GAINING COMPETITIVE ADVANTAGE USING

EFFECTIVE SUPPLY CHAIN MANAGEMENT

By Osita Chukwuma

1.0 Introduction
Christopher (2005, p.5) describes supply chain management as follows: “The
management of upstream and downstream relationships with suppliers and
customers to deliver superior customer value at less cost to the supply chain as a
whole”

Until recently, supply chain management has been largely viewed as a necessary evil
and the focus has been strictly on cost reductions. Today however, many are coming
to the realization that supply chain management can be much more strategic,
affording a company the opportunity to out-perform competitors.

With supply chains becoming more elongated as they become more global, the pace
of demand changes increasing and product lifecycles shrinking, the responsiveness
of a company’s supply and fulfillment networks to change is becoming a more
substantial determinant of company success. As such, companies must view their
supply networks as a competitive weapon that can not only deliver low costs but
impact top-line growth through superior responsiveness and best-in-class customer
service. If these and other similar strategies as will be described in this write-up are
available for only one company at the markets, this company has competitive
advantage over its competitors (Barney, 1991; ketchen, 2004; Rungtusanatham et
al., 2003). Another way to gain competitive advantage is to optimize one or several
activities. However, a consideration has to be taken so that optimization does not
end in optimizing one function at the expense of the others (Lumsden, 1998; Porter,
1985).

Porter (1985) 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 (Martin & Grbac, 2003). If the company
strives to meaningful cost reductions, more efforts on cross-firm co-operation, co-
ordination, collaboration and integration are required (Flint,2004). The basic
recognized supply chain practices that a few companies described in our cases
leveraged on to gain competitive advantage include:
ƒ Strategic supplier relationship,
ƒ Customer relationship,
ƒ Information Technology,
ƒ Utilization of 3PL/4PL providers,
ƒ Co-operation with competitors,
ƒ Postponement and VMI,
ƒ Performance measuring.

2.0 Dell
DELL one of the world’s giant Personal Computer (PC) makers shut to the top and
gained a unique advantage over established PC makers like IBM by selling directly to
customers. Dell assembled and sold every PC to order which enables it to maintain
its cost advantage over conventional rivals as inventory management costs as well as
component keeping cost were virtually eliminated. This made it possible for Dell to
receive payment within 24 hours of order placement, while its competitors had to
wait for 35 days for payments through primary dealers.
With the advent of the internet, Dell invested in elctronic commerce and began to
make sales of $1m per day via the internet [McWillaims et al 1997]. Dell also re-
engineered its processes and relationship with Logistics providers and suppliers such
that every Dell order is built, customized and shipped within eight hours. Dell
continued to re-engineer its logistics operations until the total number of
interventions involved in the manufacture of a Dell PC was reduced to 60, against an
industry average of 130. The drive for this reduction also instigated Dell to go into a
long term relationships with her suppliers including competitors such as IBM and
Toshiba.

Dell also imbibed vendor managed inventory (VMI) strategy where components are
never ordered from suppliers until orders are received from Dell customers. In line
with this Dell reduced the number of suppliers from 204 to about 30 companies in
2003. Dell entered into strategic relationship with the suppliers such that they are
expected to maintain eight to ten days inventory in their own warehouses which
must be located 15 minutes away from Dell factory.

Dell also developed an Information system that integrates its key suppliers to the
company’s information base, such that production can be easily scheduled every two
hours. Dell’s own forecast is posted to its extranet for easy access by their suppliers
and other partners. Suppliers also have access to hub-level inventory holdings and
are responsible for restocking the hubs and delivering to the factories on a
consignment stock basis. This strategy enables Dell to carry only four days of
inventory while its competitors continue to hold 20-30 days worth.

3.0 Zara
ZARA is one of the world’s most successful and dynamic apparel businesses. It
began operation is La Coruna, Spain in 1975 and has built a reputation of continually
seeking process improvement. Zara over the years has developed a strategic and
unique supply chain management process that has put it ahead of its competitors.
Its emphasis is on ‘permanent innovation and low prices’.

Zara stores are digitally linked to headquarters; employees collect and share input
from customers daily. The different teams understanding of directional fashion
trends is further guided by regular inflows of sales data and other information from
all of the company’s stores and sites around the world. This has also enhanced
greatly the operating strategy based on the dual objectives of minimizing stock and
responding quickly to market needs-even more effectively than its internationally
acclaimed rivals.

Zara designers come up with new styles based on customer input and “hot spot”
trends. Feedback loop: designs are ‘pulled’ from the market which is the basis for its
ability to produce fashion without waste. This ensures that stock is constantly varied
and updated. New designs and deliveries arrive on a twice weekly basis, and few
products are available in the store for more than a month.

Zara’s blend of global sourcing policy and agility has made it retain its high growth
rate and competitive advantage. Some items are imported from low cost
manufacturing centers in Asia, and the rest produced by quick response. The unique
global sourcing policy of using a broad supplier’s base provides the wildest possible
selection of fashion fabrics, at very low prices while reducing dependence on any
single source. About fifty percent of the materials are purchased in ‘gray’, to be dyed
or printed and finished by a Galician subsidiary. Local workshops perform final
sewing/assembly thus maintaining quality and reducing obsolesce as designs and
colors can easily be altered without shipping the materials back to Global source or
third parties outside Spain. Continuous postponement of design, succeeds Benetton,
in that it has been able to design a supply chain able not only to postpone colour
choices but also postpone final design changes. This is the key instigator of their
agility.

Zara’s manufacturing systems are similar to that of her competitors but Zara has
surpassed them in terms of operational efficiencies which emanated from ideas
developed in conjunction with Toyota. Only operations which enhance cost efficiency
through economies of scale are conducted in house (such as dying, cutting, labeling
and packaging).

In terms of inventory, design-led procurement prevents the build up inventory &

enables companies to be more responsive. Zara keeps the cost to the minimum
because it pays only for the completed garments. Finished goods are forwarded to
its two distribution centers. One distribution centre dispatches product to stores
twice weekly. All deliveries are completed within 48 hours. Zara also reduced its lead
time to four/five weeks against its competitors lead time to run into several months.

Heavy centralisation of a (mostly) integrated supply chain in Spain allows rapid

production of new collections in a co-ordinated and consistent way. Thus Zara has
developed a ‘lean’ enterprise but also agile. Also, by aligning design with the supply
chain in this way, the companies have reduced their exposure to supply chain failure
& ensured that suppliers are able to produce exactly what they require

4.0 Wal-Mart
Wal-Mart was the undisputed market and cost leader and the main innovator in
the North American retailing. It led the way through aggressive investment in
Information Technology Systems which re-engineered its processes, eliminating
wastes and entrenching indefatigable efficiency. It was the first company in the
1960s to adopt the use of Bar-codes technology and have it integrated into their
inventory management system and entire operations. Later on it deployed Electronic
Data Interchange (EDI), to improve communication and coordination with suppliers.

Wal-Mart later introduced wireless scanning guns and the retail link program, which
captures real data and gives real-time visibility of stock holding and sales patterns.
This also facilitated better inventory management, significant cost savings, and was
passed on customers in form of excellent customer service and every day low price.

Wal-Mart later redesigned its distribution network evolving centralized distribution

centres with cross-docking warehousing method which reduced also inventory
carrying cost to a level its competitors could not match. These with the IT
deployments and integrations, led Wal-Mart to enjoy economies of scale that has put
it far ahead of her competitors like Kmart. A few years later, Wal-Mart could not be
matched by its competitors in America and it began to expand to other countries of
the world. Wal-Mart is a good American success story of using Supply chain
management to gain unequivocal competitive advantage.

5.0 Fedex
FEDEX –is one of the biggest logistics and courier service companies in the world
today. In 1986 FEDEX began investment in network improvements to gain
competitive advantage (Huttenlocher, 2004). Although the network improvements
improved speed and efficiency of communication, the network improvements alone
did not create the advantage. The Information Systems connected to the network
together with other Supply chain strategies improved the package handling and
tracking process. This removed the need for customers to rely upon telephone
enquiry systems to track their cargo. The power shifted toward the customer
tracking their own cargo by using a web-enabled front end to the FEDEX information
systems. At the time, this facility was new to the industry and so created the
following competitive advantages:

● 1986 – handheld scanner recorded every movement of a package,

● Electronic records, lowered costs, provided more information,
● Increased information gave customers more control,
● Increased access to information – Internet – increased customer base,
● 1994 – first web site to enable customers to track status of their cargo,
● Tracking becomes a major “value” to consumers.

Information about the package is important to consumers. Providing that information

across an easy to use interface creates a competitive advantage.

The increased transparency of the process pushed for continued improvement in its
business process and customer service, which led to the establishment another
competitive advantage. It led FEDEX to discover its lapses and inefficiencies which
were strategically eliminated and the company refocused for excellent customer
service. The inventory holding cost as well as cost of transportation was reduced
which also transcended to the customers in form of lower service costs.

6.0 Conclusion
The four companies examined in this write-up have their Supply Chains re-
engineered for cost reduction, agility and overall increased operational efficiency.
Their Supplier relationships are strongly characterized by strong strategic alliances
fuelled by technologies like EDI, B2B internet systems, extranets and direct access to
real time sales and forecast data. These alongside the other strategies listed have
created value for their customers whilst giving them strong competitive advantage
over their competitors. It is therefore obvious that competitive advantage can be
achieved and maintained by any organization using an effective supply chain
management.

References
Barney, J.B. (1991) Firm Resources and Sustained competitive Advantage, Journal of
management, Vol. 17, No. 1, pp. 99-120
Bocij, Paul, Chaffey, David, Greasley Andrew and Hickie, Simon, (2003),
“Business Information Systems. Technology, Development and Management
for the e-business. Second Edition”, FT Prentice Hall, Pearson Education
Limited 2003.
Christoper, M., (1992) Logistics and Supply Chain Management, Pearson education
limited.
Christoper, M., (2005) Logistics and Supply Chain Management. Pearson education
limited.
Flint, D.J. (2004) Strategic marketing in global supply chains: Four challenges,
Industrial Marketing management, Vol.33, pp. 45-50
Hammant (1995) p32.
Hammant, J. (1995) “Information technology trends in logistics”, Logistics
Information management, Vol. 8 No. 6, pp32-37.
Huttenlocher, D. (2004), “Differentiating IT” Department of Computer Science,
Cornell University. URL:
Ketchen, D.J.Jr & Giunipero, L.C. (2004) The intersection of strategic management
and supply chain management, Industrial marketing management, Vol. 33, pp. 51-56
Lumsden, K. (19198) Logistikens Grunder, Studentlitteratur, Lund
Martin, J.H. & Grbac, B. (2003) Using supply chain management to leverage a firm’s
market orientation, Industrial marketing management, Vol. 32, pp.25-38
Porter, M. (1985) Competitive Advantage, The Free Press, new York
Rungtunsanatham, M & Co.(2003) Supply chain linkages and operational
performance: A resource-based-view perspective, International Journal of operations
& Procustion management, Vol. 23, No. 9, pp. 1084-1099