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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 How supply chain management can provide competitive advantage. Error! Bookmark not

defined. 1.1 Introduction .......................................................................................................................... 2 1.2 What is Competitive Advantage?......................................................................................... 2 1.3 What is Supply Chain Management? .................................................................................. 3 1.3.1 Supply Chain Management and Competitive Advantage .................................................... 3 1.4 Different Strategies for Supply Chain Management ............................................................ 3 1.4.1 Lean Supply Chain (LSC) .................................................................................................... 4 1.4.2 The Agile Supply Chain (ASC) ............................................................................................ 4 1.4.3 Leagile Supply Chain ........................................................................................................... 5 1.5 Information Technology and Supply Chain Management. .................................................. 5 1.5.1 Information Technology Examples ...................................................................................... 6 1.6 Conclusion ........................................................................................................................... 6 2 Responsiveness and supply chain agility. . ................... Error! Bookmark not defined. 2.1 Introduction .......................................................................................................................... 7 2.2 Supply Chain Strategies and Responsiveness .................................................................... 7 2.3 What is Responsive Supply Chain....................................................................................... 7 2.4 How to Improve Supply Chain Responsiveness .................................................................. 8 2.4.1 Lean Supply Chain (LSC) .................................................................................................... 8 2.4.2 Agile Supply Chain (ASC) .................................................................................................... 8 2.5 Conclusion ........................................................................................................................... 9 3 References ......................................................................................................................... 10

1 How supply chain management can provide competitive advantage.

1.1 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 resource-

based 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).

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

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

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).

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

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

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 Responsiveness and supply chain agility.

2.1 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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