speh, 2004). Logistics is the critical element in supply chain management. The main task oflogistics facilitatesis managing material and information flows. This task is a key part of the overall task of SCM. SCM is concerned with managing the entire chain of processes from raw material supply to the end-customer (Hutt &Speh, 2004).

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3.0 DISCUSSION AND ANALYSIS Since integrating supply chain management requires a comprehensive view through the business chains, driving success factors that could bring competitive advantages may be reflected by enormous ways. Besides, there are too many relevant models and tools that could be considered and make supply chain management very wide perspective in today’s business. Therefore, our insight for this report is to show some success stories of business leaders who could manage to gain competitive advantage using effective sup ply chain management. Among global companies, we find the success stories of Zara, Dell, FedEx and Wal-Mart quite interesting to discuss in this report. The main discussion is mainly built on the role of powerful information systems, internet technology and supply chain software as drivers for SCM to gain competitive advantages to achieve SCM goals including time compression, waste reduction, unit cost reduction, and flexible response.

3.1 ZARA ZARA is a Spanish company regarded as the most dynamic and successfulapparel business in the world. Even though their manufacturing system is similar with the other competitors, they could manage to surpass them by uniquely integrating SCM. They inspired many aspects of that benefiting from experience of Toyota in lean enterprise. Additionally, ZARA continuously dedicate innovation relevant to the overall process. The stores of ZARA are globally linked to headquarters, where employees can easily add the daily change of customer demand across countries. That plays a very significant role in keeping designers and trends trackers updated with which styles are more favourable from economic perspective. This kind of data transparency enables getting closer to the real customer needs and reduces the waste of efforts dedicated to styles that may not achieve significant sails in a certain area. Furthermore, design-led procurement improves the responsiveness to the market by observing the drawn trends soon they can give helpful indications to what should be focused on in the near future. Design-led procurementalso prevents building up excess inventories. There are broad and diverse collections of styles that customers at the level of B2B have to pull. That also contributed in waste reduction, since stocks are constantly kept refreshed and updated. Once the order is left, there are two times weekly ZARA deliver their products in, and few products are available for more than month. ZARA could not be able to take the advantage of time compression until they adopt appropriate sourcing policy to their industry. Some items supplied with a good quality by Asian suppliers are imported to Spain, while the rest of items are available with a quick responsiveness. The main policy that ZARA follow for sourcing is having a broad suppliers’ base that offers the most featured selections of fabrics at very low prices. Additionally, they do not seem to be attracted to depend on certain groups of suppliers. We think that this policy is specifically dependant on the type of industry. That makes sense if the dynamic aspect of apparel industry that requires high customization is considered. On the other hand, more than 50% of the materials are purchased locally from the gray market. All items are dyed and printed by a Galician subsidiary, while the local workshops are employed to conduct final sewing or assembly and quality control. Therefore, although many operations are conducted outside, they still keep their quality standards controllable. Moreover, they could be able to design a SC able to postpone not only colour but also final design changes. Thus, they only pay for the completed garments, which limits the business risk. Speaking of numbers, ZARA produce their products to a couple of distribution centres. They are both fed twice a week. The delivery processes are done within 24 hours, and the overall lead-time is 4-5 weeks, while it is several months for the competitors.Generally, the driving

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strategy involves employing a smart sourcing policy, while only keeping locally the operations that enhance cost efficiency including dying, cutting, labelling and packaging. The centralization could help ZARA to support rapid production of new collections in a coordinated and consistent manner. ZARA align design with the SC to reduce the potentials of supply chain failure and ensure the accuracy of supplies. That shows a unique example of how to integrate lean enterprise, while showing agile performance.

3.2 Dell Dell is one of the biggest and most well-known PC makers in the world. They could also gain competitive advantages over other competitor, such as IBM, through applying significant changes in the supply chain. Dell reengineered its processes and relationships with suppliers and logistics providers so that the overall processes of building, customizing, and shipping PCs does not take longer than eight hours. Unlike what ZARA follow, Dell created long-term relationships. However, competitors as IBM and Toshiba had the same aspect of long-term relationships. Dell reduced the number of logistics providers from 130 to 60, and suppliers from 204 to 30 companies. This reduction of connections had the aim of cost reduction and time compression. Dell dedicated VMI (Vendor Managed Inventory), where components are never ordered. The actors are selected so that they have warehouses with no more than 8-10 days capacities, which are as maximum located 15 minutes away from Dell’s factories. Moreover, Dell rely on very capable information system that enables suppliers to reschedule their operations every two hours. All actors have accessibility to extranet that provides them with updated forecasting records. They could also access hub-level inventory holdings, where all relevant information about shelves and stock are available. That all resulted in reducing the inventory to only four days, while it is 20-30 days for the competitors . Dell could be able to improve inventory turns to 24 hours, while the competitors had to wait for 35 days for payments through primary dealers. Furthermore, the internet contributed significantly through e-commerce in the sales growth. Through internet, Dell gain average sales accounts for 1 million dollar per day (McWilliaims &White, 1999).

3.3 FedEx As business leader in courier and logistics industry, FedEx passed through historical stages to bring competitive advantages through network improvements. Such improvements could be redefined as SC practices. FedEx started differentiating themselves by providing better services to their B2B customers in terms of data availability. What would make B2B market relies on FedEx services is being able to track their packages, and thus, better control their businesses. This reality was not that clear for FedEx in the beginning (Huttenlocher, 2004). But after integrating reliable information system, and internet-based access, the form of value proposition became clearer. The company focused on excelling in information availability as a competitive advantage. That required increasing the transparency of data by integrating innovative technology. The FedEx Institute of Technology at the University of Memphis is assigned to develop and support the dependency on technology innovation through 150 researchers. The mailrooms are designed so that the operations such as tracking are sophistically automated. Moreover, the dedicated client/server network is one of the world’s largest ones (FedEx, 2013). The most recently “3D wizardry” and Wi-Fi networks systems have been incorporated as fundamental elements of the overall structure. FedEx exceeded the technological limits that others are stuck to. The company introduced a 3D globe with use of a webcam that could analyse data and produce statistics on the business world and update information on current economic situations, in the all countries

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FedEx are located. The number of website visitors recorded then successive significant increases. Moreover, for integrating easy social connectivity to smaller businesses, FedEx use social media to allow companies to track their packages. All these practices have been integrated to the SC of FedEx not only to offer very transparent and featured way of sharing information, but also to let their B2B customers survive and thrive, as that account to the overall return on investment.

3.4 Wal-Mart Using efficient supply chain practices to win competitive advantages could not be reflected more perfectly without showing some respect to the experience of Wal -Mart in America. Wal-Mart is undoubtedly the cost and market leader in American retailing. They could overcome competitors, such as Kmart, and leave a large difference later on. No competitor could get even close. We do not know even if the term “competition” is relevant in their case. But focusing on the historical review of Wal-Mart is for sure helpful. Wal-Mart invested generously in integrating innovation and information technology systems in retailing. They constantly considered re-engineering in processes, waste elimination, and performance efficiency. They are the first who dedicated Bar-codes technology in their operations, especially, inventory management system. They also deployed all possible technologies, such as EDI (Electronic Data Interchange), to facilitate the best possible communication atmosphere. They adoption of technology continued through employing wireless scanning guns and supporting software that captures data relevant to stock holding and sales patterns. That contributed not only in better inventory management, but also in significant cost savings. The result was introducing available final product at low prices, which accounted for improved customer satisfaction.Wal-Mart took the lead of adopting models that had not been regarded as efficient ones. They depended on centralized distribution network with cross-docking warehousing method, which also reduced the holding cost extremely.

4.0 CONCLUSIONS There are three main competitive advantage drivers dedicated through supply chain management including information system, internet, and supply chain software. The main goals of supply chain management are time compression, waste reduction,unit cost reduction, andflexible response. The SCM strategies may gain competitive advantages in many different ways. The type of industry and the geographical distribution may affect the driving strategies of SCM. The success stories of ZARA, Dell, FedEx, and Wal -Mart reflect many different aspects of how supply chain can come up with competitive advantage. Each case shows different improvements built up within the supply chain . For instance, ZARA depended on short-term relationship for sourcing, while the type of Dell’s industry enforces them to adopt long-term relationship. The customer value proposition may impact the type of relationship, as clearly shown in the case of FedEx, where data sharing is a crucial customer value. Generally, all stories are characterized by many similarities, though they are introduced in different manners. All companies rely on powerful information system characterized by high connectivity of supply chain actors. Re-engineering of processes and waste inventory reduction are essential practices they adopt. Smart integration of relevant technologies could also be crucial especially for Wal-Mart and FedEx cases, while internet became more fundamental necessity than an optional feature to offer. However, behind such success stories, there are many more supply chain failures. That could be due to integrating inappropriate techniques, misestimating relevant customer value proposition, applying parts of supply chain management tools and leaving collateral parts, or any similar reasons.

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5.0 REFERENCES

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