Supply Chain Dynamics

No one can possibly achieve any real and lasting success or "get rich" in business by being a conformist. Based on class readings and discussions, explain how the above quote relates to the supply chain, and how the way a firm manages its supply chain can be used to differentiate itself from the competition/be a source of competitive advantage.

Harold Sirkin, a Senior Partner in the Boston Consulting Group, once said, “As the economy changes, as competition becomes more global, it’s no longer company vs. company but supply chain vs. supply chain.” Corporations must leverage their supply chains as they compete head-to-head in the business world. In order to have real and lasting success, corporations must leverage their supply chain to differentiate themselves from their competitors. Corporations must create “best value” supply chains, which focus on total value added to the customer. When corporations are content to simply conform to industry norms and the way competition does business, they will lose their ability to create value and have a sustainable competitive advantage. Therefore, it is becoming increasingly vital that corporations learn to leverage their core competencies, resources, and the know-how of suppliers to maximize value within their supply chains. This value comes directly by creating a supply chain that facilitates timely sharing of information, reduction in uncertainty, and flexibility.
It is the truth of business that customers and markets are dynamic; therefore, supply chains must also be dynamic to meet their varying demands and preferences. Strategies that were successful yesterday may not be successful tomorrow. As a result, corporations must create a flexible supply chain that reacts to the unpredictable market. Flexibility ensures that the supply chain strategy can support the business in the face of rising volatility. Regardless of industry, all corporations are faced with volatility and uncertainty. Therefore, corporations that are able to establish sustainable competitive advantage must be able to understand and reduce this uncertainty. True market leaders are differentiated from competition by their ability to respond quickly and cost efficiently to changes in both supply and demand. Flexibility can be achieved by promoting: the free flow of information with supplier and customers, the development of collaborative relationships with suppliers, and developing a dependable logistics system.
Seven-Eleven Japan (SEJ) is an example of how a company that builds its’ supply chain on agility, adaptability, and alignment stays ahead of its’ rivals. For example, SEJ has mastered the ability to assimilate market information and disseminate pertinent information to their suppliers. SEJ has invested in a real time system to detect changes in customer preference and track data on sales and consumers at every store.” In addition, even before the internet age began, SEJ had the foresight to further differentiate themselves from competitors by utilizing “satellite connections and ISDN lines to link stores with distributions centers, suppliers, and logistics providers.” SEJ made this incredible investment in both time and capital for the express purpose of adding value to the entire supply chain to better serve their customers.
When discussing value added, it is critical to understand just how a corporation can add value to customers given their industry. SEJ understood that, given their industry, instant demand forecasts and sales data were more vital than reducing costs. The convenience industry is incredibly competitive in terms of cost; however, SEJ realized that decreased lead times in distribution would allow for a competitive advantage. In order to maximize this advantage, SEJ effectively used their communications network to develop collaborative relationships across their supply chain. For example, SEJ successfully aligned its interests with those of its partners by implementing an incentive program that demands consistent resupply of goods in order to meet varying demand projections for different hours of the day. Suppliers were given instant access to sales data, and restock orders were processed multiple times a day. To further expedite the delivery of their products, SEJ established relationships of trust with each distributor. Distributors were expected to be on time with every delivery; however, SEJ trusts that the goods delivered are exactly what they ordered. They do not take inventory on incoming goods; therefore, trucks can continue along their delivery routes with little to no interruption. Thereby, both the goals of the distributors and retailers are in harmony.
Perhaps the greatest example of the strength of SEJ’s flexibility can be seen by their instant response to the earthquake in Kobe, Japan. Within six hours of the earthquake, SEJ was able to use their flexible information system and supplier relationships to provide 64,000 rice balls to the affected areas. SEJ was able to use helicopters, motorcycles, and boats to resupply their stores without delay. While relief trucks were still crawling at two miles an hour on the highway, SEJ was providing goods and services to meet the demands of their customers. SEJ’s flexibility allowed them to provide value to their customers in a quick and cost efficient way.
Perhaps the reason that SEJ has been able to realize such lasting success is that they have not conformed to standard communication protocols used throughout the business arena. In many industries, corporations are remiss to share information with suppliers and partners out of either fear or simply neglect. This stagnation in information flow leads to increased uncertainty throughout the supply chain; uncertainty leads to eventual waste and a reduction of value to the end customer. For example, HP noted that the further down their supply chain they went, the more distorted demand information became. This tremendous inefficiency, known as “The Bullwhip Effect”, led to excess inventories, poor customer service, and lost revenues.
In contrast, clever corporations are able to maximize value in their supply chains with the alignment of information; thereby, all the companies in the supply chain have equal access to forecasts, sales data, and plans. In order to maximize this alignment, corporations must establish an infrastructure that facilitates timely communication of information. In today’s competitive global markets, major corporations understand the key role of information in long term success. Many corporations are excellent at tracking data; however, in order to achieve lasting success corporations must be able to use information in a way that provides the most value in their given industry.
One example of a corporation that understands how to use information to create a best value supply chain is World Corporation. World Corporation does business in the highly volatile fashion industry. Demand for high fashion products has extremely high seasonal variability. Therefore, World Corp’s success is predicated on the timely tracking of customer demand. Many corporations rely solely on historical data to forecast demand. In contrast, World Corporation has differentiated itself and thereby created real and lasting success through their ability to employ not only historical data but also early sales data to continually update original demand forecasts. Their ability to continually forecast gives them great power to postpone production of goods with unpredictable demand patterns. World Corp. shares this information with suppliers to reduce uncertainty across the breadth of the supply chain. Updated forecasting also allows World Corp. to increase value in the supply chain by reducing lead times on products. Thus, the entire information network is used to get products to the market faster and thereby maximize profitability.
Another example of a corporation that has used information to set itself apart from the competition is Starbucks. Starbucks created competitive advantage in the fast food industry by combining diverse pools of knowledge to reinvent the way a cup of coffee was sold. They did this by utilizing Italian technology for espresso coffee, the European concept of the Café, and U.S. expertise in retail chains to set them apart from industry norms. Whereas other competitors in the fast food industry, such as McDonalds, have run into problems trying to enter global markets without harnessing the power of diversity, Starbucks has become an industry leader.
Because markets are uncertain corporations must be willing to adapt to the market and external environment. X-Box is a great example of a company that was able harness the power of flexibility in direct consequence to market information. In the past, many corporations in the gaming industry had used outsourcing as a method to attempt to become the low cost leader in their industry. This attempt to gain a competitive advantage resulted in sending production of the system to areas far away from major potential markets. Microsoft executives were convinced that the Christmas season sales of their product would provide them with a large market share and high profit. However, as the Christmas season drew closer, Microsoft became unsure about the viability of producing the X-Box in China and getting it to market in time for the season. Therefore, Microsoft went against industry norms by moving production of the X-Box to a higher cost area. However, this move provided increased value by allowing greater speed in distribution. As a result, Microsoft was able to get the X-Box to market for the Christmas Season and gained a large market share. Microsoft was able to use the agility of its supply chain as a competitive weapon.
Microsoft, Seven Eleven, World Corporation, and Starbucks are all examples of how a corporation can use their supply chain to create competitive advantages and enhance firm performance. Supply chains that facilitate timely sharing of information, reduction in uncertainty, and flexibility of processes have caught the vision of not conforming, but leading. As these corporations have used their supply chains to differentiate themselves from their competitors, they have provided real value to their customers. Providing this value is the only way to obtain real and lasting success.