SCM as Competitive Advantage

If the supply chains are analysed from a resource-based view, the key question is whether the characteristics are rare, valuable and difficult to imitate. If these strategic resources are available for only one company at the markets, this company has competitive advantage over its competitors.

By coordinating the activities a company can gain competitive advantages. Another way to gain competitive advantages is to optimise one or more activities. However, a consideration has to be taken so that optimisation does not end in optimising one function at the expense of the others.

Porter argues that competitive advantage is gained by being the lowest cost-competitor 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. If the company strives to meaningful cost reductions, more efforts on cross-firm co-operation, co-ordination, collaboration and integration are required.

As the supply chain has a common goal to satisfy the needs of end customers, global SCM has to understand the service needs of customers in locations spread all over the world. The supply chain strategies have to be prioritised differently when market conditions change. Ahrens argues also that the internationalisation of fast-growth companies needs strategic logistical solutions. With the help of the literature review, the authors have distinguished characteristics of successful supply chains of

today. The reviewed literature has a common goal to improve organizational performance and gain competitive advantage. The recognised supply chain practises are presented in the below figure.

Strategic supplier partnerships

Already in the late 1980’s, it was observed that collaboration with suppliers could lead to competitive advantage. Also Hurd argue, that the successful companies in the future are those that have established partnerships and supplier relationships. Implications of this observation are today visible. For example, increasing the amount of suppliers, long-term supplier contracts and consolidated efforts are directly in consequence with the observation.

By decreasing the amount of suppliers and co-operating with strategically chosen suppliers the companies are striving to have better control of the cash flows).

It is the unique combination of the firms and its suppliers’ capabilities that would provide the firm with sustainable competitive advantage. The joint capabilities could help in producing differentiated products.

The supplier relationships have to be maintained positive even when the companies are facing economic challenges. By strategic supplier relationships, the companies can share risks and gain synergies. The long-term relationships between the company and its suppliers are often designed to leverage the strategic and operational capabilities of supply chain members. With the strategic co-operation companies strive to help each other to achieve significant ongoing benefits. If the company manages its’ suppliers strategically, operational performance, in terms of dependability, flexibility, cost, and quality, could be improved.

Having suppliers involved in product design can have a positive impact on fault rate in manufacturing company’s production. If critical suppliers are involved already in the product design process, the company can gain loyalty from these suppliers. Furthermore, if the supplier is involved in the design process, the company can reduce quality problems during the production. In addition, if the company accounts for a large amount of a suppliers’ output, it will prevent competitors getting access to the same supplier and the same sourced products.

A key to functioning supplier relationships is trust. Despite the modern information technology, companies need to realise that even non-technical issues, like trust, are of importance. In order to build trust in relationships with suppliers requires transparency.

With transparency is meant a precise and timely information exchange between supply chain members, so that everyone is able to work from the same information. Open communication like this will build trust that is the key for optimising decision-making in the supply chains. The members should feel that the decisions are mutually beneficial for suppliers and the company.

For example, sourcing strategies like cooperative buyer-supplier relationships are today used with the help of technology. In addition, e-procurement tools, on-line reverse auctions and supplier selection and management over the Internet are all examples of the possibilities.

Customer Relationships

The common goal of SCM is to create customer value. It is also discussed that competitive advantage is gained by creating value to immediate down-stream customers and their customers, ultimately to the end-user. Noticing these facts is the key to the success of customer relationships.

To see customer relationships as a capability enable companies to understand them as a potential source of competitive advantage. All the practises for managing customer relationships could be source of competitive advantage. Managing customer complaints, building long-term relationships and improving customer satisfaction are some of their examples of methods for managing customer relationships effectively.

Integration with chosen customers will build permanent uniqueness for the companies in the supply chains. A firm engaging in a long-term relationship with its customers can reduce demand uncertainty, improve its customer service and ultimately decrease costs for stocking and warehouse management. It is also needed that the companies strive to individualise its customer relationships.

Companies should view the supply chain from the customer’s point of view. The companies must be able to understand, compare, contrast and merge the attributes the disparate customers could desire. Customer learning will ease predicting the customer needs both regionally and globally, and would then generate competitive advantage. Furthermore, while the market environment is getting increasingly dynamic and turbulent, the ability to develop and successfully manage relationships with customers is emerging as a key capability and consequently a source of sustainable competitive advantage.

If the companies interact with customers on issues related to quality and material flows, they could enhance their operational performance in terms of speed and delivery accuracy. Also customer information would be gaining competitive advantage for the companies; customers’ forecasts, order statuses, sales statistics and marketing campaigns are few examples. Although companies sometimes have information like this available, they tend to ignore it as a source of competitive advantage or as a way to reduce costs.

Just like in strategic supplier partnerships, building long-term and profitable relationships with customers needs mutual benefit and trust. By having trusting customers, the company can further develop the relationship and deepen the co-operation with the customers. Furthermore, when trust is established, both the company and its customer can experience that joint efforts are leading to results that are superior to what the two would have achieved independently.

Information systems

The role of modern information technology is often mentioned as significant in the literature in managing supply chains effectively. Both the agility and integration of supply chains are described to be achievable by using the modern information systems. Utilising information systems allow critical and proprietary information to be effectively communicated between supply chain partner.

Information flow is the element in a supply chain that gives the different actors the possibility to plan their activities. Fundamentally, information and trust are the basis of every profitable relationship.

Three aspects of communication performance in supply chain relationships. Firstly, the quality of the communication is including aspects as the accuracy, timeliness, adequacy, and credibility of the communicated information. Secondly, the form of information sharing covers the used methods for communication. And thirdly, the extent to which supply chain members mutually engage in planning and goal formulating is also describing the performance of communication.

Data could often mean very different things to different members of the supply chain. Viewing this background, the motives behind an ERP system implementation within and beyond the boundaries of supply chain members become clearer. The ERP systems theoretically enable a company to catch valuable information about demand and supply factors. This would lead further to enhanced performance, more efficient and effective management of the supply chain flows.

Agile supply chains compete through increased levels of knowledge and competency allowing them to broadly implement information technology. In addition, the use of information technology is a major indicator of SCM best practice, particularly if employed to connect customers, suppliers and value adding services

Utilisation of 3PL/4PL providers

The concepts 3PL and 4PL have their backgrounds in the amount of actors taking part of the logistical functions. When the manufacturer (or the buyer) takes care of the logistical activities all the way to the buyer, there is only one actor participating in the logistics, therefore the name 1PL (one party logistics). When both the buyer and supplier are involved in the functions, for example, sharing the responsibilities of transport, the name 2PL (two party logistics) could be used.

When having a third actor between the supplier and the buyer, for example a transportation company, the name 3PL (third party logistics) is commonly used. Additionally, the concept of 4PL (four party logistics) is nowadays used. In such situation, the fourth actor in the logistics function is offering its immaterial services to the members of the supply chain. The 4PL provider assembles and manages the resources, capabilities and technology of the other three players to function optimally.

The concept of 3PL is not only covering the transportation functions between the buyer and the seller; 3PL providers are often taking care of several activities for its customers. By doing this, the customer company have better possibilities to concentrate in their core competencies. In addition to transportation, activities like warehousing, packing and planning are examples of activities that the 3PL providers could offer its customers.

Fundamentally these concepts of 3PL and 4PL are logistics outsourcing. The companies often calculate that outsourcing could lower costs and help them gain a competitive advantage. Outsourcing logistics functions has helped companies to achieve competitive advantage, improve customer service and reduce overall costs in logistics.

Logistics activities are outsourced not only to reduce and control operating costs, but also to give the possibility to use resources that companies are not occupying internally. Distribution has become one of the major competitive advantages of the manufacturing companies. The companies have utilised distribution to differentiate itself from other companies by excelling in delivery service. When the mass produced products are not differentiated, the distribution can be the order-winning factor. By co-operating with just one partner in the distribution functions, this partnership can develop to be of strategic nature.

Co-operation with competitors

To bring agility to the supply chain, co-operative alliances with competitors should be established. The agility would then emerge from process integration and inter-dependence. These factors would further enable to delegate the production of modules between competitors.

In automotive manufacturing, co-operation with competitors has been used for years. One of the recent co-operations with most publicity is the production plant for small cars in Czech Republic, started in co-operation with Japanese Toyota and French PSA Group. The plant will serve the European car markets with 300 000 similar cars annually, under three different brands. The two manufacturers think that the new production plant will gain competitive advantage from the unique mix of resources: the plant will be provided outstanding production technology by Toyota and the effective European sourcing network by PSA.