Supply chain management is a critical function at any business that involves production, distribution, or inventory management. But being a critical function does not make it strategic in the traditional Michael Porter definition of providing a unique, valuable and sustainable competitive advantage.
So, how can the supply chain management function elevate itself to that of a strategic function that provides the critical capabilities that deliver sustainable advantages?
Critical Supply Chain Linkages
Over the last few months I have discussed the World Economic Forum’s Global Competitiveness Index and its usefulness as a maturity model for supply chain progression. This index includes Innovation as a critical pillar of competitiveness for those that strive to compete at the highest levels. I also recently discussed how Diageo has transformed its supply chain from a cost savings function to an enabler of growth-driving innovation. As part of this transformation, Diageo brought back in house some production that was previously sent out to partners. This move was done in a business environment where companies are keeping in house what is considered strategic (typically product design and marketing) and outsourcing what is considered to be non-strategic (often manufacturing). Diageo’s move was in contrast to the current trend. But why? It occurred to me that Diageo considered this production function, and supply chain overall, to be strategic to its competitive advantage in the marketplace. So this example illustrates the first means by which supply chain can remain strategic to business.
Linkages to Product Design and Introduction: Through critical linkages to product innovation and delivery, supply chain at Diageo contributes to the company’s sustainable competitive advantage.
As I stated above, in today’s business environment, companies typically keep the product design and marketing functions in house. The marketing function is critical to businesses due to its role in communications and connectivity with buyers in the market. And the ability to better understand customers in an effort to meet their needs and expectations is a critical capability in today’s marketplace. This can be seen in the burgeoning business of big data. My colleague David White previously wrote about Hadoop and its role in marketing and demand management functions. He stated the following
“marketers use Hadoop to improve their understanding of customers and prospects, and their ability to sell them the right product, at the right time, using the right channel.”
The e-commerce channel is rich with opportunities for retail channels to use demand data to differentiate themselves through personalization and convenience. Amazon can suggest products based on one’s own browsing history. And clothing retailers can suggest complementary products (think accessories that match clothing) based on other consumers’ purchase history. But e-commerce must be supported by timely and convenient logistics. Furthermore, brick and mortar retailers are responding with omni-channel initiatives that provide additional convenience and choice to customers. These examples illustrate the second means by which supply chains can remain strategic to business.
Linkages to customer expectations, convenience, and customer service: Through critical linkages to demand, customer outreach, and customer service, retail supply chains contribute to the differentiating factors of personalization, convenience and customer service.
The activities performed within a supply chain are critical to the effective operation of a business. Furthermore, unique linkages between distinct supply chain activities offer opportunity for competitive advantages. However, linkages between supply chain activities and the critical functions of product design and delivery and/or linkages with customer service and meeting customer expectations offer ripe opportunities for supply chains to contribute to strategic advantage in today’s dynamic marketplace.