10/20/2014

How supply chain management can

provide competitive advantage.
And;
Responsiveness and supply chain
agility.

Nesip Nalcolu
UNVERSTY OF WARWCK

Supply Chain Management

Table of Contents
1
1.1
1.2
1.3
1.3.1
1.4
1.4.1
1.4.2
1.4.3
1.5
1.5.1
1.6
2
2.1
2.2
2.3
2.4
2.4.1
2.4.2
2.5
3

How supply chain management can provide competitive advantage. Error! Bookmark not
defined.
Introduction .......................................................................................................................... 2
What is Competitive Advantage?......................................................................................... 2
What is Supply Chain Management? .................................................................................. 3
Supply Chain Management and Competitive Advantage .................................................... 3
Different Strategies for Supply Chain Management ............................................................ 3
Lean Supply Chain (LSC) .................................................................................................... 4
The Agile Supply Chain (ASC) ............................................................................................ 4
Leagile Supply Chain ........................................................................................................... 5
Information Technology and Supply Chain Management. .................................................. 5
Information Technology Examples ...................................................................................... 6
Conclusion ........................................................................................................................... 6
Responsiveness and supply chain agility.
. ................... Error! Bookmark not defined.
Introduction .......................................................................................................................... 7
Supply Chain Strategies and Responsiveness .................................................................... 7
What is Responsive Supply Chain....................................................................................... 7
How to Improve Supply Chain Responsiveness .................................................................. 8
Lean Supply Chain (LSC) .................................................................................................... 8
Agile Supply Chain (ASC) .................................................................................................... 8
Conclusion ........................................................................................................................... 9
References......................................................................................................................... 10

1.1

How supply chain management can provide competitive advantage.

Introduction

Competition is at the core of the success or failure of firms. (Porter, 2008, Chapter 1 (Kindle
Location 417))
According to common knowledge and all the academics competition, is an undeniable part of the
business life. And the most basic definition of the term competition in business literature is, the
pursuit of the same objective by two or more firms (Tuckman, 1998). Therefore companies naturally,
focuses on being successful and lasting on the market. Li, & Liu, (2012) and Porter (2008) indicated
that, in our business environment today, competition is a certainty, which is also become the most
important certainty for the survival of companies, hence, relentless pursuit for an edge for
competitive advantage is the most vital part of companies, and day by day as the market become
more and more limited, both domestic and global competition became more fierce, thus without a
well-planned and implied strategy focused on competitive advantage, every company is in a
vulnerable position. This powerful comments suggests that, creating a competitive advantage
strategy is fundamental for any company. Additionally, Coyne (1986) and Long, & Vickers-Koch,
(1995) affirms that, it is quite possible for companies to experience difficulties to sustain their
competitive advantage in long-term, for even the most powerful, and major ones, even they enjoyed
a powerful position in the market for a period. There are of course certain objections to the theory
of the importance of the competition and competitive advantage. Asmussen, & Foss, (2014) and
Hashai, & Buckley, (2014) developed elaborate framework to show that competitive advantage is
not a necessary phenomenon to achieve a global reach and success. However I would like not to
continue to this debate today.
1.2
What is Competitive Advantage?
Understanding the natural significance of competition and competitive advantage is one thing,
however, identifying best form of competitive advantage is still reasonably hard, which is many
companies failed to do so. This leads us to a very important question. What is the best possible
way to create a sustainable competitive advantage for our company?
For long years, many academics such as Hall (1993); Hunt & Davis (2008); Long, Vickers-Koch
(1995); Weerawardena, & Mavondo, (2011) all developed elaborate perspectives to show that,
special knowledge, capabilities, and skills, of specific companies are the core of achieving the SCA.
This core capabilities regarded as effective manufacturing, price leadership, quality leadership or
quality management, or an efficient transporting and storage capability. However according to
Christopher (2012) and Porter (2012), focusing separately these specific qualities would not
certainly bring a sustainable competitive advantage, at least not for long. Instead, companies
realised that they need a broader approach to optimize more features to guarantee the competitive
advantage.
In response to our vital question Porter (2012) first clearly describes the competitive advantage, as
the method to create a powerful position for a significant company in the market. Hence, for that
objective, he defines the most effective tool is to create a well performing supply chain
management. Also, Hall (1993) identifies the factors behind a sustainable competitive advantage,
as price, reliability, and availability. Which are also the carefully stated by Houlihan (1987) as the
main focuses of a functional supply chain model. Finally, it is hard to stress enough, the significance
and worth of an effective supply chain management on sustainable competitive advantage (Li et
al., 2006; Cai, Xiao, & Liu, 2009; Wamalwa, 2014) on the contrary of the implications of Barney
(2012) about, supply chain not being important part of competitive advantage, in their resourcebased perspective.
Overall it is safe to say that, the method, which many academics trying to explain and many
companies trying to excel is actually the combination of these important qualities under a strong
and effective system. A system which is so vital and plain, also wide and complicated that we can
easily understand its importance but still having hard time to completely define it, even naming it. It
is the Supply Chain Management.

1.3

What is Supply Chain Management?

Supply Chain Management (SCM) is the backbone of the todays business environment. However
this wasnt always the case. SCM needed almost 40 years, afterwards Jay Forrester define the
Forester Effect in 1958, to become a hot topic in the business literature (Mentzer et al., 2001).
Naturally, the importance of SCM is yet a subject of debate, however the scale of the debate is
significant, which would give us the hint of its importance.
Many academics would completely agree with Christophers suggestions about the significance of
logistics, and logistics being the root of SCM, but still SCM is a much wider system than the logistics.
Human history is full of examples of the how logistics affected the whole process of wars, and
eventually creating victors and losers and shaping the history (Christopher, 2012).
As more research made over SCM, academics realize that even the name or the definition in the
literature of this phenomenon is not accurate enough to define the wide and complex structure of it
(Tan, 2001). Both the understanding and implementation of SCM changed over the time. Today,
SCM become a multidisciplinary study, and there is an extensive agreement that supply chain
management is a philosophy, and its importance on the performance of businesses. Even so the
evolution progress of SCM is not finalized. It is still continues to evolve and getting better (Ellram,
& Cooper 2014).

Figure 1: Supply chain management (Basu and Wright, Chapter 1, p. 6)

1.3.1

Supply Chain Management and Competitive Advantage

Before the implementation of modern supply chain management ideas through companies, most
organizations preferred to act as single units and always bound to compete with each other.
Nevertheless this approach was quite wearing for the companies. Features like vertical integration
or adversarial procurement strategies was no more desirable. And this attitude for trade was sure
to be obsolete (Christopher, 2012).
By the last decade of 20th century, competition expanded and reach to global level. With more
competitors to deal with and extended, global market, delivering the products or services to your
customers with lowest cost possible is now much harder. And organizations realised that their
supply chains should be able to overcome this new obstacles (Li. et al., 2006).
Under the scope of numerous research, many organizations today accepts SCM as the main
feature of a sustainable competitive advantage, even as the core of it. And as Li. et al., (2006)
strongly suggested, SCM has an undeniable effect on organizational efficiency and eventually for
a better market place, income and to gain a high level sustainable competitive advantage. And
eventually They have realised that the real competition is not company against company but rather
supply chain against supply chain (Christopher, 2012, Chapter 1 (Kindle Locations 470-471)).
1.4

Different Strategies for Supply Chain Management

Changes in the broad approaches towards the structure of the SCM strategies were never been
choices one to another, however process is an evolution. Understanding the week points of the
system and improving it to next level. Thats why changes over the strategies of SCM through time,
should be considered as becoming better (Cooper, Ellram, 2014).

Figure 2: "Lean or Agile" (Christopher, 2000, p.39)

1.4.1

Lean Supply Chain (LSC)

The lean supply chain emerged on late 1980s. Lean supply chain (LSC) was the evolution of the
system, which was perfected during the 1940s by the Japanese car manufactures, especially
Toyota (Roh, Hong, and Min, 2014). Melton (2005) even suggest that implication of LSC in the
western industries, was so dramatic that it could be revolution in the business world. And overall
attitude during the structure process of LSC, was the idea of satisfying customers demands with
most possible pace and minimum costs. Therefore, to minimize the waste, LSC focuses optimizing
the efficiency of, over production, inventory, defects and transportation of the companies. In other
words, eliminating every non-value-adding activities (Chen, Cheng, Huang 2013; Melton, 2005).
During the late 1980s many business had common features, such as limited range of products, long
lifecycle products, infrequent new production, stable suppliers, small market share variation, small
demand volatility, and small geographic variation, hence Lean Supply Chain focused to improve
the efficiency of the companies under aspects of these features.
With the use of LSC many companies achieved low costs of production and regular product
availability. LSC gave organizations advantages, such as low inventory cost, reduction in lead-time,
and minimum production waste. These features were the most important traits of having competitive
advantage (Melton, 2005).
1.4.2

The Agile Supply Chain (ASC)

The agile supply chain was designed as a reaction to specific difficulties, which lean supply chain
was no more able to resolve. Because, as mentioned before, the main features of the market when
LSC was formed was quite different then the next decade. These new complications were mostly
caused by the changing global market features, such as shortening life cycles of products, global
competition, and volatile demand. Also the rules of competition was changed, organizations of the
same supply chain realised that they have to cooperate, and competitive advantage was no more
fixed only to price or quality leadership (Yusuf et al., 2014). Hence, by the end of 1990s it was
compulsory for the organizations to structure a more responsive supply chain.
They create, the agile supply chain, which offered a powerful potential for the companies, by
focusing to resolve these significant complications (Christopher, 2000). Also, as Yusuf et al. (2014)
precisely define the agile supply chain, as a positive evolution for the pursuit of competitive
advantage in the vastly globalised market with the prospects like, ability of to introduce new
products to market, and quickly satisfy irregular customer orders, and to create efficient strategic
alliances with suppliers.

Eventually all of these traits of ASC were valued by many organizations. The introduction of the
ASC was become a trademark of the new dynamics of the market, and understanding the
necessities to survive in this instable conditions by the companies. (Oliveira, & Gimeno, 2014)
The most crucial idea of ASC is flexibility. And as Christopher (2000) strongly indicate flexibility
should be corporation wide, including all the aspects of manufacturing, procurement, and
marketing. Thus most researchers in the field agrees on that ASC is a quite successful approach
to achieve a competitive advantage over the global market, by focusing vital features, such as
swiftness, flexibility, invention, excellence and revenue (Yusuf et al., 2014)
1.4.3

Leagile Supply Chain

Finally by the end of 20th century, many academics reach to a conclusion that, using agile or lean
approaches through whole supply chain isolated, would not generate the ultimate competitive
advantage. Volatile nature of the todays market forced academics to generate the next step of the
supply chain management evolution. Eventually organizations realises the necessity to combine
these two ideas into a one supply chain system. Which aims to be both proactive/flexible and
effective/efficient at the same time. To achieve this kind of a combination, academics generate a
new feature to SCM discipline. The decoupling point (Naylor, Naim, & Berry, 1999).
The decoupling point was generated to play as an arbitrator, a buffer between lean and agile. It is
the point on the supply chain, where the organization keep its stocks. From this point, one part of
the supply chain focuses on customers special needs or design, which need flexibility, and the
other side focuses on long-term planning and efficient manufacturing (Naylor, Naim, & Berry. 1999).

Figure 3: "Decoupling Point" (Christopher, 2004, p.41)

Lean and agile approaches are naturally completing each other. Neither of them is perfect by itself
alone. The Hewlett Packards case proved the worth of the combine power of these two
understanding. Hewlett Packard solved their fluctuating demand difficulties by implementing agile
supply chain principles to their supply chain. From their specific decoupling point, they been able
to uniquely customized their products just before they reach to their customers, at distribution
centres (Naylor, Naim, & Berry. 1999).
Legaile supply chain, is the latest and most efficient approach to SCM today. It gives organizations
the chance to be both price and differentiation leader of the market. (Naylor, Naim, & Berry, 1999)
1.5

Information Technology and Supply Chain Management.

Separation information technology (IT) as a subtitle in a research like this could be a mistake,
however my motivation is to define the specific IT capabilities widely used by organizations even
they have different SCM strategies, and eventually stress the importance of IT in any case. Today,
IT is at the core of our daily life, especially right after emergence of personal handheld computers
(PDAs, smartphones) and social networking. However, implementing every technological

improvement to wide organizations or the whole supply chain, could be both expensive and painful.
Therefore, I will try to put forward a significant few, which already proven its worth in any case of
application.
However accepting IT as a miracle tool for competitive advantage is a mistake. Some researchers
initiated that, IT has no real impact on competitive advantage. Thus, successful firms uses IT only
in order to improve their integration and communication with their suppliers or customers, through
their supply chains, not as market winners (Chae, Yen, & Sheu, 2005).
1.5.1

Information Technology Examples

Radio frequency identification (RFID) became a very important part of companies. And it is safe to
say that, RFID is a useful feature for both lean and agile supple chains. Many companies today
widely uses it and gain a significant advantages over their production and delivery processes. RFID
helped numerous organizations to increase the efficiency, improving responsiveness, lowering the
costs and eventually increasing the income. (Chen, Cheng, & Huang, 2013)
Electronic data interchange (EDI) system is another example of useful IT features in business world.
EDI is widely used today. For an efficient supply chain, procurement plays a vital role. Hence EDI
was a worthy tool for an efficient purchasing. EDI increases the communication between the
suppliers and manufacturer, and decreases the cost and time of the procurement process (Lambert,
Cooper. 2000).
1.6

Conclusion

With every change in the business world and market the companies forces themselves to focus
even more on their SCM systems to create more efficient. Competition is the core of survival in the
market. Competition itself is a very complex problem, however with the changes in the market its
features also changes. Thus, defining the best possible or perfect feature or traits for a competitive
advantage will be always a hard thing. However, many successful companies realised this reality
and preferred to always well inform with the improvements and tried to implement suitable new
traits to their supply chains. That is the main reason for us to think SCM as an evolution process
which still continues, than an empirical structure.

2
2.1

Responsiveness and supply chain agility.

Introduction

Heraclitus of Ephesus once said Everything changes and nothing stands still.
We can easily imply this intelligent view to everything in our life, and our market setting is no
exception. Todays market is a much more volatile, unpredictable, and constantly changing. This
new and difficult conditions, changed the understanding of firms about competition. Competition is
no more a company versus company phenomenon, but a contest between supply chains (Qrunfleh,
and Tarafdar, 2013). From now on, swiftness, excellence and agility are the market winners (Yusuf
et al., 2004). Thus, this features increased the complexity of the competition for the organizations,
and forced them to come up with more flexible approach to their whole supply chains. The idea of
agile supply chain (ASC) emerged by this necessity, and suddenly became the centre of debate
and research, because from that point, it was obvious that supply chains are the core of competitive
advantage (Sukati et al., 2012; Qrunfleh, Tarafdar, 2013). This kind of changes never happens
instantly, actually in this one, it is still continues like a long-term evolution. Thats why the neither
the debate nor the research related with supply chain management is yet to complete (Yusuf et al.,
2014). However, it is safe to assume that, our information about agility and the need for
responsiveness reach a significant level, that many organizations acknowledge their importance,
and set them to their supply chain systems (Cai-feng. 2009; Christopher. 2000; Sukati et al., 2012).
2.2

Supply Chain Strategies and Responsiveness

In todays market, there are many competitors both domestic and global, and it is obvious that firms,
who seeks for a sustainable competitive advantage, need to be very quick to return to their
customers. In other words, a responsive supply chain could be the key source of a strong position
in competition in this chaotic market (Qrunfleh, and Tarafdar, 2013; Power and Sohal. 2001; Sukati
et al., 2012).
Supply chain management, have two major approaches. The lean supply chain and agile supply
chain. These two strategies played a significant role for the numerous companies for almost 30
years. And both of them are extremely important to truly achieve the ability to create a sustainable
competitive advantage (Christopher. 2000).
The term agile is recognised as the ability to act quickly. Many researchers in the field agree that
agility means, bringing value to customers, and always being flexible. Also agility generates the
ability to produce extensive ranges of different products to lowest cost possible, with different batch
sizes and different customer specification (Agarwal, Shankar, and Tiwari. 2007). Therefore agility,
is being more practical and flexible than the optimized and fast (Power, Sohal, and Rahman, 2001).
Before agility became an important topic, leanness was the main ideology of, how to run a supply
chain. And lean supply chains, actually played a very central role for numerous organizations.
Simply, lean supply chain is, producing goods and services for less, with implications of minimum
inventory, and just-in-time approach, big batch sizes and, very sophisticated manufacturing
optimization (Christopher. 2000).
These differences could suggest us, organizations should choose one supply chain strategy to
another, however many researchers agrees on that, the combination of the approaches is more
than necessary, it is the key. Thus, without an effective manufacturing process which is free of
waste, flexibility and quick response is not enough for a sustainable competitive advantage
(Christopher. 2000; Sukati. et al., 2012). Thats why, Agarwal, Shankar, and Tiwari, (2007), and
Sukati, et al., (2012) strongly suggested that leanness should be part of an agile supply chain. Also
Qrunfleh, and Tarafdar, (2013) goes further and make a strong argument about the possibility of a
lean supply chain to be responsive enough to survive todays market environment.
2.3

What is Responsive Supply Chain

Supply chain responsiveness is a major tool of success in our global market today. Because global
market today very unpredictable, constantly changing, volatile, much more competitive and harder
to survive. Both level and profile of demand are very bound to change and while it is already differs
from geography to geography, nation to nation. Customer customization is a reality and become a
major concern of many customers. Global competitors are making the organizations competitive
position to be always at risk, while global range of suppliers always with comparatively better offers
which, needs investigation or negotiation. Nothing is straightforward or guaranteed anymore, even
the global diplomatic or political changes, such as domestic clashes, government changes, global
concerns and non-governmental international organization are very important for every
organizations (Cai-feng. 2009; Gunasekaran et al., 2008; Sukati et al., 2012; Zacharia et al., 2014).
Thus, being agile, being responsive to these constant changes, is very crucial of having a
sustainable competitive advantage (Cai-feng. 2009; Christopher. 2000; Gunasekaran et al., 2008;
Sukati et al., 2012).
As I mentioned before, todays global market is full of, demand ambiguity, higher competition and
considerable risk. Therefore, success of any manufacturer bases on its ability to response to its
customers needs. Hence, the most important component of responsive supply chain is, customers
need information. With this information, the company could shape it manufacturing or delivery
structure. Therefore, firms should become far more customer-centric (Roh, Hong, and Min, 2014).
In contradiction to Qrunfleh, and Tarafdar, (2013) Roh, Hong and Min (2014) have developed an
elaborate framework to show that, many highly optimized and efficient suppliers/manufacturers lost
their competitive position or even bankrupt because they couldnt respond the changing needs of
their customers. At this point Roh, Hong and Min (2014) use Motorolas case, as an example to
justify their suggestions. In their example Motorola is losing its position on the market as a top
brand, with an extremely high market share, in not more than a decade. According to Roh, Hong
and Min (2014), this deterioration is because of the Motorolas lack of ability to response its
customers changing needs. However in their valuable research Qrunfleh, and Tarafdar, (2013)
suggests that lean supply chains also could generate a noteworthy responsiveness.
2.4

How to Improve Supply Chain Responsiveness

At this present time maybe not all the commodities are bind to have this amount of demand changes
and specialization expectances, but goods like microchips, fashion designs and apparel,
computers, smartphones, electronics and ever automobiles are all open for customization and their
life-cycle are significantly lessened (Roh, Hong, and Min, 2014).
Simply, the key purposes of a responsive supply chain are, to give customers the precise product,
at precise moment and at the precise place, and to be able to react to the changing customers
demands and to be flexible enough to modify the manufacturing process in the case of new product
development, or any kind of unexpected crisis, and finally to be able to do these with an efficient
way (Qrunfleh, & Tarafdar, 2013; Roh, Hong, and Min, 2014).
2.4.1

Lean Supply Chain (LSC)

Strategically LSC aims to decrease the costs by diminishing any kind of waste in the chain. These
practices includes minimizing the inventory, sophisticating the quality and decreasing lead time. Qi
et al., (2009) and Qrunfleh, & Tarafdar (2013) have developed a decorative framework to show that
LSC could generate the necessary responsiveness. According to their extensive study, they
suggest, a healthy and long lasting alliance with suppliers, a strategic supplier partnership
(Qrunfleh, & Tarafdar, 2013, p.574), would create the ability to be responsive, in necessary cases.

2.4.2

Agile Supply Chain (ASC)

Agile supply chains (ASC) generates their responsiveness by keeping the final customization of the
products as close as possible to the end of the supply chain. To put it differently, manufacturer keep
its products as its most basic form, and customize it at the last minute (Lee, 2004; Qrunfleh, &
Tarafdar, 2013). This practice is called postponement (Qrunfleh, & Tarafdar, 2013, p.574). By this
way companies would have the ability to be flexible in the cases of unpredictable changes in
demand (Lee, 2004; Qrunfleh, & Tarafdar, 2013).
In their research Qrunfleh, & Tarafdar, (2013), delivers the personal computer manufacturer, Dells
case as an example. Dell lets its customers to order fully customise computers by their own needs
or tastes. For this impressive manoeuvre, Dell developed itself a supply chain strategy, which allows
it to push the basic (not customised) products until the end of its supply chain. This capability gives
Dell a unique form of flexibility.
2.5

Conclusion

It is clear that todays global market is much more complex than two decades ago. Thus the rules
of engagement in competition is also different and complex. Many academics and organizations
are constantly trying to understand and define a true and perfect mean, for a sustainable
competitive advantage. However these studies have not yet come to conclusive point. But still the
outcomes today we have are enough to say that, having a responsive SCM is an exciting
advantage.
Both lean and agile supply chain strategies, proven their worth over the time. And many
researchers agrees on, the ultimate combination of these two strategies is the new frontier of SCM
phenomenon. And executing adequate practises, such as strategic supplier partnership or
postponement separately or together, will most probably generate the most desired capability of
flexibility and eventually a sustainable competitive advantage.

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