Competitive Advantage and SCM

Competitive advantages mirror the strategies used to create them: A competitive advantage exists when an organization is able to provide the same benefits from a product or service at a lower cost than a competitor (low cost advantage), deliver benefits that exceed those of a competitor’s product or service (differentiation advantage), or create a product or service that is better suited to a given customer segment than what the competition can offer (focus advantage). The result of this competitive advantage is superior value creation for the organization and its customers. If this advantage is successfully implemented and marketed, it should result in improved profits and market share.

The following discussion is divided into two ways to create a focus advantage:

• Niche marketing (versus mass marketing).
• Responsiveness.

Niche Marketing (vs Mass Marketing)

Firms can choose to develop products and services for a mass market or for a relatively small slice of a larger market – a market niche. Some examples of niche market approaches include

• Catering to high-net-worth customers with products such as luxury automobiles, yachts, large homes, or specialized services such as estate planning, personal training, or expensive cruises.
• Designing for a limited age group, such as children or senior citizens with special needs instead of serving a broader population.
• Providing products or services for residents of a particular geographic area, such as growing vegetables for a neighborhood market rather than for packaging and shipping around the nation or world.

Niche marketing shares some characteristics with product service differentiation. In both cases, the product or service provided to customers has special features. Differentiation by quality, for example, can be the same thing as catering to high-net-worth customers. (Low-net-worth customers, or value shoppers, can also be niche.) Therefore, some supply chain strategies will work for both approaches. Collaboration to achieve distinctive design is one example. Depending upon the niche, sourcing may focus more on finding special expertise or high-quality materials rather than on low-cost labor.

Responsiveness

Perhaps the most obvious example of responsiveness is the fast-food industry that grew up in the last half of the 20th century, led by McDonald’s. Diners at fine restaurants will happily wait half an hour for their specially cooked steak, but employees on short lunch breaks become impatient with even a few minutes in line as their sandwiches are prepared, using the supply chain strategy. In the early days of the Toyota Prius automobile – a highly differentiated car—buyers were known to wait for months for a new vehicle. (The same phenomenon occurred when the Volkswagen “Beetle” first came to the United States, where it was both highly differentiated and a low-cost option.) But businesspeople or diplomats on assignment expect a rental car or limousine to be ready immediately when they arrive at the airport. Manufacturers of clothing prosper or go bankrupt by their ability to bring the latest seasonal designs to market rapidly. Perishable products, such as raw food items, must be delivered rapidly, unlike preserved foods. Services may also compete on the basis of speed by cutting time spent waiting on the phone, standing in line, or processing paperwork.

Supply chains designed for responsiveness may rely on substantial supplies of safety stock to avoid outages. (Overstocked seasonal items typically go on sale at the end of the season.) They may also have multiple warehouses to place products nearer to users. Third-party providers of rapid transportation, such as package delivery services, were developed to suit the needs of such supply chains.